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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 
 FORM 10-KSB/A-1 
   (Mark One) x
    
    Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934For the fiscal year ended March 31, 2004, oro
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from
 toCommission file number 0-49939
   DICON FIBEROPTICS, INC.  California
(State or Other Jurisdiction of
Incorporation or Organization)
    
    
    
    94-3006185
(IRS Employer
Identification No.)
 1689 Regatta Blvd.Richmond, California
    
    94804(Address of Principal Executive Offices)
    
    (Zip Code)
 (510) 620-5000
(Registrants Telephone Number, Including Area Code)   Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common
Stock, no par value Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes x   No o Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to this Form 10-KSB.    x




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Issuers revenue for its most recent fiscal year ended March 31, 2004, was
$18,657,626. The issuers common stock is not traded on any market and accordingly no
aggregate market value for the stock held by non-affiliates can be computed. The number of shares of the issuers common stock outstanding as of March
31, 2004, was 111,992,125. DOCUMENTS INCORPORATED BY REFERENCE None




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The independent auditor has
advised the registrant that it had not completed its audit
procedures, issued its audit report and had not consented to the
filing of the Form 10-KSB on June 29, 2004. The independent
auditor issued its audit report on June 30, 2004. The registrant
disagrees with the independent auditor. It is the view of the
registrant that the independent auditor had issued its audit report
and had consented to the filing of the Form 10-KSB on
June 29, 2004. Nonetheless, the registrant has agreed to the
filing of this Form 10-KSB/A-1. There have been no changes in the audit report (other than the date of the report) or in the financial statements.






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Table of Contents PART IItem 1.
    
    Description of Business.Item 2.
    
    Description of Property.Item 3.
    
    Legal Proceedings.Item 4.
    
    Submission of Matters to a Vote of Security Holders.PART IIItem 5.
    
    Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.Item 6.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations.Item 7.
    
    Financial Statements.Item 8.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.Item 8A.
    
    Controls and Procedures.PART IIIItem 9.
    
    Directors and Executive Officers of the Registrant.Item 10.
    
    Executive Compensation.Item 11.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Item 12.
    
    Certain Relationships and Related Transactions.Item 13.
    
    Exhibits and Reports on Form 8-K.Item 14.
    
    Principal Accountant Fees and Services.Signatures.Exhibit Index.Exhibit 23.2EX-31.1EX-31.2EX-32.1EX-32.2
 - 3 -




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PART I 
 Item 1. Description of Business. This annual report contains forward-looking statements, within the meaning
of the Securities Exchange Act of 1934 and the Securities Act of 1933, that
involve risks and uncertainties. In some cases, forward-looking statements are
identified by words such as believe, anticipate, expect, intend,
plan, will, may and similar expressions. You should not place undue
reliance on these forward-looking statements, which speak only as of the date
of this report. All of these forward-looking statements are based on
information available to DiCon Fiberoptics, Inc. (DiCon or the Company) at
this time, and DiCon assumes no obligation to update any of these statements.
Actual results could differ from those projected in these forward-looking
statements as a result of many factors, including those identified in the
section titled Risk Factors below, Managements Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere. Please review
and consider the various disclosures made by DiCon in this report, and those
detailed from time to time in DiCons filings with the Securities and Exchange
Commission, that attempt to advise you of the risks and factors that may affect
DiCons future results.  (a)
    
    Introduction. DiCon Fiberoptics, Inc. (DiCon or the Company) was incorporated in
California in 1986. DiCon designs and manufactures passive components,
modules, MEMS products, and test instruments for the fiberoptic communications
industry. DiCon conducts research, development, manufacturing, and marketing
at its headquarters in Richmond, California. DiCon, through Global Fiberoptics
Inc. (Global), its wholly owned Taiwanese subsidiary formed in 1999, also
operates a manufacturing and sales facility in Kaohsiung, Taiwan. DiCons
website address is http://www.diconfiber.com.  (b)
    
    Description of Business.  1.
    
    Optical Communications Industry Background. During the 1990s, the rapid escalation of voice traffic around the world,
compounded by the proliferation of the Internet and the growing use of video
and data transmission, created an urgent need for the expansion of existing
communication capacity or bandwidth. In addition, deregulation of the
telecommunications industry created heightened consumer demand for improvement
in transmission quality. Communication service providers could not respond to the challenge with
existing technology. The prevalent copper-wire circuit-switched networks,
built to satisfy steady low-bandwidth voice traffic, could not adequately
accommodate the additional requirements for signal transmission, which is
characterized by large, relatively short-duration bursts of signals followed by
relatively long periods of silence, and video, which is characterized by a
sustained flow of vacillating data bursts with high bandwidth requirements.
Communication service providers turned to optical communication for a
cost-effective solution satisfying the need for more bandwidth, coupled with an
increased demand for improved clarity, flexibility, scalability, and operating
performance in transmitted signals. Optical communication is carried out by light-based signals, which
transmit digitized information through a fiberoptic cable, a conduit of bundled
glass fibers. Optical systems convert electrical signals generated by voice,
data and video sources into specific wavelengths of laser-generated light,
which carries the information through an optical network to its final
destination where the optical signal is re-converted back to its original mode.
Using multiplexing,a process which allows numerous wavelength channels to be
aggregated onto a single optical fiber as a composite optical signal, the
optical network can simultaneously, efficiently and with little external
interference, transmit multitudes of optical signals. The multiplexing process
enables the network system to transmit large bandwidths of information from
variable sources, thus eliminating the need for bulky multi-cable copper-wired
systems. The optical network can efficiently clean, amplify, isolate, and
route optical signals to achieve high bandwidth communication capability
without compromising transmission quality. - 4 -




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2.
    
    Optical Networking Industry. The fiberoptic communications has a three-layer networking hierarchy:
service providers or carriers, Network Equipment Manufacturers (NEMs) and
Optical Component Manufacturers (OCMs).Carriers are communication companies
that own optical networks and provide communication services to their
customers. In the United States, the principal carriers are AT&T, MCI, Sprint,
BellSouth, Verizon, SBC Communications, and Qwest. Outside the United States,
significant carriers include Deutsche Telekom, British Telecom, and France
Telecom. The carriers rely on NEMs who design, build and sell fiberoptic equipment
that powers the optical networks. The NEMs in turn rely on the OCMs who
produce individual components or modules to be integrated into the optical
network.  3.
    
    Market Conditions. After experiencing steady growth since the mid-1980s, demand for
telecommunications equipment accelerated rapidly in the late 1990s and reached
its peak in 2000. Increasing telecom revenues also spurred a rapid growth in
equipment production, which by the end of the decade outpaced demand resulting
in a build-up of telecom equipment inventories. The inventories reached their
peak in early 2001. Subsequently, the demand for new equipment has fallen
substantially due in part to telecommunications overcapacity, an overall
economic slowdown, and the excessive debt load of the service providers, who
had fewer capital resources to spend on infrastructure projects. The rapid increase and subsequent decrease in capital equipment spending
resulted in a corresponding pattern of growth and decline in the NEMs and the
OCMs revenues and earnings. Future telecom equipment demand will depend on a
range of factors, including: Demand for bandwidth Financial condition of the carriers Successful development of new smaller and cost-efficient optical networks Degree of industry rationalization across the optical networking hierarchy Extent of penetration of competing technologies such as wireless
communication  4.
    
    DiCon and its Business. Optical components are broadly divided into two categories: activeand
passive. Active components are used in optical networks to generate, amplify
and convert an optical signal. Transmitters, amplifiers and receivers are
active components. Passive components are used to guide, mix, filter, route,
adjust and stabilize optical signals transmitted through an optical network
without the need for power generation. DiCon is a major OCM involved in the
production of passive components and related value-added products, including
optical network test and measurement devices, and cost effective modules and
hybrids which combine several discrete components into an electronic operating
unit. DiCons business has no distinct seasonality. Upon its formation in 1986, DiCon developed and began marketing its
first-generation mechanical switch and in 1990 produced a range of test and
measurement devices based on that technology. In 1992, DiCon started
developing new dielectric thin-film-based components, which could multiplex and
de-multiplex (aggregate and de-aggregate) optical signals onto an optical
fiber. Beginning in 1996, the Company used its innovative thin-film technology to
manufacture a broad range of products such as low-loss Wavelength Division
Multiplexers (WDMs) and De-multiplexersto combine and divide optical signals
of different wavelengths; Gain Flattening Filters(GFFs") designed to equalize
the energy content of different wavelengths(channels) ahead of optical
amplifiers; and isolatorsused to ensure unidirectional flow of optical
signals. DiCon also leveraged its success in the application of the new
thin-film technology to manufacture a series of advanced measurement and
testing devices. - 5 -




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In 2000, DiCon began production of modules and hybrids, which combined
several components into cost-effective units. NEMs welcomed this new line of
products as they faced increasing pressure from the carriers to achieve
substantial capital and operating cost reduction. Recently introduced
Tap/Isolator/Pump/Coupler, Reconfigurable Optical Add/Drop Multiplexer
(ROADM), Variable Optical Attenuator (VOA)and MUX/DMUX are just a few
examples of DiCons value-added modular products that have gained wide
acceptance by major NEMs. DiCons modular products also include its highly sophisticated Micro
Electro-Mechanical Systems (MEMS)switch, which the Company developed
internally and began marketing in 2001. DiCons current MEMS product line
includes advanced products such as MEMS VOA, MEMS 1x2 and 1x4 switches as well
as MEMS Tap/VOA and WDM/MEMS VOA hybrids. DiCon continues to invest in new technology with substantial commercial
application potential. It is currently developing integrated photonic
electronic circuits, which are designed to miniaturize optical network
elements, making them cheaper to build and operate.  5.
    
    Products. DiCons current line of products is broadly divided into two categories:
WDMs and Switches. The WDM line includes Dense Wave Division Multiplexers
(DWDMs), amplifier components, power splitting and monitoring devices and
some integrated modules and hybrids. The Switch line includes MEMS products,
motorized attenuators for path switching and power control, components and
measurement instruments.  6.
    
    Revenue Breakdown. DiCons revenue breakdown over the last three fiscal years (FY) has been
as follows: FY Ended
    
    FY Ended
    
    FY EndedProductLine
    
    March 31, 2004
    
    March 31, 2003
    
    March 31, 2002WDM
    
    
    56
    %
    
    
    50
    %
    
    
    60
    %Switch
    
    
    44
    %
    
    
    50
    %
    
    
    40
    %
  7.
    
    Marketing and Distribution. DiCons marketing activities are conducted primarily by its sales force
located at the corporate headquarters in Richmond, California. DiCon focuses
its direct sales efforts on major optical systems manufacturers worldwide.
Besides two distributors located in France and Italy, DiCon also has sales
account managers and field application engineers in Europe and Canada to
provide more expedient service and support to its North American, Canadian and
European customers. DiCon markets its products in Asia through Global, located
in Kaohsiung, Taiwan. DiCons direct sales force works closely with each
customers design group and in-house design engineers to resolve technical
issues and provide dynamic design-in support.  8.
    
    Customers. In the year ended March 31, 2004, DiCon had a broad customer base
consisting of over 200 accounts, including major NEMs such as ALCATEL, Cisco
Systems, Bookham Technology, Marconi, Nortel Networks and Tellabs. Despite the
number of customers that DiCon had, there are a limited number of very large
customers that account for the majority of purchases in the industry worldwide.
The Companys three largest customers accounted for approximately 45.7% during
the fiscal year ended March 31, 2004.  9.
    
    Back Orders and Payments Terms. DiCons back orders, which represents the aggregate of the sales price of
orders received from customers but not yet recognized as revenue, were
approximately $2.3 million and $1.9 million as of March 31, 2004 and 2003,
respectively. Currently, the Company is quoting lead times of three to four
weeks for delivery of most of its products. Back orders are subject to
possible changes by customers related to quantities of ordered products, their
specification and delivery dates. While DiCon believes that its back orders
are firm, there are certain circumstances under which orders may be cancelled
by the customer. DiCon also may elect to permit cancellation of orders without
penalty where management believes it is in the Companys best long-term
interest to do so. Considering that DiCons back orders are small in relation
to its revenue, they are not expected to have a material impact on the
Companys future financial performance. - 6 -




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DiCon does not provide extended payment terms to its customers and does
not carry significant amounts of finished goods for its customers.  10.
    
    Inventory. DiCons inventory consists mainly of raw material and work in process. Beginning in January 2001, as the industry entered its downturn and
consolidation phase, various customers cancelled existing orders. In some
cases, DiCon was able to recover a portion of its costs through subsequent
transactions with these customers. However, the Company also incurred costs
associated with obsolete inventory and cancelled orders. For the year ended
March 31, 2004, DiCon wrote off approximately $1.1 million of obsolete
inventory and wrote down to fair value an additional $1.1 million of inventory
as compared to $4.1 million in total in the prior year. The Company assesses
its inventory position on a monthly and quarterly basis based on its then
current forecasts. DiCon attempts to mitigate the impact of such corrections
by maintaining close, proactive relationships with its major customers to
obtain as much information about each customers needs as possible.  11.
    
    Sources and Availability of Raw Materials. DiCon has no critical raw materials available only from a single supplier.  12.
    
    Research and Development. Since its formation, DiCon has been active in the development of new,
commercially viable technologies. As of March 31, 2004, the Company had 25
patents granted in the United States. In order to achieve its position in the
marketplace, DiCon spends a substantial proportion of its financial resources
on research and development (R&D). These expenditures are expensed as
incurred. During the last three fiscal years, DiCons R&D expenses were as
follows: FY Ended
    
    FY Ended
    
    FY EndedMarch 31, 2004
    
    March 31, 2003
    
    March 31, 2002Total Amount (000s)
    
    $
    6,516
    
    
    $
    13,178
    
    
    $
    16,659Percentage of Net
Sales
    
    
    34.9
    %
    
    
    63.6
    %
    
    
    23.6
    %
  13.
    
    Competition. The markets in which DiCon sells its products are highly competitive. The
Companys overall competitive position depends on a number of factors,
including: Product features, specifications and reliability Strength of customer relationships Breadth of product lines Delivery times and manufacturing capacity Selling price Timing of new product introduction DiCon believes that its principal competitors are passive optical
component manufacturers such as JDS Uniphase, Avanex (including the optical
components business formerly owned by Corning) and Finisar, as well as the
internal manufacturing divisions of some of its large customers.  14.
    
    Employment. As of March 31, 2004, DiCon had 195 employees in the US and Global had 148
employees in Taiwan. - 7 -




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15.
    
    Financial Information by Geographic Areas. DiCon sold its products to customers within and outside the United States
as indicated below: FY Ended
    
    FY Ended
    
    FY EndedRevenues(in 000s)
    
    March 31, 2004
    
    March 31, 2003
    
    March 31, 2002Within the US
    
    $
    7,583
    
    
    $
    13,671
    
    
    $
    46,313Outside the US
    
    
    11,075
    
    
    
    7,064
    
    
    
    24,300Total
    
    $
    18,658
    
    
    $
    20,735
    
    
    $
    70,613
 The majority of the Companys long-lived assets are located in the United
States. Long-lived assets consist primarily of long-term investment property,
plant, and equipment, net of accumulated depreciation and deposits. The
following represents the geographic location of long-lived assets: Amounts(in 000s)
    
    March 31, 2004
    
    March 31, 2003
    
    March 31, 2002Within the US
    
    $
    47,865
    
    
    $
    56,532
    
    
    $
    65,174Outside the US
    
    
    10,949
    
    
    
    12,278
    
    
    
    13,322Total
    
    $
    58,814
    
    
    $
    68,810
    
    
    $
    78,496
  16.
    
    Protection of the Environment. DiCons compliance with federal, state and local provisions regulating the
discharge of materials into the environment does not and is not expected to
have a material effect on the Companys capital expenditures, earnings and
competitive position.  (c)
    
    Risk Factors. Any investment in DiCons common stock involves a high degree of risk.
The risks and uncertainties described below are not the only ones the Company
faces. Additional risks and uncertainties not presently known to the Company
or that it currently considers immaterial may also adversely affect its
business. DiCons business condition, operations and prospects could be
materially harmed by any of the following risks. Risks Related to Fiberoptics Industry DiCon is currently losing money, and DiCons future return to
profitability requires growth in the demand for fiberoptic networks and
additional capital spending by the service providers. DiCons primary business is to manufacture and sell components used in
optical networking equipment. The sale of optical networking equipment depends
not only on consumer demand for access but also on service providers ability
to raise capital required to pay for the networks. After a period of over
expansion by the service providers, almost all of the service providers
worldwide have substantially reduced capital expenditures to allow excess
capacity to be absorbed by the continuing growth in traffic, and for the
service providers to restore their financial strength. This has resulted in a
severe and unprecedented decline in demand for optical components supplied by
DiCon and its competitors. DiCon has incurred net losses over the past three
years due to these market conditions. Limits to the continued growth of
traffic on the networks or to the carriers ability to restore their financial
strength may restrict the market for DiCons components and for those of
DiCons competitors. Furthermore, DiCon may not be able to reduce costs
sufficiently at present levels of sales to return to profitability. If the
market does not recover at some point in the future, DiCon may not be able to
return to profitability and may suffer material adverse effects on its business
condition, operations and prospects. DiCon faces increasing competition in the fiberoptics markets that could
adversely affect its revenues and gross margins, or cause it to lose market
share. - 8 -




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Several of DiCons larger customers also design and manufacture components
similar to those the Company provides to them. It is possible that these
customers will favor their own products over DiCons for their internal needs
or compete with DiCon for sales to other customers. In the past decade, strong demand for fiberoptics components by equipment
manufacturers has encouraged a large number of new companies to compete with
established components providers such as DiCon. The entry of these new
competitors was facilitated by the fundamental changes in technology needed to
produce many components as the desired characteristics of the components
evolve. Such new technologies can eliminate the technological advantages of
incumbent suppliers. In addition, before the downturn, the enthusiasm of
investors for manufacturers of optical equipment for communications facilitated
the access of considerable funds to many start-ups, which allows them to set
pricing below manufacturing costs to gain market share as they try to gain a
foothold in the industry. As a result, today there is a severe over capacity
in the industry to produce components. This competition could adversely impact
the Companys future revenues and gross margins. The price of optical networking components declines steadily after their
introduction. These decreases may cause a decline in DiCons revenues and
gross margins. The optical networking equipment industry continues to experience
declining average selling prices as a result of greater competition and a
significant reduction in spending for infrastructure projects. DiCon
anticipates that average selling prices will continue to decrease in the future
in response to product introductions by competitors and price pressures from
large customers. Unless DiCon is able to reduce its costs, these decreases
will contribute to a decline in DiCons total revenues and gross margins, which
would adversely affect its results of operations. Risks Related to the Companys Business DiCon faces challenges in remaining technologically competitive, hiring
and managing qualified personnel, and planning for the future. The continued competitiveness of DiCon requires the successful design and
manufacture of an ever increasing number of different components, either
because new functions are sought or because the evolving specifications of
existing components require changes in product design and manufacturing
methods. Often these new products require the mastery of entirely new
materials and processes as well as the integration of different types of
technologies. While DiCon remains a privately held corporation, many of its
larger competitors are publicly traded and therefore may have greater access to
capital to acquire new technologies and equipment. This may weaken DiCons
competitive position. DiCons need to develop innovative new products requires that DiCon be
able to attract and retain a sufficient number of specially qualified engineers
and hire, train, and retain workers who are adept in various optical component
manufacturing processes. DiCon faces other challenges in managing its business. These challenges
include the effective management of manufacturing facilities both in the U.S.
and Taiwan, successful design and timely introduction of new products to the
market, strategic investments in research and development including material
processing and engineering core technologies, expansion of sales to different
geographical areas and acquiring new customers, and aggressively pursuing new
design-in opportunities. Failure to meet these challenges in any single area
may impact the Companys future operating results. DiCon depends on a small number of large customers for a significant
portion of its revenues. The loss of, or a significant reduction in, sales to
these customers may adversely affect its revenues and operating results. While the mix of these leading customers changes over time, the dominance
of a few network equipment providers in their markets and DiCons success in
securing significant sales to them imply that an important fraction of DiCons
revenues will continue to come from a relatively small number of customers.
Any further severe reduction in sales to one of these customers could adversely
affect DiCons revenues and cash flow. Although the Company has not suffered material credit losses to date, it
may do so in the future. The telecommunications industry continues to undergo downsizing. These
changes may result in a lack of liquidity or bankruptcy of some of DiCons
customers during this period of market adjustment. If one or more of these
significant customers were - 9 -




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to experience financial difficulties, or a significant number of smaller
customers were to do so, revenues and operating activities of the Company would
be adversely impacted. DiCon depends on key personnel to manage its business effectively in a
rapidly changing market and if the Company is unable to retain these personnel,
its ability to develop, manufacture and market its products could be harmed. DiCons future success depends on the continued services of its executive
officers, particularly Dr. Ho-Shang Lee, and other key personnel. None of
these employees are bound by an employment agreement for any specific term and
these personnel may terminate their employment at any time. In addition, DiCon
does not maintain key person life insurance on any of its employees. Any
loss of key personnel may adversely affect DiCons operations. Although the Company is investing in research and development activities
for the development of future products, these products may never make it to
commercial production. DiCon may fail to commercialize new product lines,
which would adversely affect its revenues and results of operations. These future products may never make it to commercial production due to: changes in customer demand; technological developments that make these products less competitive; evolving industry standards; allocation of its limited resources to other products or technologies; or lack of sufficient funding. If DiCon incurs significant expenses developing products that it does not
produce commercially, or if it selects the wrong products or technologies for
commercial production, its revenues and results of operations, business
conditions and prospects could be adversely affected. Sales of DiCons products are subject to cancellation or deferment. Many of the Companys customers purchase its products under individual
purchase orders and may cancel or defer purchases on short notice without
significant penalty. Decreases in purchases, cancellations of purchase orders
or deferrals of purchases may have a material adverse effect on the Companys
financial condition and results of operations. From time to time the Company acquires raw materials in anticipation of
future orders from existing customers in order to meet anticipated delivery
requirements of those customers. Some of these materials may be unique to
those customers and such orders may not materialize, or may not materialize in
the quantity or at the time anticipated. The Company may therefore incur
certain costs associated with excess raw materials from time to time. DiCon may have difficulty securing additional or adequate funds and loans
for operating and capital needs. DiCon expects to finance its operations through current balances of liquid
assets, internally generated funds, short or long-term borrowings from banks or
other sources, potential additional equity issuances involving common or
preferred stock, or a combination of these sources. DiCon is currently
unprofitable. Therefore, DiCon cannot be sure that it will be able to secure
funding from any of the above-referenced sources or, even if secured, that the
proceeds will be sufficient to meet its operating and capital requirements. If
adequate funds are not available, DiCon may not be able to execute its business
plans and its ability to compete effectively may be substantially diminished.
This would have material adverse consequences to DiCon and its shareholders. Furthermore, incremental borrowings will subject DiCon to additional
risks, including the potential consequences of failing to make required
payments or to comply with affirmative or negative covenants. Interest
payments associated with any borrowings will reduce earnings and the amount of
internally generated funds available for capital requirements. Issuance of additional equity securities may result in dilution of
existing stockholders interest in DiCon. Issuance of any preferred class of
equity may also give rise to additional risks comparable to those associated
with borrowings as described above. - 10 -




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The Companys headquarters in Richmond, California, is financed with a
mortgage loan with a balloon payment due in November 2004. On
June 28, 2004,
the bank agreed to extend the maturity date of the mortgage loan to October 20,
2007, subject to additional terms and conditions. The Company expects to
refinance the mortgage loan at that time. It may not be possible to do so,
especially if the Company continues to be unprofitable. If the Company cannot
refinance the mortgage loan, it may suffer substantial economic loss or be
forced to take dramatic measures to trim back expenses. 
 If DiCon does not maintain acceptable manufacturing yields, product
delivery schedules and product reliability, its operating results could suffer. The manufacture of DiCons products involves highly complex and precise
processes, requiring production in highly controlled and clean environments.
Changes in the Companys manufacturing processes or those of its suppliers
could significantly reduce the Companys manufacturing yields and increase
product liability exposure. Because the majority of DiCons manufacturing
costs are relatively fixed, manufacturing yields are critical to the Companys
results of operations. Lower than expected production yields could delay
product shipments and impact gross margins. DiCons products are complex and new products may take longer to develop
than originally anticipated. If the Company does not introduce new products in
a timely manner, it will not obtain incremental revenues from these products or
be able to replace more mature products with declining revenues or gross
margins. In order to adjust to declining demands for its products, the Company has
made continuous efforts to reduce its workforce and trim back its operating
expenses. If the Company is not successful in managing the necessary changes
in its processes to adjust for the loss of this workforce, its manufacturing
yields, product delivery schedules and/or product reliability could suffer. The Companys operations could be disrupted by natural disasters that
would seriously harm its operations. The Companys facilities are susceptible to damage from natural disasters
such as earthquakes and typhoons as well as from fire, floods, loss of power or
water supply, telecommunications failures and similar events. Its research and
development activities, manufacturing facilities, corporate headquarters and
other critical business operations are located in California and Taiwan. Any
loss of its facilities could disrupt its operations, delay production and
shipments and result in significant expense to repair or rebuild its
facilities. DiCon may incur costs and experience disruptions complying with
environmental regulations. The Company handles minor amounts of hazardous materials as part of its
manufacturing activities. Although DiCon believes that it has complied with
all applicable environmental regulations in connection with its operations, it
may be required to incur environmental remediation costs to comply with current
or future environmental laws. Risks Related to Intellectual Property DiCon may become involved in intellectual property disputes and litigation
that could subject it to litigation, divert time and attention of its
management and prevent it from selling its products, which could adversely
affect its business and operating activities. DiCon may from time to time become involved in various lawsuits and legal
proceedings concerning invasion of intellectual property, including patents.
These disputes are protracted and expensive when they occur and their outcome
is unpredictable. The Company intends to protect its intellectual property
aggressively and from time to time it may file lawsuits against parties that it
believes are infringing its intellectual property rights. Even if favorable
results are obtained, any litigation that the Company initiates, or to which it
is subject, could result in significant expenses for DiCon and require
significant involvement of its senior management. It may divert managements
attention from its business and operations and could subject the Company to
counterclaims. Litigation is subject to inherent uncertainties, and adverse
results may negatively affect DiCons operating results, financial condition or
reputation. - 11 -




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It is possible, based in part on the size and sophistication of the
Companys competitors and the history of rapid technological advances in its
industry, that several competitors may have patent applications in progress in
the United States or in foreign countries that, if issued, could relate to the
technologies or processes used in DiCons products. If such patents were to be
issued, the patent holders or licensees may assert infringement claims against
DiCon or claim that the Company has violated other intellectual property
rights. In addition, DiCon may have failed to discover existing domestic or
international patents that could apply to its product design or manufacturing
process. These claims and any resulting lawsuits, regardless of their merits,
could be time consuming and expensive to resolve and would divert management
time and attention. If DiCon is unsuccessful in defending a lawsuit, it could
be forced to do one or more of the following, any of which could adversely
affect its business: stop selling, incorporating or using its products that use the disputed
intellectual property; obtain from third parties a license to sell or use the disputed
technology, which license may not be available on reasonable terms,
or
at all; or redesign its products that use the disputed intellectual property. DiCon may not be able to protect its proprietary technology, which could
adversely affect its ability to generate revenues. DiCon regards substantial elements of its technology as proprietary and
attempts to protect these elements by relying on patent, trademark, service
mark, copyright and trade secret laws. It cannot be certain that its pending
patent applications will be approved, that any patents that may be issued will
protect its intellectual property or that any issued patents will not be
challenged by third parties. Other parties may independently develop similar
or competing technology or design around patents that may be issued to DiCon.
Additionally, the Company cannot be certain that the steps it has taken will
prevent the misappropriation of its intellectual property, particularly in
foreign countries where the laws may not protect the Companys proprietary
rights as fully as in the United States. Such misappropriations could
adversely affect the Companys business and its ability to generate revenues. Necessary licenses of third-party technology may not be available to the
Company or may be very expensive, which could adversely affect DiCons ability
to develop, manufacture and sell new products or product enhancements. While the Company to date has not been required to license technology from
third parties to manufacture its products, it may in the future introduce new
products or product enhancements that require such licenses. The Company
cannot be certain that third-party licenses will be available to it on
commercially reasonable terms, or at all. The inability to obtain third-party
licenses required to develop new products and product enhancements could
require the Company to obtain substitute technology of lower quality or
performance standards or at greater cost, which in either case could adversely
affect its ability to develop, manufacture and sell these products. Risks Related to DiCon Common Stock DiCon may remain a private company, which could adversely affect the value
of its common stock. There is no public market for DiCons common stock. Accordingly,
shareholders should be prepared to hold their investment in a private company
with no liquidity. Unless DiCon becomes a publicly traded company at some
future date, the marketability of its common stock is extremely limited and
governed by the terms of the Buy-Sell Agreement. There will be state and federal securities law restrictions on transfer of
the common stock. The Companys common stock has not been registered under the Securities
Act of 1933 or any state securities laws and, unless so registered, may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act of 1933 and
applicable state securities laws. The preparation of the Companys consolidated financial statements
requires estimates and judgments by management of the Company. Actual results
may differ from these estimates which could impact operating results. - 12 -




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The consolidated financial statements of the Company contain estimates
associated with reserves and allowances that are based on managements judgment
at the time of preparation of the consolidated financial statements. These
reserves and allowances could differ from those estimated by management based
on actual results that could negatively impact the Companys operating results
in future periods. Accounts affected by these estimates include estimates for losses on future rent
(for buildings abandoned by the Company for which it is obligated under long
term leases) and allowances for bad debt. The Company also reported a
valuation allowance for deferred tax assets due to the reduction in the
Companys forecasts of future taxable income. DiCon is controlled by certain shareholders who could delay or prevent a
change in its corporate control. Management and director shareholders beneficially own a majority of the
outstanding shares of DiCons common stock. Accordingly, management has
effective control of DiCon, with the ability to approve certain fundamental
corporate transactions, including mergers, consolidations and sales of assets,
public offerings and to elect a majority of its Board of Directors. 
 Item 2. Description of Property. In 2001, DiCon moved from its leased facilities in Berkeley,
California, to its new facility in Richmond, California. DiCon conducts
its research, development, manufacturing and direct marketing operations at its
headquarters in Richmond, California. DiCon owns this 200,000 square-foot
headquarter facility in Richmond which is located on a 28-acre parcel of land. DiCon, through its subsidiary, Global, also operates a manufacturing and
sales facility in Kaohsiung, Taiwan. Global owns the 88,000 square-foot
facility. This facility consists of two floors in a seven-story building. The
facility is located in an industrial park on land leased from the Government of
Taiwan. The existing 10-year land lease expires in 2011, and is renewable.
The annual rental is 5% of the prorata share of the value of the land. Certain of the leased properties were no longer used for operating purposes and
are available for sublease. As of March 31, 2004, the reserve for future
lease expenses, net of expected sublease income, is $0.25 million, and is included
in accounts payable and accrued liabilities in the Consolidated Balance Sheets. As of March 31, 2004, DiCons future (gross) commitments under all leases
are as follows: Fiscal Year Ending March 31,
    
    (000s)2005
    
    $
    4092006
    
    
    1992007
    
    
    222008
    
    
    22Thereafter
    
    
    57$
    709
 
 Item 3. Legal Proceedings. DiCon is not a party to any material pending legal proceedings, other than
ordinary routine litigation incidental to its business. 
 Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of DiCons security holders during the
fourth quarter of the fiscal year ended March 31, 2004. 
 PART II 
 Item 5. Market for Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.  (a)
    
    Market Information. - 13 -




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There is no established public trading market for DiCon common stock. In
the absence of a public market, the fair value of DiCon common stock is
determined by DiCons Board of Directors.  (b)
    
    Holders.There are approximately 388 holders of DiCon common stock as of March 31,
2004.(c)
    
    Dividends. DiCon did not declare a dividend on its common stock during the fiscal
years ended March 31, 2003, or March 31, 2004, or in any subsequent period for
which financial information is required.  (d)
    
    Securities Authorized for Issuance Under Equity Compensation Plans. Equity Compensation Plan Information (c)Number of Securities(a)
    
    (b)
    
    remaining available forNumber of securities to
    
    Weighted-average
    
    future issuance under equityPlan category
    
    be issued upon exercise
    
    exercise price of
    
    compensation plansEquity Compensation Plans
    
    of outstanding options,
    
    outstanding options,
    
    (excluding securitiesApproved by Shareholders
    
    warrants and rights
    
    warrants and rights
    
    reflected in column (a))(1)
    
    (shares)
    
    ($)
    
    (shares)Employee Stock
Option Plan
    
    
    5,207,006
    (2)
    
    $
    3.26
    
    
    
    6,632,194
    (2)Employee Stock
Purchase Plan
    
    
    955,112
    (3)
    
    $
    2.73
    
    
    
    1,987,421
    (3)
  (1)
    
    DiCon has no equity compensation plans that are not approved by
shareholders.(2)
    
    The maximum number of shares that may be issued pursuant to options
granted under the Employee Stock Option Plan is 11,840,000. As of March
31, 2004, 12,076,106 options were granted, 800 options were exercised
and 6,868,300 options terminated under the Employee Stock Option Plan.(3)
    
    The maximum number of shares that may be issued under the Employee
Stock Purchase Plan is 3,230,000 which includes shares issued pursuant
to the Global Fiberoptics Profit Distribution Sharing Plan Alternative.
As of March 31, 2004, 1,242,579 shares were issued under the Employee
Stock Purchase Plan and DiCon exercised the option to repurchase 287,467 shares upon employment termination.  (e)
    
    Purchases of Equity Securities by Small Business Issuer. Small Business Issuer Purchases of Equity Securities Total Number of
    
    Maximum NumberShares Purchased as
    
    of Shares that MayPart of Publicly
    
    yet be PurchasedTotal Number
    
    
    
    
    
    Announced Plans or
    
    Under the Plans orof Shares
    
    Average Price
    
    Programs
    
    ProgramsPeriod
    
    Purchased (1)
    
    Paid per Share
    
    (2)
    
    (2)January 1, 2004
through January 31,
2004
    
    
    2,190
    
    
    $
    0.96
    
    
    
    
    
    
    
    
 - 14 -




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##### Table of Contents



Total Number of
    
    Maximum NumberShares Purchased as
    
    of Shares that MayPart of Publicly
    
    yet be PurchasedTotal Number
    
    
    
    
    
    Announced Plans or
    
    Under the Plans orof Shares
    
    Average Price
    
    Programs
    
    ProgramsPeriod
    
    Purchased (1)
    
    Paid per Share
    
    (2)
    
    (2)February 1, 2004
through February
29, 2004
    
    
    7,532
    
    
    $
    0.96
    
    
    
    
    
    
    
    March 1, 2004
through March 31,
2004
    
    
    4,494
    
    
    $
    0.96
    
    
    
    
    
    
    
    Total
    
    
    14,216
    
    
    $
    0.96
    
    
    
    
    
    
    
    
  (1)
    
    All of the shares purchased were issued under the Employee Stock
Purchase Program.(2)
    
    DiCon does not have any publicly announced plans or programs for the
purchase of shares. 
 Item 6. Managements Discussion and Analysis of Financial Condition and
Results of Operations. Overview DiCon designs and manufactures passive optical components, modules and
test instruments for current and next-generation optical communications
markets. DiCon designs and manufactures a broad portfolio of technically
advanced products that filter, split, combine, attenuate, and route light in
optical networks. DiCon also sells products used for testing optical devices
and systems. DiCons products are based on its proprietary technologies,
including thin-film coating, micro-optic design, optical element finishing,
Micro Electro-Mechanical Systems (MEMS), advanced packaging and process
automation. DiCon was founded in 1986 and first became profitable in 1988. It
remained profitable each fiscal year until the fiscal year ended March 31,
2002. DiCons communications products include Wavelength Division Multiplexers
(WDMs), amplifier components, switches and attenuators, MEMS devices and
modules. Its measurement products include variable attenuators, tunable
filters, and test instruments for telecommunication applications. DiCon
markets and sells its products worldwide through its direct sales force, its
subsidiary Global and through selected distributors. The optical networking industry is rapidly changing and the volume and
timing of orders are difficult to predict. Since the fourth quarter of 2000,
the fiberoptics industry has gone through a significant period of
consolidation following a dramatic curtailment of capital spending by most
carriers faced with substantial excess bandwidth capacity and very high levels
of corporate debt. DiCon believes its customers are manufacturers of
telecommunications equipment, who generally view the purchase of DiCons
products as a significant and strategic decision. As a result, customers
typically commit substantial effort in evaluating DiCons technology, and testing
and qualifying its products and manufacturing processes. This customer
evaluation and qualification process frequently results in a lengthy initial
sales cycle of nine months or longer. As the industry entered its downturn and
consolidation phase in 2001, various customers cancelled existing orders. In some
cases, DiCon was able to recover a portion of its costs through subsequent
transactions with these customers. However, the Company also incurred
substantial costs associated with obsolete inventory and cancelled orders.
During the fiscal year ended March 31, 2003, DiCon wrote off $4.1 million of
obsolete inventory. The Company assesses its inventory position on a monthly
and quarterly basis with its then current forecasts. During the fiscal year
ended March 31, 2004, DiCon wrote off approximately $1.1 million of obsolete
inventory and wrote down to fair value an additional $1.1 million of inventory. In 2001, DiCon relocated its operations from leased facilities in
Berkeley, California, to its newly owned 200,000 square feet facility in
Richmond, California, which contains all of DiCons domestic manufacturing,
R&D, sales and administration operations. The remaining lease obligations for
the unutilized facilities, net of expected sublease income, have been accrued
as a liability in the consolidated financial statements. The
balance of this reserve net of expected sublease income is approximately $0.25
million as of March 31, 2004. DiCon began its overseas manufacturing operations at its 44,000 square
foot WDM product assembly facility in Kaohsiung, Taiwan in January 2000. This
facility subsequently has been expanded through the purchase of an additional
44,000 square feet of space adjacent to the original facility. Although DiCon
owns a condominium interest in the building, it is located on a ground lease
that extends through 2011. The ground lease may be renewed indefinitely, and
there is no penalty for early cancellation, except for forfeiture of the owned
facility. - 15 -




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DiCons cost of goods sold consists primarily of the cost of direct
materials, labor and manufacturing overhead, scrap and rework associated with
products sold, as well as production start up costs. As demand changes, DiCon
attempts to manage its manufacturing capacity to meet demand for existing and
new products; however, a certain portion of its costs are fixed and as volumes
decrease, these expenses are difficult to reduce proportionately, if at all. Research and development expenses consist primarily of salaries and
related personnel expenses, fees paid to consultants and outside service
providers, material and equipment costs, and other expenses related to the
design, development, testing and enhancement of DiCons products. DiCon
expenses all of its research and development costs as incurred and does not
capitalize any research and development expenditures except for equipment with
a useful life longer than one year and useful for purposes other than the
current research and development project. DiCon believes that research and
development is critical to strategic product development and expects to
continue to devote significant resources to product research and development.
DiCon expects its research and development expenses to fluctuate both in
absolute dollars and as a percentage of sales based on its perceived need for,
and expected return from, its research and development efforts. Selling, general and administrative expenses include salaries, benefits,
commissions, product promotion and administrative expenses. DiCon expects
these expenses to continue to be substantial as the Company strives to sustain
its market share in the fiberoptic component manufacturing business. Other income (expenses), net consists primarily of interest and dividend
income, offset by interest expense, plus realized gains or losses on
investments. Long term investments are accounted for at historical cost and are subject to a periodic impairment review. The impairment analysis requires significant judgement to identify events or circumstances that would likely have a significant adverse effect on the fair value of the investment. If the investment is determined to be temporarily impaired, the investment is written down to its impaired value. When an investment is not
considered viable from a financial or technological point of view, the entire investment is written down. DiCon maintains an Employee Stock Option Plan and an Employee Stock
Purchase Plan as a means of motivating its employees to make a tangible
contribution towards achieving its corporate objectives. In September 2002,
DiCon suspended the sale of DiCon shares to employees under the Employee Stock
Purchase Plan. Recent Accounting Pronouncements Financial Accounting Standards Board (FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), was issued in January
2003. FIN 46 requires that if an entity is the primary beneficiary of a
variable interest entity, the assets, liabilities, and results of operations of
the variable interest entity should be included in the consolidated financial
statements of the entity. The provisions of FIN 46 are effective immediately
for all arrangements entered into after January 31, 2003. For those
arrangements entered into prior to February 1, 2003, the provisions of FIN 46
were required to be adopted at the beginning of the first interim or annual
period beginning after June 15, 2003. However, in October 2003, the FASB
deferred the effective date of FIN 46 to the end of the first interim or annual
period ending after December 31, 2003 for those arrangements entered into prior
to February 1, 2003. The adoption of this standard did not have a material
impact on the Companys consolidated financial position, results of operations
or cash flows. In May 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this standard did not have a
material impact on the Companys consolidated financial position, results of
operations or cash flows. - 16 -




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In November 2003, the Emerging Issues Task Force (EITF) reached a
consensus on Issue No. 03-01 The Meaning of Other-Than-Temporary Impairment and
its Application to Certain Investments (EITF 03-01). EITF 03-01 establishes
additional disclosure requirements for each category of FAS 115 investments in
a loss position. Effective for years ending after December 15, 2003, companies
must disclose the aggregate amount of unrealized losses, and the aggregate
related fair value of their investments with unrealized losses. Those
investments are required to be segregated by those in a loss position for less
than twelve months and those in a loss position for greater than twelve months.
Additionally, certain qualitative disclosures should be made to clarify a
circumstance whereby an investments fair value that is below cost is not
considered other-than-temporary. The provisions of this consensus do not have
any material effect on the Companys results of operations or financial
position. On December 17, 2003, the Securities and Exchange Commission (the SEC)
issued SAB No. 104, Revenue Recognition (SAB 104), which supercedes SAB No.
101, Revenue Recognition in Financial Statements (SAB 101). SAB 104s
primary purpose is to rescind accounting guidance contained in SAB 101 related
to multiple element revenue arrangements, superceded as a result of the
issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables (EITF 00-21). Additionally, SAB 104 rescinds the SECs Revenue
Recognition in Financial Statements Frequently Asked Questions and Answers (the
FAQ) issued with SAB 101 that had been codified in SEC Topic 13, Revenue
Recognition. Selected portions of the FAQ have been incorporated into SAB 104.
While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21,
the revenue recognition principles of SAB 101 remain largely unchanged by the
issuance of SAB 104. EITF 00-21 was effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. The provisions of SAB 104
had no effect on the Companys results of operations or financial position. Results of Operations Years Ended March 31,2004
    
    2003Consolidated Statement of Operations:
    $ (000s)
    
    %
    
    $ (000s)
    
    %(in thousands and as a percentage ofnet sales)Net sales
    
    $
    18,658
    
    
    
    100.0
    %
    
    $
    20,735
    
    
    
    100.0
    %Cost of goods sold
    
    
    18,710
    
    
    
    100.3
    %
    
    
    24,313
    
    
    
    117.3
    %Gross loss
    
    
    (52
    )
    
    
    (0.3
    %)
    
    
    (3,578
    )
    
    
    (17.3
    %)Selling, general and
administrative expenses
    
    
    5,438
    
    
    
    29.1
    %
    
    
    9,217
    
    
    
    44.4
    %Research and development expenses
    
    
    6,516
    
    
    
    34.9
    %
    
    
    13,178
    
    
    
    63.6
    %11,954
    
    
    
    64.0
    %
    
    
    22,395
    
    
    
    108.0
    %Loss from operations
    
    
    (12,006
    )
    
    
    (64.3
    %)
    
    
    (25,973
    )
    
    
    (125.3
    %)Other expense
    
    
    (2,003
    )
    
    
    (10.8
    %)
    
    
    (3,392
    )
    
    
    (16.3
    %)Loss before income taxes
    
    
    (14,009
    )
    
    
    (75.1
    %)
    
    
    (29,365
    )
    
    
    (141.6
    %)Income tax benefit
    
    
    1,983
    
    
    
    10.6
    %
    
    
    6,178
    
    
    
    29.8
    %Net loss
    
    $
    (12,026
    )
    
    
    (64.5
    %)
    
    $
    (23,187
    )
    
    
    (111.8
    %)
 Financial Results Net Sales During the fiscal year ended March 31, 2004, the Company net sales
declined 10.0% from $20.7 million in the fiscal year ended March 31, 2003, to
$18.7 million. These declines reflected the overall decline in the demand for
fiberoptics components and test equipment by telecommunications equipment
vendors, the Companys primary customers, as well as increased competition for
the remaining business opportunities. In the fiscal year ended March 31, 2004, the Company recorded no revenue
from cancellation of prior supply agreements with customers compared with $1.2
million in cancellation revenue in the same period of the prior year. The fiberoptic communications industry is characterized by dynamic
technological changes. Specific products may have a relatively short product
life, even though basic product designs may have a substantial life.
Generally, customers expect prices to - 17 -




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decline steadily. During the current period of significant excess
capacity, the pressure to reduce average selling prices may even be greater.
DiCon seeks to offset this trend through new product introductions with higher
average selling prices and through aggressive programs to improve manufacturing
yields and cost reductions. There is no certainty that these programs will be
successful to offset the pricing pressure from customers in the future. Sales to different geographic areas may fluctuate from period to period
depending on various factors such as new system development, purchase cycle and
price. Net sales to customers in the United States accounted for $7.6 million
and $13.7 million of total net sales, or 41% and 66%, for the years ended March
31, 2004 and 2003, respectively. Despite the fact that the Company had over 200 customers in the year ended
March 31, 2004, there are a limited number of very large customers that account
for the majority of purchases in the industry worldwide. As of and for the
years ended March 31, the Company experienced the following concentrations with
sales and accounts receivables. Years Ended March 31,2004
    
    2003Percentage of revenue for 3 largest customers
    
    
    45.7
    %
    
    
    33.4
    %No. of customers accounting for over 10% of net sale
    
    
    2
    
    
    
    1No. of customers accounting for more than 10% of
account receivables balance
    
    
    3
    
    
    
    2
 Sales to DiCons leading customers vary significantly from year to year
and DiCon does not have the ability to predict future sales to these customers.
However, if the decline in the telecommunications industry continues, DiCon
expects telecommunications carriers to continue to curtail their current levels of capital
spending, which will further affect DiCons sales. Cost of Goods Sold and Gross Margin The Company continued its efforts to reduce expenses and reduce its
overhead. As a result, costs of goods sold declined 23% from $24.3 million in
the fiscal year ended March 31, 2003, to $18.7 million in the fiscal year ended
March 31, 2004. Gross margin also improved from a loss of 3.6 million (-17.3%)
in the fiscal year ended March 31, 2003 to a loss of 52,000 (-0.3%) in the
fiscal year ended March 31, 2004. The gross loss in fiscal year ended March 31, 2003 was primarily
attributable to a reduction in sales volume coupled with a continued decline in
average selling price, a lower margin product mix due to lower sales of high
margin components, and write-downs of excess and obsolete inventories. The
improvement in gross margin in the year ended March 31, 2004 is mainly due to
expense and cost reduction along with more efficient material management.
During the fiscal year ended March 31, 2004 DiCon wrote off approximately $1.1 million of obsolete
inventory and impaired an additional $1.1 million of inventory, or 11.8% of
total net sales, as compared to a total of $4.1 million or 19.8% of total net sales, in
the fiscal year ended March 31, 2003. Gross margin can be affected by a number of factors, including product mix,
customer mix, applications mix, product demand, pricing pressures,
manufacturing constraints, higher costs attributable to new production
facilities, and production yield. Gross margin fluctuations are difficult to
predict and there can be no assurance that we will achieve or maintain gross
margin percentages at historical levels in future periods. Compensation expense including the Companys stock compensation plans has
been reflected in the Statement of Operations and Comprehensive Loss for the
years ended March 31, 2004 and 2003 as follows: Years Ended March 31,(in thousands)
    
    2004
    
    2003Cost of goods sold
    
    $
    79
    
    
    $
    157Selling, general and administrative expenses
    
    
    275
    
    
    
    957Research and development expenses
    
    
    577
    
    
    
    314$
    931
    
    
    $
    1,428
 - 18 -




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Included in the amounts noted above is non-cash compensation expense totaling
$481 and $450 for the years ended March 31, 2004 and 2003, respectively. Operating Expenses Selling, general and administrative. Selling, general and administrative (SG&A) expense was $5.4 million in
the fiscal year ended March 31, 2004, compared to $9.2 million in the fiscal
year ended March 31, 2003. The decrease in SG&A was primarily due to lower
personnel-related expenses resulting from the reductions of workforce, and
lower commission expenses following the decline in sales. Research and development. Research and development (R&D) expense was $6.5 million in the fiscal
year ended March 31, 2004, compared to $13.2 million in fiscal year ended March
31, 2003. The decrease in R&D spending reflects the cost reductions resulting
from the elimination of certain product development programs and workforce
reductions. Future expenditures are expected to fluctuate both in absolute
dollars and as a percentage of revenue based on the need to invest in new
research and development in order to remain competitive in this rapidly
changing industry. Other Expense Other income (expense) was expense of $2.0 million in the fiscal year
ended March 31, 2004 and expense of $3.4 million in the fiscal year ended March
31, 2003 as follows: Years Ended March 31,(in thousands)
    
    2004
    
    2003Other income (expense):Realized gain (losses) on sales of marketable securities
    
    $
    114
    
    
    $
    (616
    )Impairment of other long-term investments
    
    
    (512
    )
    
    
    Interest expense
    
    
    (1,366
    )
    
    
    (3,445
    )Interest income
    
    
    402
    
    
    
    468Loss on disposal of fixed assets
    
    
    (670
    )
    
    
    (930
    )Other income (expense), net
    
    
    29
    
    
    
    1,131$
    (2,003
    )
    
    $
    (3,392
    )
 Interest expense primarily represents the costs of borrowing by DiCon for
its mortgage loan for the Richmond, California, facility and its equipment
loan, along with the imputed interest on the payments required under the terms
of the conversion of its Phantom Stock Plan to the Employee Stock Option Plan. In the fiscal year ending March 31, 2004, DiCon sold certain marketable
equity securities for total proceeds of $2.3 million, resulting in a realized
gain of $114,000. In the fiscal year ending March 31, 2003, DiCon sold certain
marketable equity securities for total proceeds of $2.8 million, resulting in a
realized loss of $616,000. In the fiscal year ended March, 31 2004, DiCon recorded $0.5 million impairment of other long-term investments. When the decline in
fair value is deemed to be other-than-temporary, DiCon writes down the value of
the investment to its fair value. The write-down in the fiscal year
ended March 31, 2004 is related to
the decline in fair value of DiCons investment in a private company in Taiwan
engaged in the optical coating business. Income Tax Expense (Benefit): DiCon recorded $2.0 million and $6.2 million of income tax benefit in the
fiscal years ended March 31, 2004 and 2003, respectively. The Company had sufficient income for federal income tax purposes in prior
years to carryback the anticipated losses from that year, and to receive a
refund. During the fiscal year ended March 31, 2003, the Company received $15.2
million of federal income tax - 19 -




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##### Table of Contents



refunds. California State Income Taxes may not be carried back to prior
years. The losses for California purposes may result in lower taxes paid in
the future, depending on the then current tax laws for California. The Companys effective tax rate varies from the statutory U.S. federal
rate primarily due to the use of tax credits, the effect of state income taxes
and the impact of foreign taxes on its Taiwanese subsidiary. The difference
between the Companys effective income tax rate and U.S. federal statutory rate
is reconciled as follows: Years Ended March 31,2004
    
    2003Provision computed at federal statutory rate
    
    
    (35
    )%
    
    
    (35
    )%State taxes, net of federal tax benefit
    
    
    (6
    )
    
    
    (6
    )Foreign taxes
    
    
    (8
    )
    
    
    1Permanent differences
    
    
    0
    
    
    
    1Valuation allowance
    
    
    25
    
    
    
    19Other
    
    
    10
    
    
    
    (1
    )Effective income tax rate
    
    
    (14
    )%
    
    
    (21
    )%
 Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation
allowance against certain deferred tax assets and liabilities as of March 31,
2004 and 2003. Management evaluates the recoverability of the deferred tax
asset and the level of the valuation allowance. At such time as it is
determined that it is more likely than not that the deferred tax asset will be
realizable, the valuation allowance will be reduced. Liquidity and Capital Resources Net cash provided by operations of $10.0 million increased for the fiscal
year ended March 31, 2004 from that of a cash outflow of $15.1 million for the
fiscal year ended March 31, 2003. Cash provided by operating activities was
primarily attributable to depreciation expense of $9.2 million and an income
tax refund of $15.3 million. These amounts were partially offset by an increase
in accounts receivable of $1.0 million and inventories of $1.6 million and a decrease in accounts
payable and accrued liabilities of $0.4 million. Accounts receivable were
higher compared to the fiscal year ended March 31, 2003, primarily as a result
of an increase in net sales outside the United States where payment cycles are
longer. Inventory levels were higher for the fiscal year ended March 31, 2004,
reflecting purchases in response to recent increases in production volumes. Cash outflow of $15.1 million for the fiscal year ended March 31, 2003 was
primarily due to the $13.4 million in deferred compensation payments made upon
the resignation and termination of employees and the early repayment program. Cash used in investing activities increased to $9.2 million in the current
fiscal year ending March 31, 2004. This is primarily the result of efforts to
increase earnings on working capital by investing in certificates of deposits
with maturities in excess of 90 days and mutual funds of $14.1 million in the
current fiscal year ending March 31, 2004. All certificates mature in one year
or less. Additionally, the Company sold approximately $4.8 million of
marketable securities during the period. For the fiscal year ending March 31, 2003, the Company made a long-term
investment of $0.5 million for a minority interest in a firm in Taiwan. The
investment value has been fully impaired in the current fiscal year ending
March 31, 2004. The increase in cash flows from investing activities in the fiscal year
ending March 31, 2003, was primarily due to an increase in net proceeds of
$15.6 million from the sale of marketable securities offset by $13.2 million
purchases of marketable securities. Cash used in financing activities increased to $3.2 million in the current
fiscal year ending March 31, 2004. This change is primarily attributable to the
repayments under the line of credit, mortgages and other debt of $7.3 million
and offset by borrowings under the line of credit and other debt of
$4.1 million. Cash generated by financing activities was $7.7 million in the fiscal
years ended March 31, 2003. This change was primarily the result of the sale of
additional common stock net of repurchases for $9.5 million. - 20 -




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The Company
financed, in part, a new corporate campus by obtaining a construction loan from
a bank of $27.0 million on August 24, 2000. In November 2001, the same bank
refinanced the outstanding balance of the construction loan with a mortgage
loan maturing on November 20, 2004, with an amortization schedule based on a
25-year loan. On June 28, 2004, the bank agreed to extend the maturity date of
the mortgage loan to October 20, 2007, subject to additional terms and
conditions requiring the Company to make additional principal repayments as
follows: $1.5 million on June 15, 2004; $1.0 million on October 1, 2004; and
seven installments each in the amount of $0.5 million on the first day of each
calendar quarter, commencing on January 1, 2005 and ending on July 1, 2006. 
 Interest on the mortgage loan is accrued at a variable interest rate based
on changes in the lenders prime rate as of the 20th of each month (4.0 percent
at March 31, 2004). Principal and interest are payable monthly. The balance of
the mortgage loan as of March 31, 2004 was $25.5 million. During the year ended
March 31, 2002, the Chairman, President and Chief Executive Officer of the
institution with which the Company maintains the mortgage loan was appointed to
the Companys Board of Directors. In April 2001, the Company obtained an equipment loan from a bank in the
amount of $7.3 million. The loan is secured by specific pieces of equipment.
The loan is repayable in equal monthly installments of principal and interest
over 60 months beginning May 30, 2001. On March 31, 2004, the loan balance was
$3.0 million. Effective April 30, 2002 and annually on April 30th of each year
thereafter, the Company may elect to fix the interest rate on the equipment
loan for a twelve month period at a rate of one-half of one percentage point
(0.5 percent) per annum in excess of the prime rate. As of March 31, 2004, the
Company had not elected the fixed rate option and the loan bore an interest
rate of prime plus 0.5 percent (4.5 percent on March 31, 2004). On March 31,
2003, the Company was in violation of two of the financial covenants under this
loan agreement. The bank agreed to waive the covenants, but added an
additional covenant requiring the Company to maintain a balance of cash and
marketable securities (excluding equity securities) of at least two times the
outstanding loan balance. The waiver was extended through March 31, 2005. The
Company was in compliance with the additional covenant as of March 31, 2004 and
2003. In December 2002, Global Fiberoptics obtained a line of credit in Taiwan
backed by commercial paper issued by Global Fiberoptics for a maximum of 220
million New Taiwan Dollars (approximately US$6.4 million as of March 31, 2003).
In January 2004, Global Fiberoptics renewed and reduced its line of credit to
100 million New Taiwan Dollars (or US$3.0 million as of March 31, 2004). The
interest rate is based on a rate set by the bank at the time funds are drawn.
The line of credit will mature on January 28, 2005. The outstanding balance of
any commercial paper under this line of credit must be fully secured by either
a cash deposit or bond fund certificate. As of March 31, 2004, Global
Fiberoptics had issued commercial paper in the amount of 27.5 million New
Taiwan Dollars (or US$0.8 million as of March 31, 2004) with interest rate of
1.04 %. The maturities of mortgage and other debt outstanding as of March 31, 2004
are summarized as follows: Year Ending March 31,
    
    
    
    
    
    
    
    
    
    EquipmentAmount (in 000s)
    
    Line of Credit
    
    Mortgage Loan
    
    Loan
    
    Total2005
    
    $
    833
    
    
    $
    3,776
    
    
    $
    1,450
    
    
    $
    6,0592006
    
    
    
    
    
    
    2,915
    
    
    
    1,450
    
    
    
    4,3652007
    
    
    
    
    
    
    2,024
    
    
    
    121
    
    
    
    2,1452008
    
    
    
    
    
    
    16,800
    
    
    
    
    
    
    
    16,800Total
    
    $
    833
    
    
    $
    25,515
    
    
    $
    3,021
    
    
    $
    29,369
 As of March 31, 2004, DiCon had cash and cash equivalents of $1.4 million.
In addition, in conformity with the requirements of generally accepted
accounting principles $20.3 million was invested in certificates of deposit and
other marketable securities that were classified as marketable securities. The
Company invests cash in excess of short-term needs in these investments to
attempt to improve yields on its total invested portfolio. It is impossible to
predict at this time when, or if, sales will recover to the point that DiCon
would no longer be operating at a cash flow deficit, either before or after
capital expenditures. In May 2002, the Company issued an aggregate of 1,612,000 additional
shares of common stock to investors in a private placement and to employees
under the Employee Stock Purchase Plan for aggregate cash consideration of $3.7
million. The proceeds were used for general corporate purposes. In September 2002, the Company sold 1,784,000 shares of common stock
through a private placement. The proceeds of $6.2 million were used for
general corporate purposes. - 21 -




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##### Table of Contents



DiCon believes its current cash and cash equivalents and marketable
securities will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. There
remains some possibility that DiCon may need to raise additional capital. For
instance, it might need additional capital in order to refinance the mortgage
loans, finance unanticipated growth or to invest in new technology. There can
be no certainty that DiCon would be successful in raising the required capital
or in raising capital at acceptable rates. Interest Rate Sensitivity and Market Risk DiCon maintain its cash and cash equivalents primarily in money market
funds or other short-term investments. DiCon does not have any derivative
financial instruments as of March 31, 2004. Accordingly, it does not believe
that its investments have material exposure to interest rate risk. Because its loans are variable rate, DiCon is subject to interest rate
risk for these liabilities. A 1% change in the prime rate would result in a
change in interest expense of approximately $0.3 million per year at the
maximum level of loan commitments DiCon has secured. The book value of the Companys debt approximates fair value due to the
short-term maturities and/or variable interest rates of the debt. Market Risk DiCon has limited investments in marketable equity securities. As of
March 31, 2004 and 2003, the Company had marketable equity securities with an
original cost of approximately $0.8 million and $0.2 million that had an
unrealized gain of $17,000 and an unrealized gain of $81,000, respectively. The Company invests its funds in excess of short-term working capital in
certificates of deposit and investment funds. These investments are placed in
several different financial institutions to minimize market risk. Some of
these investments are subject to market risks as interest rates change. Exchange Rate Sensitivity DiCons international business is subject to normal international business
risks including, but not limited to, differing economic conditions, changes in
political climate, differing tax structures, other regulations and
restrictions, and foreign exchange rate volatility. Accordingly, DiCons future
results could be materially adversely affected by changes in these or other
factors. DiCon generates a portion of its sales from sales to customers located
outside the United States and from sales by its foreign subsidiary.
International sales are typically denominated in U.S. dollars. DiCons foreign subsidiary incurs most of its expenses in New Taiwan
Dollars, and therefore it uses New Taiwan Dollars as its functional currency.
Accordingly, DiCon has material exposure to foreign currency fluctuations
between the U.S. Dollar and the New Taiwan Dollar for (1) sales to its
subsidiary, (2) purchases from its subsidiary, and (3) revaluation of monetary
assets held by its subsidiary. In order to mitigate the Companys exposure to
foreign currency exchange risks, the Company entered into a number of foreign
currency forward contracts and options in fiscal year 2002. Gains or losses on
these contracts are recognized as other income (expense) and have not been
significant. The Company did not use derivatives for trading purposes for the
fiscal year ended March 31, 2004. The accumulated currency translation losses resulting from
the translation of the financial position of Global were $1.1 million as of
March 31, 2004 compared to a loss of $2.1 million as for the fiscal year ended
March 31, 2003. DiCon considers its investment in its Taiwanese subsidiary to be
essentially permanent in duration. At March 21, 2004, the undistributed
foreign earnings amounted to approximately $7.8 million. There is no intention
to distribute these earnings to DiCon. If at some future date all or a portion
of these foreign earnings are distributed as dividends to DiCon, substantial
additional taxes would be due in Taiwan and in the United States. - 22 -




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##### Table of Contents



Item 7. Financial Statements. Index to Financial Statements Financial Statements:Reports of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets at March 31, 2004 and 2003
    
    
    F-2Consolidated Statements of Operations and Comprehensive
Income (Loss) for each of the three years in the period ended March 31, 2004, 2003 and 2002
    
    
    F-3Consolidated Statement of Changes in Shareholders Equity
for each of the three years in the period ended March 31, 2004, 2003 and 2002
    
    
    F-4Consolidated Statement of Cash Flows for each of the three years
in the period ended March 31, 2004, 2003 and 2002
    
    
    F-5Notes to Consolidated Financial Statements
    
    F-6 to F-19Financial Statement Schedule:Valuation and Qualifying Accounts for each of the three years in the
period ended March 31, 2004
    
    
    24
 All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto. a.  Financial Statements. - 23 -




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##### Table of Contents



Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders
of DiCon Fiberoptics Inc. In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of DiCon Fiberoptics Inc. and its subsidiary at March 31, 2004 and
March 31, 2003, and the results of their operations and their cash flows for
each of the three years in the period ended March 31, 2004 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the
accompanying index present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements. These financial statements and financial statement
schedule are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 Francisco, California
June 30, 2004 
 F-1




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryConsolidated Balance Sheets(in thousands) March 31,
    
    March 31,2004
    
    2003AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,359
    
    
    $
    3,757Marketable securities
    
    
    20,250
    
    
    
    10,851Accounts receivable, net of allowance of $78 and $77, respectively
    
    
    3,155
    
    
    
    2,203Inventories
    
    
    4,506
    
    
    
    3,864Interest receivables and prepaid expenses
    
    
    521
    
    
    
    388Income tax receivable
    
    
    16
    
    
    
    15,262Deferred income taxes
    
    
    
    
    
    
    268Total current assets
    
    
    29,807
    
    
    
    36,593Property, plant and equipment, net
    
    
    58,750
    
    
    
    68,202Deferred income taxes
    
    
    
    
    
    
    739Other long-term investments
    
    
    
    
    
    
    502Other assets
    
    
    64
    
    
    
    106Total assets
    
    $
    88,621
    
    
    $
    106,142Liabilities and Shareholders EquityCurrent liabilities:Accounts payable and accrued liabilities
    
    $
    2,914
    
    
    $
    3,514Advances received from customers
    
    
    3,549
    
    
    
    3,671Mortgage and other debt
    
    
    6,059
    
    
    
    3,927Income taxes payable
    
    
    
    
    
    
    23Deferred compensation payable
    
    
    120
    
    
    
    33Total current liabilities
    
    
    12,642
    
    
    
    11,168Deferred compensation payable, net of current portion
    
    
    
    
    
    
    36Deferred Income taxes
    
    
    
    
    
    
    2,997Mortgage and other debt, net of current portion
    
    
    23,310
    
    
    
    28,565Total liabilities
    
    
    35,952
    
    
    
    42,766Commitments (Note 18)Shareholders equity:Common
stock: no par value; 200,000 shares authorized; 111,992 and 112,040 shares issued and outstanding, respectively
    
    
    22,279
    
    
    
    22,333Additional paid-in capital
    
    
    13,217
    
    
    
    13,199Deferred compensation
    
    
    (550
    )
    
    
    (970
    )Retained earnings
    
    
    18,812
    
    
    
    30,838Accumulated other comprehensive loss
    
    
    (1,089
    )
    
    
    (2,024
    )Total shareholders equity
    
    
    52,669
    
    
    
    63,376Total liabilities and shareholders equity
    
    $
    88,621
    
    
    $
    106,142
 The accompanying notes are an integral part of these consolidated financial statements. F-2




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryConsolidated Statements of Operations and Comprehensive Loss(in thousands, except per share data) Years Ended March 31,2004
    
    2003
    
    2002Net sales
    
    $
    18,658
    
    
    $
    20,735
    
    
    $
    70,613Cost of goods sold
    
    
    18,710
    
    
    
    24,313
    
    
    
    45,848Gross (loss) profit
    
    
    (52
    )
    
    
    (3,578
    )
    
    
    24,765Selling, general and administrative expenses
    
    
    5,438
    
    
    
    9,217
    
    
    
    14,847Research and development expenses
    
    
    6,516
    
    
    
    13,178
    
    
    
    16,659(Gain) on dissolved joint venture
    
    
    
    
    
    
    
    
    
    
    (544
    )11,954
    
    
    
    22,395
    
    
    
    30,962Loss from operations
    
    
    (12,006
    )
    
    
    (25,973
    )
    
    
    (6,197
    )Other income (expense):Realized
gains (losses) on sales of marketable securities
    
    
    114
    
    
    
    (616
    )
    
    
    (41
    )Impairment of other long-term investments
    
    
    (512
    )
    
    
    
    
    
    
    Interest expense
    
    
    (1,366
    )
    
    
    (3,445
    )
    
    
    (3,026
    )Interest income
    
    
    402
    
    
    
    468
    
    
    
    489Loss on disposal of fixed assets
    
    
    (670
    )
    
    
    (930
    )
    
    
    (608
    )Other income, net
    
    
    29
    
    
    
    1,131
    
    
    
    1,057Loss before income taxes
    
    
    (14,009
    )
    
    
    (29,365
    )
    
    
    (8,326
    )Income tax benefit
    
    
    1,983
    
    
    
    6,178
    
    
    
    5,217Net loss
    
    $
    (12,026
    )
    
    $
    (23,187
    )
    
    $
    (3,109
    )Other comprehensive income (loss):Foreign currency translation adjustment
    
    
    999
    
    
    
    165
    
    
    
    (1,519
    )Unrealized holding gains (losses) on marketable securities
arising during the period, net of realized gains (losses)
included in net loss
    
    
    (64
    )
    
    
    183
    
    
    
    (28
    )Comprehensive loss
    
    $
    (11,091
    )
    
    $
    (22,839
    )
    
    $
    (4,656
    )Net loss per share - basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.21
    )
    
    $
    (0.03
    )Average shares used in computing net loss per share
- basic and diluted
    
    
    112,014
    
    
    
    111,068
    
    
    
    108,458
 The accompanying notes are an integral part of these consolidated financial statements. F-3




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryConsolidated Statement of changes in Shareholders Equity(in thousands) Common Stock
    
    AdditionalPaid-In
    
    DeferredCompensati
    
    Retained
    
    AccumulatedOtherComprehensiveShares
    
    Amount
    
    Capital
    
    on
    
    Earnings
    
    Income (Loss)
    
    TotalBalance, March 31, 2001 (unaudited)
    
    
    107,636
    
    
    $
    7,937
    
    
    $
    13,165
    
    
    $
    (1,923
    )
    
    $
    57,134
    
    
    $
    (825
    )
    
    $
    75,488Issuance of common stock pursuant to
stock option and stock purchase plans,
net of repurchases
    
    
    542
    
    
    
    1,849
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,849Issuance of common stock in connection
with private placement
    
    
    664
    
    
    
    3,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    273
    
    
    
    (273
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    537
    
    
    
    
    
    
    
    
    
    
    
    537Unrealized gains (losses) on
securities available for sale, net of
realized gains (losses) included in
net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28
    )
    
    
    (28
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,519
    )
    
    
    (1,519
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,109
    )
    
    
    
    
    
    
    (3,109
    )Balance, March 31, 2002
    
    
    108,842
    
    
    
    12,786
    
    
    
    13,438
    
    
    
    (1,659
    )
    
    
    54,025
    
    
    
    (2,372
    )
    
    
    76,218Issuance of common stock pursuant to
stock option and stock purchase plans,
net of repurchases
    
    
    462
    
    
    
    950
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    950Issuance of common stock in connection
with private placement
    
    
    2,736
    
    
    
    8,597
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,597Reversal of deferred compensation due
to employee terminations prior to
vesting
    
    
    
    
    
    
    
    
    
    
    (239
    )
    
    
    239
    
    
    
    
    
    
    
    
    
    
    
    Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    
    
    
    
    450Unrealized gains (losses) on
securities available for sale, net of
realized gains (losses) included in
net income (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183
    
    
    
    183Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    165
    
    
    
    165Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,187
    )
    
    
    
    
    
    
    (23,187
    )Balance, March 31, 2003
    
    
    112,040
    
    
    
    22,333
    
    
    
    13,199
    
    
    
    (970
    )
    
    
    30,838
    
    
    
    (2,024
    )
    
    
    63,376Repurchases of common stock pursuant
to stock option and stock purchase
plans
    
    
    (48
    )
    
    
    (54
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (54
    )Issuance of stock options
    
    
    
    
    
    
    
    
    
    
    18
    
    
    
    (154
    )
    
    
    
    
    
    
    
    
    
    
    (136
    )Amortization of deferred compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    574
    
    
    
    
    
    
    
    
    
    
    
    574Unrealized gain (loss) on securities
available for sale, net of realized
gains (losses) included in net income
(loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    (64
    )Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    999
    
    
    
    999Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,026
    )
    
    
    
    
    
    
    (12,026
    )Balance, March 31, 2004
    
    
    111,992
    
    
    $
    22,279
    
    
    $
    13,217
    
    
    $
    (550
    )
    
    $
    18,812
    
    
    $
    (1,089
    )
    
    $
    52,669
 The accompanying notes are an integral part of these consolidated financial statements. F-4




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryConsolidated Statement of Cash Flows(in thousands ) Years Ended March 31,2004
    
    2003
    
    2002Cash flows from operating activities:Net loss
    
    $
    (12,026
    )
    
    $
    (23,187
    )
    
    $
    (3,109
    )Adjustments to reconcile net loss to net cash used in provided by operating activities:Depreciation
    
    
    9,219
    
    
    
    10,245
    
    
    
    10,641Deferred incomes taxes
    
    
    (1,983
    )
    
    
    9,282
    
    
    
    2,823Inventory write down
    
    
    1,078
    
    
    
    4,081
    
    
    
    9,186Provision for bad debt
    
    
    1
    
    
    
    (365
    )
    
    
    721Loss on disposal of fixed assets
    
    
    670
    
    
    
    930
    
    
    
    608Provision for estimated losses due to vacated properties, net of sublease income
    
    
    1
    
    
    
    (80
    )
    
    
    1,457Gain on dissolved joint venture
    
    
    
    
    
    
    
    
    
    
    (544
    )Impairment of other long-term investments
    
    
    512
    
    
    
    
    
    
    
    Realized (gain) loss on available-for-sale marketable securities
    
    
    (114
    )
    
    
    616
    
    
    
    41Interest accretion on deferred compensation liability
    
    
    8
    
    
    
    1,942
    
    
    
    1,199Stock compensation expense
    
    
    574
    
    
    
    450
    
    
    
    537Changes in assets and liabilities:Accounts receivable
    
    
    (954
    )
    
    
    3,436
    
    
    
    16,388Inventories
    
    
    (1,602
    )
    
    
    (1,350
    )
    
    
    3,229Prepaid expenses and other current assets
    
    
    (123
    )
    
    
    3,591
    
    
    
    (2,018
    )Federal income tax receivable
    
    
    15,269
    
    
    
    (6,355
    )
    
    
    (8,899
    )Other assets
    
    
    43
    
    
    
    98
    
    
    
    1,100Accounts payable and accrued liabilities
    
    
    (417
    )
    
    
    (3,757
    )
    
    
    (15,820
    )Income taxes payable
    
    
    (53
    )
    
    
    (1,300
    )
    
    
    1,203Deferred compensation payable
    
    
    (93
    )
    
    
    (13,395
    )
    
    
    (4,810
    )Net cash provided by (used in) operating activities
    
    
    10,010
    
    
    
    (15,118
    )
    
    
    13,933Cash flows from investing activities:Purchases of marketable securities
    

    
    (14,133
    )
    
    
    (13,174
    )
    
    
    (20,367
    )Sales of marketable securities
    
    
    4,827
    
    
    
    15,641
    
    
    
    6,921Investment in joint venture and long-term investment
    
    
    
    
    
    
    (506
    )
    
    
    Sales of property, plant and equipment
    
    
    214
    
    
    
    645
    
    
    
    642Purchases of property and equipment
    
    
    (82
    )
    
    
    (1,622
    )
    
    
    (16,264
    )Net cash provided by (used in) investing activities
    
    
    (9,174
    )
    
    
    984
    
    
    
    (29,068
    )Cash flows from financing activities:Borrowings under mortgages and other debt
    
    
    4,123
    
    
    
    797
    
    
    
    9,401Repayment of mortgages and other debt
    
    
    (7,307
    )
    
    
    (2,652
    )
    
    
    (2,793
    )Proceeds from issuance of common stock, net of repurchases
    
    
    (54
    )
    
    
    9,547
    
    
    
    4,849Net cash provided by (used in) financing activities
    
    
    (3,238
    )
    
    
    7,692
    
    
    
    11,457Effect of exchange rate changes on cash and cash equivalents
    
    
    4
    
    
    
    29
    
    
    
    (192
    )Net change in cash and cash equivalents
    
    
    (2,398
    )
    
    
    (6,413
    )
    
    
    (3,870
    )Cash and cash equivalents, beginning of period
    
    
    3,757
    
    
    
    10,170
    
    
    
    14,040Cash and cash equivalents, end of period
    
    $
    1,359
    
    
    $
    3,757
    
    
    $
    10,170Supplemental disclosures of cash flow information:Cash paid for interest
    
    $
    1,325
    
    
    $
    1,561
    
    
    $
    1,940Cash paid for income taxes
    
    $
    54
    
    
    $
    817
    
    
    $
    1,075
 The accompanying notes are an integral part of these consolidated financial statements. F-5




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands )  1.
    
    Nature of OperationsThe business of DiCon Fiberoptics, Inc. and Subsidiary (the Company) is
developing, manufacturing and marketing optical components, modules, and test
instruments for optical communications markets. DiCon Fiberoptics, Inc. is
incorporated in California. The Company has a domestic manufacturing
facility and headquarters in California. The Company, through Global
Fiberoptics Inc. (Global Fiberoptics), its wholly owned Taiwanese
subsidiary, formed in December 1999, also operates a manufacturing and sales
facility in Kaohsiung, Taiwan, and conducts Asian marketing, sales, and
manufacturing activities there.2.
    
    Summary of Significant Accounting PoliciesPrinciples of consolidationThe accompanying consolidated financial statements include the accounts of
DiCon Fiberoptics, Inc. and Global Fiberoptics, which is more than 99 percent
owned and controlled by DiCon Fiberoptics, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.Risks and uncertaintiesThe optical communications markets have experienced a severe downturn,
resulting in a significant decline in the demand for the optical components
supplied by the Company and its competitors. A prolonged downturn in the
optical communication markets, failure by the Company to anticipate or
respond to technological developments in its industry, changes in customer or
supplier requirements, changes in regulatory requirements or industry
standards, or any significant delays in the development or introduction of
products, could have a material adverse effect on the Companys financial
condition, operating results or cash flows.Use of estimatesThe preparation of the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires estimates and judgments that affect the reported amounts
of assets and liabilities, net sales and expenses, and the related
disclosures. Estimates are based on historical experience, knowledge of
economic and market factors and various other assumptions that the Company
believes to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.Translation adjustmentThe functional currency for the Companys operations in Taiwan is the New
Taiwan dollar. For those operations, assets and liabilities are translated
into United States dollars using period-end exchange rates. The income and
expense accounts are translated at average monthly exchange rates. Net
changes resulting from such translations are recorded as a component of other
comprehensive income (loss).Cash and cash equivalentsThe Company considers all highly liquid investments with an original maturity
of three months or less at the time of purchase and all money market funds
with a nominally stable value per share to be cash equivalents. These
investments are recorded at cost.Marketable securitiesThe Company invests cash in excess of operating requirements in certificates
of deposit of longer maturities, marketable equity securities and investment
funds. These marketable equity securities and investment funds are purchased
and held primarily for the purpose of selling them in the short-term and are
therefore classified as available-for-sale securities. The securities are
recorded at fair value. Unrealized gains or losses on securities held during
the period are recorded as a component of other comprehensive income (loss).
Realized gains or losses are included in other income or expense.
Certificates of deposit are normally held until maturity and are recorded at
cost.Other long-term investmentsLong term investments are accounted for at historical cost and are subject to a
periodic impairment review; however, for non-marketable equity securities classified under the other long-term investments of the Company,
the impairment analysis requires significant judgment to identify events or
circumstances that would F-6




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DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands ) likely have a significant adverse effect on the fair
value of the investment. The indicators the Company uses to identify those
events and circumstances include the investments revenue and earnings trends
relative to predefined milestones and overall business prospects; the
technological feasibility of the investments products and technologies; the
general market conditions in the investments industry; and the investments
liquidity, debt ratios and the rate at which the investment is using cash.
Investments identified as having an indicator of impairment are subject to
further analysis to determine if the investment is other than temporarily
impaired, in which case the investment is written down to its impaired value.
When an investment is not considered viable from a financial or technological
point of view, the entire investment is written down, since the estimated
fair market value is considered to be nominal. Impairment of non-marketable
equity securities is recorded in impairment of other long-term investments in the
Consolidated Statements of Operations. Concentration of credit risk Financial instruments that potentially subject the Company to concentrations
of credit risk comprise cash and cash equivalents, short-term investments and
trade accounts receivable. Cash and cash equivalents, primarily composed of
investments in money market funds, are maintained with high quality financial
institutions and the composition and maturities are regularly monitored by
management. The Companys cash and cash equivalents are maintained at
multiple financial institutions. Despite the fact that the Company had over 200 customers in the year ended
March 31, 2004, there are a limited number of very large customers that
account for the majority of purchases in the industry worldwide. The
Company performs ongoing credit evaluations on these customers. Allowances
for doubtful accounts for estimated losses are maintained resulting from the
inability or unwillingness of customers to make required payments. As of and for the years ended March 31, 2004, 2003 and 2002, the Company
experienced the following concentrations associated with sales and accounts
receivable: Years Ended March 31,2004
    
    2003
    
    2002Percentage of revenue for 3 largest customers
    
    
    45.7
    %
    
    
    33.4
    %
    
    
    33.6
    %No. of customers accounting for over 10% of net sales
    
    
    2
    
    
    
    1
    
    
    
    2No. of customers accounting for more than 10% of
accounts receivables balance
    
    
    3
    
    
    
    2
    
    
    
    1
 Fair value of financial instruments The Company has determined that the amounts reported for cash and cash
equivalents, accounts receivable, short-term borrowings, accounts payable,
accrued expenses, equipment loan and mortgage loan approximate fair value
because of their short maturities and/or variable interest rates. Marketable
securities are reported at their fair market value based on quoted market
prices. Inventories Inventories are valued at the lower of cost or market using the first-in,
first-out (FIFO) method. Cost is determined using standard cost, which
approximates actual cost. The inventory of the Company is subject to rapid
technological changes and obsolescence that could have an adverse affect on
its utilization in future periods. Accordingly, the Company write down
excess and obsolete inventory based on the Companys estimates of inventory
to be sold or consumed. Property, plant and equipment Property, plant and equipment are recorded at cost. Depreciation is provided
using the double-declining-balance method for assets acquired prior to March
31, 2000 and the straight-line method for assets acquired thereafter. The
estimated useful lives of various assets are summarized as follows: Machinery, equipment and fixtures
    
    5 to 10 yearsBuilding and leasehold improvements
    
    39 years or the shorter of the life of the improvement or term of the lease
 F-7




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DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands ) The Company evaluates the recoverability of the net carrying value of its
property, plant and equipment whenever events or changes in circumstances
indicate an impairment may exist, by comparing the carrying values to the
estimated future undiscounted cash flows. A deficiency in these cash flows
relative to the carrying amounts is an indication of the need for a
write-down due to impairment. The impairment write-down would then be the
difference between the carrying amounts and the fair value of these assets.
A loss on impairment would be recognized by a charge to earnings. The
Company did not record an impairment charge for property, plant and equipment
in the years ended March 31, 2004, 2003 and 2002. Deferred taxes Deferred income tax assets and liabilities represent the expected future tax
consequences attributable to temporary differences between corresponding
amounts stated on the Consolidated Balance Sheet and their respective tax
bases. Deferred tax assets and liabilities are measured using the enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be reverse. Valuation allowances are
recognized as necessary to reduce the deferred tax assets to the amount that
is more likely than not to be realized. Revenue recognition The Company derives its revenue from the sale of fiberoptic networking
components. Revenue from product sales is recognized upon shipment of the
product, provided that persuasive evidence of an arrangement exists, delivery
has occurred and no significant obligations remain, the fee is fixed or
determinable and collectibility is reasonably assured. Sales to distributors
do not include the right to return or exchange products or price protection.
Provisions for returns and allowances are recorded at the time revenue is
recognized based on the Companys historical experience. The Company
provides for the estimated cost to repair products under warranty at the time
of sale (see Note 18). Research and development costs Research and development expenses consist primarily of salaries and related
costs of employees engaged in research, design and development activities.
The Company expenses all research and development related expenses in the
period in which such expenses are incurred. Segment information The Company operates in one segment - the development, manufacturing and
marketing of fiberoptic components and measurement equipment for the optical
communications market. 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 other comprehensive income (loss),
depending on the type of hedging relationships that exists. The Company manufactures products in the United States and in Taiwan, and all
sales through March 31, 2004 to customers have been made in U.S. Dollars.
Transactions between the Companys Taiwan subsidiary, Global Fiberoptics, and
its U.S. operations are denominated in U.S. Dollars. The functional currency
of its Taiwan subsidiary is the New Taiwan Dollar. As a result, the
Company has material exposure to foreign currency fluctuations between the
U.S. Dollar and the New Taiwan Dollar for (1) sales to its subsidiary, (2)
purchases from its subsidiary, and (3) revaluation of monetary assets held by
its subsidiary. In addition, a portion of the Companys international
revenues and expenses may be denominated in other foreign currencies in the
future. In order to mitigate the Companys exposure to foreign currency
exchange risks, the Company has entered into a number of foreign currency
forward contracts and option. Gains or losses on these contracts are
recognized as other income (expense) and have not been significant. The
Company did not use derivatives for trading purposes for the fiscal
year ended March 31, 2004. Reclassification Certain prior year balances have been reclassified to conform to current year
presentation. F-8




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands except per share data)  3.
    
    Stock-based compensationThe Company accounts for stock-based compensation issued to employees using
the intrinsic value method of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, presents
disclosure of pro forma information required under Statement of Financial
Accounting Standard (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. Stock and other equity instruments
issued to non-employees are accounted for in accordance with SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services, and recorded at their fair
value. Expenses associated with stock-based compensation in amortized on a
straight line basis over the vesting period of the individual award.The fair value of each grant was estimated using the minimum value method, in
accordance with SFAS No. 123, with the following assumptions for the fiscal
years ended March 31: Years Ended March 31,2004
    
    2003
    
    2002Expected life (in years)
    
    5
    
    4
    
    4Risk-free interest rate
    
    0.95%-3.33%
    
    2.0% to 4.24%
    
    3.63% to 4.92%Volatility
    
    0.00%
    
    0.00%
    
    0.00%Dividend yield
    
    0.00%
    
    0.00%
    
    0.00%Estimated weighted average fair value of options at the date of grant
    $
    0.28
    $
    0.51
    $
    0.93
 Had compensation cost for the Companys stock option plans been determined
based on the fair value of such awards at the grant dates as prescribed by
SFAS No. 123, stock-based compensation costs would have impacted net (loss)
income and (loss) income per common share for the fiscal years ended March
31, as follows: Years Ended March 31,2004
    
    2003
    
    2002Net loss, as reported
    
    $
    (12,026
    )
    
    $
    (23,187
    )
    
    $
    (3,109
    )Add: Stock-based employee
compensation expense included in
reported net loss, net of tax
    
    
    481
    
    
    
    441
    
    
    
    324Deduct: Compensation expense based
on fair value method, net of tax
    
    
    (1,174
    )
    
    
    (1,313
    )
    
    
    (747
    )Pro forma net loss
    
    $
    (12,719
    )
    
    $
    (24,059
    )
    
    $
    (3,532
    )Loss per share:Basic and diluted - as reported
    
    $
    (0.11
    )
    
    $
    (0.21
    )
    
    $
    (0.03
    )Basic and diluted - pro forma
    
    $
    (0.11
    )
    
    $
    (0.22
    )
    
    $
    (0.03
    )Weighted average shares outstanding:Basic and diluted
    
    
    112,014
    
    
    
    111,068
    
    
    
    108,458
 F-9




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DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands )  4.
    
    Recent accounting pronouncementsFinancial Accounting Standards Board (FASB) Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), was issued in
January 2003. FIN 46 requires that if an entity is the primary beneficiary of
a variable interest entity, the assets, liabilities, and results of
operations of the variable interest entity should be included in the
consolidated financial statements of the entity. The provisions of FIN 46 are
effective immediately for all arrangements entered into after January 31,
2003. For those arrangements entered into prior to February 1, 2003, the
provisions of FIN 46 were required to be adopted at the beginning of the
first interim or annual period beginning after June 15, 2003. However, in
October 2003, the FASB deferred the effective date of
FIN 46 to the end of the first interim or annual period ending after December
31, 2003 for those arrangements entered into prior to February 1, 2003. The
adoption of this standard did not have a material impact on the Companys
consolidated financial position, results of operations or cash flows.In May 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. SFAS No. 150 establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS No. 150
requires that an issuer classify a financial instrument that is within its
scope as a liability (or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of this standard did not have a
material impact on the Companys consolidated financial position, results of
operations or cash flows.In November 2003, the Emerging Issues Task Force (EITF) reached a consensus
on Issue No. 03-01 The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments (EITF 03-01). EITF 03-01 establishes
additional disclosure requirements for each category of FAS 115 investments
in a loss position. Effective for years ending after December 15, 2003,
companies must disclose the aggregate amount of unrealized losses, and the
aggregate related fair value of their investments with unrealized losses.
Those investments are required to be segregated by those in a loss position
for less than twelve months and those in a loss position for greater than
twelve months. Additionally, certain qualitative disclosures should be made
to clarify a circumstance whereby an investments fair value that is below
cost is not considered other-than-temporary. The provisions of this consensus
do not have any material effect on the Companys results of operations or
financial position.On December 17, 2003, the Securities and Exchange Commission (the SEC)
issued SAB No. 104, Revenue Recognition (SAB 104), which supercedes SAB No.
101, Revenue Recognition in Financial Statements (SAB 101). SAB 104s
primary purpose is to rescind accounting guidance contained in SAB 101
related to multiple element revenue arrangements, superceded as a result of
the issuance of EITF 00-21, Accounting for Revenue Arrangements with Multiple
Deliverables (EITF 00-21). Additionally, SAB 104 rescinds the SECs
Revenue Recognition in Financial Statements Frequently Asked Questions and
Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic
13, Revenue Recognition. Selected portions of the FAQ have been incorporated
into SAB 104. While the wording of SAB 104 has changed to reflect the
issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain
largely unchanged by the issuance of SAB 104. EITF 00-21 was effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. The provisions of SAB 104 had no effect on the Companys consolidated financial position, results of
operations or cash flows.5.
    
    Basic net loss per shareBasic net loss per share is computed by dividing the net loss (numerator) by
the weighted average number of common shares outstanding (denominator) during
the periods, excluding the dilutive effect of stock options. Diluted net
loss per share gives effect to all potentially dilutive common stock
equivalents outstanding during the period. In computing diluted net loss per
share, the average stock price for the period is used in determining the
number of shares assumed to be purchased from the proceeds of stock option
exercises. F-10




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DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands except per share data)  The following is a reconciliation of the numerators and denominators of the
basic and diluted net loss per share computations for the periods presented
below: Years Ended March 31,2004
    
    2003
    
    2002Numerator:Net loss
    
    $
    (12,026
    )
    
    $
    (23,187
    )
    
    $
    (3,109
    )Denominator:Basic and diluted weighted average shares
    
    
    112,014
    
    
    
    111,068
    
    
    
    108,458Net loss per share:Basic and diluted
    
    $
    (0.11
    )
    
    $
    (0.21
    )
    
    $
    (0.03
    )
  As a result of the losses incurred by the Company for the years ended March
31, 2004, 2003 and 2002, weighted average options to purchase 4,841, 8,228
and 9,977 shares of common stock were anti-dilutive and excluded from the net
loss per share calculations, respectively.  6.
    
    LiquidityAs of March 31, 2004, DiCon had cash and cash equivalents of $1.4 million.
In addition, in conformity with the requirements of generally accepted
accounting principles, $20.3 million was invested in certificates of deposit
and other marketable securities that were classified as marketable
securities. The Company invests cash in excess of short-term needs in these
investments to attempt to improve yields on its total investment portfolio.DiCon believes its current cash and cash equivalents and marketable
securities will be sufficient to meet its anticipated cash needs for working
capital and capital expenditures for at least the next 12 months. There
remains some possibility that DiCon may need to raise additional capital.
For instance, it might need additional capital in order to refinance its loans, finance unanticipated growth or to invest in new technology.
There can be no certainty that DiCon would be successful in raising the
required capital or in raising capital at acceptable rates.7.
    
    Marketable SecuritiesThe value of the Companys investments by major security type is as follows: AggregateUnrealized
    
    Unrealized
    
    FairCost
    
    Gains
    
    Losses
    
    ValueMarch 31, 2004Foreign Mutual Fund
    
    $
    833
    
    
    $
    17
    
    
    $
    
    
    
    $
    850Certificate of Deposit
    
    
    19,400
    
    
    
    
    
    
    
    
    
    
    
    19,400Total
    
    $
    20,233
    
    
    $
    17
    
    
    $
    
    
    
    $
    20,250March 31, 2003Foreign Mutual Fund
    
    $
    174
    
    
    $
    81
    
    
    $
    
    
    
    $
    255Certificate of Deposit
    
    
    10,596
    
    
    
    
    
    
    
    
    
    
    
    10,596Total
    
    $
    10,770
    
    
    $
    81
    
    
    $
    
    
    
    $
    10,851
 All certificates of deposit with original maturities of greater than 90 days. F-11




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DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands )  8.
    
    InventoriesInventories consist of the following as of March 31, 2004 and 2003: March 31,
    
    March 31,2004
    
    2003Raw materials
    
    $
    1,813
    
    
    $
    1,989Work-in-process
    
    
    2,693
    
    
    
    1,875Total
    
    $
    4,506
    
    
    $
    3,864
  9.
    
    Investments in non-marketable equity securitiesGlobal Fiberoptics, Inc. has invested $0.5 million for a 5.45% minority
interest in a private company in Taiwan engaged in the optical coating
business. This investment is held for investment purposes and is accounted
for on the cost basis of accounting. The investment value has been fully
impaired as of March 31, 2004.10.
    
    Property, Plant and Equipment, netProperty, plant and equipment consist of the following as of March 31, 2004
and 2003: March 31,
    
    March 31,2004
    
    2003Land
    
    $
    10,000
    
    
    $
    10,000Building and leasehold improvements
    
    
    37,764
    
    
    
    37,492Machinery, equipment and fixtures
    
    
    47,993
    
    
    
    52,191Property, plant and equipment
    
    
    95,757
    
    
    
    99,683Less: Accumulated depreciation
    
    
    (37,007
    )
    
    
    (31,481
    )Property, plant and equipment, net
    
    $
    58,750
    
    
    $
    68,202
 Depreciation expense was $9,219, $10,245 and $10,641 for the years ended
March 31, 2004, 2003 and 2002. During the year ended March 31, 2004 and 2003, the Company disposed of
equipment and furniture with a net book value of $884 and $1,576 for proceeds
of $214 and $645, respectively.  11.
    
    Accounts Payable and Accrued LiabilitiesAccounts payable and accrued liabilities consist of the following as of March
31, 2004 and 2003: March 31,
    
    March 31,2004
    
    2003Accounts payable
    
    $
    1,053
    
    
    $
    2,151Accrued payroll
    
    
    900
    
    
    
    325Accrual for vacated properties (see Note 18)
    
    
    250
    
    
    
    519Accrued liabilities
    
    
    711
    
    
    
    519$
    2,914
    
    
    $
    3,514
 F-12




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands )  12.
    
    Mortgage and Other DebtThe Company financed, in part, a new corporate campus by obtaining a
construction loan from a bank of $27.0 million on August 24, 2000. In
November 2001, the same bank refinanced the outstanding balance of the
construction loan with a mortgage loan maturing on November 20, 2004, with an
amortization schedule based on a 25-year loan. On June 28, 2004, the bank
agreed to extend the maturity date of the mortgage loan to October 20, 2007,
subject to additional terms and conditions requiring the Company to make
additional principal repayments as follows: $1.5 million on June 15, 2004;
$1.0 million on October 1, 2004; and seven installments each in the amount of
$0.5 million on the first day of each calendar quarter, commencing on January
1, 2005 and ending on July 1, 2006.Interest on the mortgage loan is accrued at a variable interest rate based on
changes in the lenders prime rate as of the 20th of each month (4.0 percent
at March 31, 2004). Principal and interest are payable monthly. The balance
of the mortgage loan as of March 31, 2004 was $25.5 million. During the year
ended March 31, 2002, the Chairman, President and Chief Executive Officer of
the institution with which the Company maintains the mortgage loan was
appointed to the Companys Board of Directors.In April 2001, the Company obtained an equipment loan from a bank in the
amount of $7,250. The loan is secured by specific pieces of equipment. The
loan is repayable in equal monthly installments of principal and interest
over 60 months beginning May 30, 2001. On March 31, 2004, the loan balance
was $3.0 million. Effective April 30, 2002 and annually on April 30th of each
year thereafter, the Company may elect to fix the interest rate on the
equipment loan for a twelve month period at a rate of one-half of one
percentage point (0.5 percent) per annum in excess of the prime rate. As of
March 31, 2004, the Company had not elected the fixed rate option and the
loan bore an interest rate of prime plus 0.5 percent (4.5 percent on March
31, 2004). On March 31, 2003, the Company was in violation of two of the
financial covenants under this loan agreement. The bank agreed to waive the
covenants, but added an additional covenant requiring the Company to maintain
a balance of cash and marketable securities (excluding equity securities) of
at least two times the outstanding loan balance. The waiver was extended
through March 31, 2005. The Company was in compliance with the additional
covenant as of March 31, 2004 and 2003.In December 2002, Global Fiberoptics obtained a line of credit in Taiwan
backed by commercial paper issued by Global Fiberoptics for a maximum of
220,000 New Taiwan Dollars (or approximately $6,379 as of March 31, 2003). In
January 2004, Global Fiberoptics renewed and reduced its line of credit to
100,000 New Taiwan Dollars (or US$3,028 as of March 31, 2004). The interest
rate is based on a rate set by the bank at the time funds are drawn. The line
of credit will mature on January 28, 2005. The outstanding balance of any
commercial paper under this line of credit must be fully secured by either a
cash deposit or bond fund certificate. As of March 31, 2004, Global
Fiberoptics had issued commercial paper in the amount of 27,500 New Taiwan
Dollars (or US$833 as of March 31, 2004) with interest rate of 1.04 %.The maturities of mortgage and other debt outstanding as of March 31, 2004
are summarized as follows: EquipmentYear Ending March 31,
    
    Line of Credit
    
    Mortgage Loan
    
    Loan
    
    Total2005
    
    $
    833
    
    
    $
    3,776
    
    
    $
    1,450
    
    
    $
    6,0592006
    
    
    
    
    
    
    2,915
    
    
    
    1,450
    
    
    
    4,3652007
    
    
    
    
    
    
    2,024
    
    
    
    121
    
    
    
    2,1452008
    
    
    
    
    
    
    16,800
    
    
    
    
    
    
    
    16,800Total
    
    $
    833
    
    
    $
    25,515
    
    
    $
    3,021
    
    
    $
    29,369
  13.
    
    Common StockIn May 2002, the Company issued an aggregate of 1,612 additional shares of
common stock to investors in a private placement and to employees under the
Employee Stock Purchase Plan for aggregate cash consideration of $3,738. The
proceeds were used for general corporate purposes. F-13




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DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands ) In September 2002, the Company sold 1,784 shares of common stock through a
private placement. The proceeds of $6,245 were used for general corporate
purposes.  14.
    
    Stock Plans and Deferred Compensation LiabilityAs an incentive for employees to assist in growing the Company, prior to
March 31, 2001 the Company maintained a phantom stock plan (the Phantom
Stock Plan) under which it granted eligible employees phantom stock units
that entitled the employees to participate in the current and future value of
the Company. In addition, the Company made contingent commitments to eligible
employees to grant stock units in the future (the Contingently Promised
Stock Units). The shares under the plan were valued semiannually, typically
in May and December. These stock units vested 50 percent upon receipt and 50
percent on the first anniversary of the grant date and had an exercise price
of zero. During the service period of one-year following the date of the
grant, the vested units could be redeemed for cash on a net basis by
forfeiting additional units equal to the number of units redeemed.
Thereafter, a maximum of 60 percent of the units could be redeemed while the
holder was still an employee of the Company. The Company recorded a
liability for the value of the unredeemed vested shares at the current value
as of the financial statement date.On March 31, 2001, the Company offered its employees two new equity incentive
plans, an Employee Stock Option Plan (the Option Plan) and an Employee
Stock Purchase Plan (the Purchase Plan). Grants under the Phantom Stock
Plan have been discontinued. Under both the Option Plan and the Purchase
Plan, the exercise or purchase price is not to be less than 85 percent of the
fair value of Companys common stock at the time of grant under the Option
Plan or purchase under the Purchase Plan. New options granted under the
Option Plan generally vest over five years and expire after ten years.Under the terms of the Option Plan, employees who were participants in the
Phantom Stock Plan could convert their awarded phantom stock units and their
Contingently Promised Stock Units into (1) options with an exercise price of
$4.11 per share and cash payments of $4.11 per share (paid over four years);
(2) additional options with an exercise price of $4.11; or (3) a combination
of both (1) and (2). The cash payments and the options that were converted
from vested stock units vested immediately. The cash payments and the
options that were converted from Contingently Promised Units will vest in
accordance with the original vesting schedule, but not less than 20 percent
per year. At March 31, 2001, all phantom stock units for current employees
under the Phantom Stock Plan were converted to options or options and cash
payments pursuant to one of the alternatives noted above.Cash payments related to the conversion are payables in four annual
installments beginning on March 31, 2002. As of March 31, 2001, the Company
anticipated making four annual payments of $5,930 each commencing March 31,
2002 for those employees whom elected to receive a cash payout in lieu of
additional options. The present value of the cash payments related to the
conversion of vested phantom stock units of $15,131 was recorded as a
liability as of March 31, 2001. The cash payments related to the conversion
of the Contingently Promised Units are subject to continuing employment and,
accordingly, the related expense and liability are accrued as earned by the
employees. The first annual installment of $5,812 to those employees electing
to receive cash in lieu of additional options was paid on March 28, 2002.As of December 31, 2002, the total remaining undiscounted future payments
related to the conversion of the Companys Phantom Stock Plan to its Option
Plan totaled $7,645, payable in three equal annual installments beginning
March 31, 2003. In order to reduce this liability, the Company offered the
participants an opportunity to receive an early payment in January 2003. As
a result, under the terms of the early payment program, the Company paid
$1,979 on January 10, 2003 and reduced the future liability for Contingently
Promised Units by $2,058.The second and third annual installments of $416 and $347 to those employees
electing to receive cash in lieu of additional options was paid on March 31,
2003 and 2004. F-14




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands except per share data) The Purchase Plan was available to all eligible employees who meet certain
service requirements. Effective April 1, 2001 employees participating in the
Purchase Plan could elect to deduct up to 10 percent of gross pay to purchase
stock in the Company. Stock transactions pursuant to the Purchase Plan
occurred semiannually on December 31 and March 31. The Company could sell up
to 3,230 shares of stock under the Purchase Plan. Employees purchased 70
 shares at a price of $3.85 per share on December 31, 2001 and 174 shares at a
price of $2.10 on March 31, 2002. In May 2002, the Company issued 659
additional shares of common stock to employees under the Purchase Plan for
aggregate cash consideration of $1,384 at a price of $2.10. In September
2002, the Company suspended the sale of shares to employees under the
Purchase Plan. Under both the Option Plan and the Purchase Plan, the exercise or purchase
price is not less than 85 percent of the stocks fair value, based on the
valuation as determined by the Company. Under this valuation methodology, the
value of the shares at March 31, 2004 and 2003 was $0.96 and $1.21 per share. The Company has accounted for the equity incentive plans under APB No. 25.
As a result of the Phantom Stock Plan Conversion, the amount of accrued
compensation that was not payable in cash was reclassified as additional
paid-in capital as of March 31, 2001. Deferred compensation is being
amortized on a straight-line basis over four years for the intrinsic value of
stock options associated with the conversion of the Contingently Promised
Units and over the vesting period for in-the-money option grants subsequent
to March 31, 2001. Compensation expense related to the Companys stock compensation
plans has been reflected in the Consolidated Statement of Operations and
Comprehensive Income (Loss) for the years ended March 31, 2004, 2003 and 2002
as follows: Years Ended March 31,2004
    
    2003
    
    2002Cost of goods sold
    
    $
    79
    
    
    $
    157
    
    
    $
    293Selling, general and administrative expenses
    
    
    275
    
    
    
    957
    
    
    
    1,068Research and development expenses
    
    
    577
    
    
    
    314
    
    
    
    562$
    931
    
    
    $
    1,428
    
    
    $
    1,923
 Information with respect to the Option Plan Activity for the years ended
March 31, 2004, 2003 and 2002 is set forth below: Outstanding OptionsShares Available
    
    
    
    
    
    Weighted Averagefor Grant
    
    Number of Options
    
    Exercise PriceBalance at March 31, 2001
    
    
    2,241
    
    
    
    9,599
    
    
    $
    4.11Options granted
    
    
    (1,009
    )
    
    
    1,009
    
    
    
    2.92Options expired
    
    
    123
    
    
    
    (123
    )
    
    
    4.11Balance at March 31, 2002
    
    
    1,355
    
    
    
    10,485
    
    
    
    4.01Options granted
    
    
    (445
    )
    
    
    445
    
    
    
    2.37Options exercised
    
    
    1
    
    
    
    (1
    )
    
    
    4.11Options expired
    
    
    6,158
    
    
    
    (6,158
    )
    
    
    4.05Balance at March 31, 2003
    
    
    7,069
    
    
    
    4,771
    
    
    
    3.80Options granted
    
    
    (1,024
    )
    
    
    1,024
    
    
    
    0.93Options expired
    
    
    588
    
    
    
    (588
    )
    
    
    3.61Balance at March 31, 2004
    
    
    6,633
    
    
    
    5,207
    
    
    
    3.26
 F-15




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands except per share data) As of March 31, 2004, the options outstanding and exercisable under the
Option Plan are presented below: Options OutstandingWeightedAverageRemainingNumber of
    
    Contractual Life
    
    Options VestedExercise Price
    
    Shares
    
    (in Year)
    
    and Exercisable$ 0.82
    
    
    490
    
    
    
    9.78
    
    
    
    48$ 1.03
    
    
    514
    
    
    
    9.41
    
    
    
    39$ 1.21
    
    
    10
    
    
    
    9.78
    
    
    
    3$ 2.10
    
    
    245
    
    
    
    7.97
    
    
    
    117$ 2.47
    
    
    267
    
    
    
    7.80
    
    
    
    172$ 2.72
    
    
    160
    
    
    
    8.12
    
    
    
    64$ 3.85
    
    
    150
    
    
    
    7.23
    
    
    
    94$ 4.11
    
    
    3,371
    
    
    
    7.00
    
    
    
    3,0095,207
    
    
    
    
    
    
    
    3,546
  15.
    
    Benefit PlanA 401(k) plan covers all eligible U.S. employees who meet certain service
requirements. Employees may elect to defer a portion of their gross salary
to their accounts within the plan. The Company at its option may make
additional contributions to employee accounts. The Companys contributions
are subject to a six-year vesting schedule. The 401(k) plan operates on a
calendar year basis. For the calendar year ended December 31, 2003 and 2002,
the Company elected to match 50 percent of the first 6 percent of employee
contributions. Payments of $143 and $191 were made for calendar year 2003
and 2002, respectively. An accrual has been made for this expense for the
three months ending March 31, 2004 in the amount of $45.16.
    
    Income taxesThe benefit for income taxes for the years ended March 31, 2004, 2003, and
2002 consists of the following: Years Ended March 31,2004
    
    2003
    
    2002Current:Federal
    
    $
    0
    
    
    $
    15,484
    
    
    $
    9,491State
    
    
    (1
    )
    
    
    3
    
    
    
    (514
    )Foreign
    
    
    (7
    )
    
    
    (27
    )
    
    
    (925
    )(8
    )
    
    
    15,460
    
    
    
    8,052Deferred:Federal
    
    
    1,713
    
    
    
    (5,332
    )
    
    
    (4,572
    )State
    
    
    573
    
    
    
    (4,104
    )
    
    
    1,792Foreign
    
    
    (295
    )
    
    
    154
    
    
    
    (55
    )1,991
    
    
    
    (9,282
    )
    
    
    (2,835
    )$
    1,983
    
    
    $
    6,178
    
    
    $
    5,217
 F-16




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##### Table of Contents



DiCon Fiberoptics, Inc. and SubsidiaryNotes to the Consolidated Financial Statements(in thousands ) The Companys loss before income taxes consisted of the following for the
years ended March 31: Years Ended March 31,2004
    
    2003
    
    2002United States
    
    $
    (10,670
    )
    
    $
    (28,363
    )
    
    $
    (10,643
    )Foreign
    
    
    (3,339
    )
    
    
    (1,002
    )
    
    
    2,317Total loss before income tax benefit
    
    $
    (14,009
    )
    
    $
    (29,365
    )
    
    $
    (8,326
    )
 The Companys investment in its Taiwan subsidiary is essentially permanent in
duration and undistributed foreign earnings on March 31, 2004 amounted to
$7.8 million. The Company was granted a five-year tax holiday in Taiwan,
which will expire in 2006. The net impact of this tax holiday was to
decrease income tax by approximately $0, $0 and $203 for the years ended
March 31, 2004, 2003 and 2002, respectively. The Companys effective tax rate varies from the statutory U.S. federal rate
primarily due to the use of tax credits, the effect of state income taxes,
deferred tax asset valuation allowances and the impact of foreign taxes on
its Taiwanese subsidiary. The difference between the Companys effective
income tax rate and U.S. federal statutory rate is reconciled as follows: March 31,2004
    
    2003
    
    2002Provision computed at federal statutory rate
    
    
    35
    %
    
    
    35
    %
    
    
    35
    %State taxes, net of federal tax benefit
    
    
    6
    
    
    
    6
    
    
    
    6Foreign taxes
    
    
    8
    
    
    
    (1
    )
    
    
    14Permanent differences
    
    
    
    
    
    
    (1
    )
    
    
    13Valuation allowances
    
    
    (25
    )
    
    
    (19
    )
    
    
    Other
    
    
    (10
    )
    
    
    1
    
    
    
    (5
    )Effective income tax rate
    
    
    14
    %
    
    
    21
    %
    
    
    63
    %
 Net deferred taxes are classified on the accompanying Consolidated Balance
Sheets according to the classification of the underlying tax attributes. The
tax effects of temporary differences that give rise to deferred assets and
liabilities generally relate to reporting differences arising due to timing
differences. Significant components of deferred tax assets and liabilities
as of March 31, 2004 and 2003 are as follows: March 31, 2004:
    
    United States
    
    Taiwan
    
    TotalDeferred tax assets (liabilities):Deferred compensation
    
    $
    53
    
    
    $
    
    
    
    $
    53Net operating loss carryforwards
    
    
    6,509
    
    
    
    1,060
    
    
    
    7,569Tax credits carryforwards
    
    
    3,053
    
    
    
    408
    
    
    
    3,461Other
    
    
    581
    
    
    
    278
    
    
    
    859Gross deferred assets
    
    
    10,196
    
    
    
    1,746
    
    
    
    11,942Valuation allowance
    
    
    (7,768
    )
    
    
    (1,746
    )
    
    
    (9,514
    )Deferred tax assets
    
    
    2,428
    
    
    
    0
    
    
    
    2,428Property and equipment
    
    
    (2,428
    )
    
    
    
    
    
    
    (2,428
    )Deferred tax liabilities
    
    
    (2,428
    )
    
    
    
    
    
    
    (2,428
    )Net deferred income tax assets (liabilities)
    
    $
    
    
    
    $
    
    
    
    $
    
 F-17




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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands) March 31, 2003:
    
    United States
    
    Taiwan
    
    TotalDeferred tax assets (liabilities):Deferred compensation
    
    $
    30
    
    
    $
    
    
    
    $
    30Net operating loss carryforwards
    
    
    3,356
    
    
    
    337
    
    
    
    3,693Tax credits carryforwards
    
    
    2,552
    
    
    
    138
    
    
    
    2,690Other
    
    
    480
    
    
    
    119
    
    
    
    599Gross deferred assets
    
    
    6,418
    
    
    
    594
    
    
    
    7,012Valuation allowance
    
    
    (5,708
    )
    
    
    (297
    )
    
    
    (6,005
    )Deferred tax assets
    
    
    710
    
    
    
    297
    
    
    
    1,007Property and equipment
    
    
    (2,997
    )
    
    
    
    
    
    
    (2,997
    )Deferred tax liabilities
    
    
    (2,997
    )
    
    
    
    
    
    
    (2,997
    )Net deferred income tax assets (liabilities)
    
    $
    (2,287
    )
    
    $
    297
    
    
    $
    (1,990
    )
  The Company had cummulative net operating loss carryforwards and tax credit
carryforwards of approximately $51.8 million as of March 31, 2004, consists
of $9.2 million federal and $42.6 million state tax credit carryforwards. The state tax carryforwards expire in 2012 if not utilized.Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has recorded a valuation
allowance against certain deferred tax assets at March 31, 2004 and 2003.
Management regularly evaluates the recoverability of the deferred tax asset
and the level of the valuation allowance. At such time as it is determined
that it is more likely than not that the deferred tax asset will be
realizable, the valuation allowance will be reduced.17.
    
    Geographic and Product InformationThe breakdown of sales by geographic customer destination is as follows: Years Ended March 31,2004
    
    2003
    
    2002United States
    
    $
    7,583
    
    
    $
    13,671
    
    
    $
    46,313International
    
    
    11,075
    
    
    
    7,064
    
    
    
    24,300Total
    
    $
    18,658
    
    
    $
    20,735
    
    
    $
    70,613
  The majority of the Companys long-lived assets are located in the United
States. Long-lived assets consist primarily of long-term investments,
property, plant and equipment, net of accumulated depreciation and deposits.
The following represents the geographic location of long-lived assets: March 31,2004
    
    2003United States
    
    $
    47,865
    
    
    $
    56,532Taiwan
    
    
    10,949
    
    
    
    12,278Total
    
    $
    58,814
    
    
    $
    68,810
 F-18




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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands)  DiCons revenue breakdown over the last three fiscal years by product line
has been as follows: Years Ended March 31,2004
    
    2003
    
    2002WDM
    
    
    56
    %
    
    
    50
    %
    
    
    60
    %Switch
    
    
    44
    %
    
    
    50
    %
    
    
    40
    %
  18.
    
    Commitments and contingenciesThe Company normally provides warranties for its products for one year. The
Company provides reserves for the estimated cost of product warranties at the
time revenue is recognized. Estimates of the costs of warranty obligations
are based on the Companys historical experience of known project failure
rates, use of materials and service delivery costs incurred in correcting
product failures. In addition, from time to time, specific warranty accruals
may be made if unforeseen technical problems arise. Should the Companys
accrual experience relative to these factors differ from estimates, the
Company may be required to record additional warranty reserves.
Alternatively, if the Company provides more reserves than needed, the Company
may reverse a portion of such provision in future periods.Changes in the Companys warranty accrual, which is included as a component
of accounts payable and accrued liabilities on the Consolidated Balance
Sheets, are as follows: Fiscal Year2003
    
    2002Balance at beginning of period
    
    $
    56
    
    
    $
    247Accruals for warranties during the period
    
    
    74
    
    
    
    22Settlements made (in cash) during the period
    
    
    (114
    )
    
    
    (213
    )Balance at closing of period
    
    $
    16
    
    
    $
    56
  The Company has non-cancelable operating leases from several different
outside parties for buildings. The leases expire in different years from 2003
through 2011. The leases require the Company to pay insurance, real property
taxes in excess of the base property taxes in all tax years and maintenance
costs. Lease expense net of sublease income for the years ended March 31,
2004, 2003 and 2002, was $82, $587, and $2,386, respectively.The Company moved to its new facilities in Richmond, California during the
2001 fiscal year. Accordingly, certain of the leased properties were no
longer used for operating purposes and are available for sublease. During
the year ended March 31, 2002, the Company accrued an estimated liability for
remaining costs, net of estimated sublease income, in the amount of $1,457.During the 2003 fiscal year, the Company terminated all but three leases. The
Companys estimate of the liability for the remaining costs of these leases
is subject to change depending on the length of time required to sublease the
properties and the rates at which the properties may be subleased. As of
March 31, 2004, the reserve for future lease expenses, net of expected
sublease income, is $0.25 million, and is included in accounts payable and accrued
liabilities in the Consolidated Balance Sheets. As of March 31, 2004, DiCons future gross commitments under all leases
are as follows: Fiscal Year Ending March 31,
    
    (000s)2005
    
    $
    4092006
    
    
    1992007
    
    
    222008
    
    
    22Thereafter
    
    
    57$
    709
 F-19




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##### Table of Contents



b. Financial Statement Schedule.




Valuation and Qualifying AccountsBalance at
    
    Charged to
    
    Charged to
    
    
    
    
    
    Balance atBeginning
    
    Costs and
    
    Other
    
    Deductions/
    
    End ofDescription        (in
000s)
    
    of Period
    
    Expenses
    
    Accounts
    
    Writeoffs
    
    PeriodAllowances for doubtful accountsYear ended March 31, 2002
    
    $
    448
    
    
    $
    721
    
    
    $
    
    
    
    $
    (535
    )
    
    $
    634Year ended March 31, 2003
    
    $
    634
    
    
    $
    37
    
    
    $
    
    
    
    $
    (594
    )
    
    $
    77Year ended March 31, 2004
    
    $
    77
    
    
    $
    1
    
    
    $
    
    
    
    $
    
    
    
    $
    78Allowances for deferred tax assetsYear ended March 31, 2002
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Year ended March 31, 2003
    
    $
    
    
    
    $
    
    
    
    $
    6,005
    
    
    $
    
    
    
    $
    6,005Year ended March 31, 2004
    
    $
    6,005
    
    
    $
    
    
    
    $
    3,509
    
    
    $
    
    
    
    $
    9,514Provision for estimated losses
due to vacated propertiesYear ended March 31, 2002
    
    $
    450
    
    
    $
    1,363
    
    
    $
    
    
    
    $
    
    
    
    $
    1,813Year ended March 31, 2003
    
    $
    1,813
    
    
    $
    512
    
    
    $
    
    
    
    $
    (1,806
    )
    
    $
    519Year ended March 31, 2004
    
    $
    519
    
    
    $
    
    
    
    $
    
    
    
    $
    (269
    )
    
    $
    250





24



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##### Table of Contents



Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure. There has been no changes in or disagreements with DiCons independent
accountants or any reportable event that requires disclosure under Item 304 of
Regulation S-B during the fiscal years ending March 31, 2003, or March 31,
2004, or any later interim period. 
 Item 8A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures. The undersigned
principal executive officer and principal financial officer of DiCon conclude
that DiCons disclosure controls and procedures are effective as of March 31,
2004, based on the evaluation of these controls and procedures required by
paragraph (b) of Exchange Act Rule 13a-15. (b) Changes in Internal Controls. There has been no change in DiCons
internal control over financial reporting identified in connection with the
evaluation required by paragraph (d) of Exchange Act Rule 13a-15 that occurred
during the fourth quarter of the fiscal year ended March 31, 2004, that has
materially affected, or is reasonably likely to materially affect, DiCons
internal control over financial reporting. 
 PART III 
 Item 9. Directors and Executive Officers of the Registrant. Directors and Executive Officers DiCons directors and executive officers as of June 28, 2004, are as
follows: Name
    
    Age
    
    PositionHo-Shang Lee, Ph.D.
    
    45
    
    President, Chief Executive Officer and DirectorGilles M. Corcos,
Ph.D.
    
    77
    
    Chairman of the Board and DirectorChun-Lung Lin
    
    45
    
    President of Global Fiberoptics
Inc. and Director
 25




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##### Table of Contents



Name
    
    Age
    
    PositionAndrew F. Mathieson
    
    47
    
    DirectorDunson Cheng, Ph.D.
    
    59
    
    DirectorPaul Ming-Ching Lo
    
    46
    
    Vice President of Manufacturing and OperationsJannett Wang
    
    51
    
    Vice President of AdministrationAnthony T. Miller
    
    62
    
    General Counsel and Secretary
 Ho-Shang Lee, Ph.D., President, Chief Executive Officer and Director. Dr.
Ho-Shang Lee has served as DiCons President, Chief Executive Officer and a
member of the Board of Directors since the inception of DiCon in June 1986.
Dr. Lee earned his B.S. in Engineering from National Cheng-Kung University,
Taiwan, in 1979 and his M.S. and Ph.D. in Mechanical Engineering from the
University of California, Berkeley in 1984 and in 1986, respectively. Gilles M. Corcos, Ph.D., Chairman of the Board and Director.Dr. Gilles
M. Corcos has served as Chairman of the Board and Director since 1986. Dr.
Corcos has also served as Chief Financial Officer. From 1958 to 1990, Dr.
Corcos was a professor in the University of California, Berkeleys Mechanical
Engineering Department. Dr. Corcos holds a Ph.D. from the University of
Michigan and a Doctorat dEtat (Physics) from the University of Grenoble,
France. Dr. Corcos also serves as a director of Agua Para La Vida, a
non-government organization incorporated in the State of California. Chun-Lung Lin, President of Global Fiberoptics Inc. and Director.
Chun-Lung Lin is the President of Global Fiberoptics Inc., DiCons subsidiary
in Taiwan. Before joining Global in January 2000, Mr. Lin owned and managed
Guo Bao Construction Co. Ltd. in Taiwan for ten years. Mr. Lin joined DiCons
Board of Directors in June 2000. Mr. Lin earned a B.S. and an M.S. in
Engineering from National Cheng-Kung University, Taiwan, in 1979 and 1981,
respectively. He is the brother-in-law of Dr. Ho-Shang Lee. Andrew F. Mathieson, Director.Andrew F. Mathieson has served as a member
of the Board of Directors since June 2000. Mr. Mathieson is the President of
Fairview Capital Investment Management LLC (Fairview), a registered
investment advisor located in Greenbrae, California. Fairview, which was
founded by Mr. Mathieson in 1995, manages separate portfolios and is the
General Partner of a private investment partnership. Mr. Mathieson earned a
B.A. from Yale University in 1978, and an M.B.A. from Stanford University in
1984. Dunson Cheng, Ph.D., Director. Dr. Dunson Cheng joined the Board of
Directors in February 2002. Dr. Cheng is the Chairman and President of Cathay
Bank and Cathay Bancorp. Dr. Cheng earned his B.S. in Applied Math and Physics
from the University of Wisconsin at Madison, Wisconsin and his Ph.D. in Physics
from the State University of New York at Stony Brook, and did post-doctorate
research at the University of Oregon. Dr. Cheng worked for Xerox before
joining Cathay Bank. Dr. Cheng was appointed President of Cathay Bank in 1985,
President of Cathay Bancorp in 1990 and Chairman of both institutions in 1994. Paul Ming-Ching Lo, Vice President of Manufacturing and Operations.Paul
Ming-Ching Lo joined DiCon in August 1997. Prior to joining DiCon, Mr. Lo was
President and Chief Engineer of FEAC Technologies, Inc. from 1986 to 1997. Mr.
Lo earned his B.S. in Engineering in 1979 from National Cheng-Kung University,
Taiwan. Jannett Wang, Vice President of Administration.Jannett Wang joined DiCon
in April 1999. Prior to joining DiCon, Ms. Wang worked for several management
consulting firms, including Data Resources Inc. (now McGraw Hill). Ms. Wang
earned a B.S. in Engineering in 1974 from National Taiwan University and an
M.B.A. in 1980 from Columbia University. Ms. Wang did graduate work in
economics and city and regional planning at the University of Pennsylvania. Anthony T. Miller, General Counsel and Secretary.Anthony T. Miller
joined DiCon in March 2000. Before joining DiCon, Mr. Miller was in private
law practice in San Francisco. Mr. Millers prior experience includes serving
as Vice President-Administration, General Counsel and Secretary of American
Resource Corporation, and as an Assistant General Counsel of Bank of America.
Mr. Miller earned a B.A. in Political Science from Stanford University in 1964
and a J.D. from Hastings College of Law in 1968. Audit Financial Expert The Board of Directors does not have an audit committee or an audit
financial expert serving on the Board. The Board does not have an audit
financial expert because there is no vacancy on the Board, and the incumbent
directors have been re-elected each year since 2002 and earlier. A larger
Board would not be appropriate for a company the size of DiCon. 26




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##### Table of Contents



Compliance withSection 16(a)of the Exchange Act Section 16(a) of the Securities Exchange Act of 1934 requires the
Companys directors and executive officers, and holders of more than 10% of the
Companys common stock, to file with the SEC initial reports of ownership and
reports of changes in ownership of common stock of the Company. Such officers,
directors, and 10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on its review of such forms that it has received, the Company
believes that, during the fiscal year ended March 31, 2004, all Section 16(a)
filing requirements were satisfied on a timely basis. Code of Ethics DiCon has not adopted a code of ethics that applies to its principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, because it has written
rules on conduct (covering, among other matters, dishonesty and falsifying or
altering Company records), confidential and proprietary information, and
conflicts of interest, which are applicable to all DiCon employees. These
rules are contained in various Chapters of the DiCon Employee Handbook. 
 Item 10. Executive Compensation. Summary Compensation Table The following table sets forth all compensation for the chief executive
officer and the three most highly compensated executive officers other than the
chief executive officer who were serving at the end of the fiscal year ended
March 31, 2004. This table shows the compensation earned by these individuals
for the last three fiscal years ended March 31, 2004. AnnualCompensation
    
    Long-term CompensationSecuritiesFiscal Year
    
    
    
    
    
    Underlying
    
    LTIP
    
    
    
    
    
    All OtherName And Principal
    
    Ended
    
    
    
    
    
    Options (#)
    
    Payouts ($)
    
    
    
    
    
    Compensation ($)Position
    
    March 31
    
    Salary ($)
    
    (1)
    
    (2)
    
    
    
    
    
    (3)Ho-Shang Lee, Ph.D.
President and
    
    
    2004
    
    
    $
    57,600
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,728Chief Executive
    
    
    2003
    
    
    $
    57,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    1,729Officer
    
    
    2002
    
    
    $
    65,400
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,800Paul Ming-Ching Lo
Vice President of
    
    
    2004
    
    
    $
    128,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,200Manufacturing and
    
    
    2003
    
    
    $
    136,954
    
    
    
    
    
    
    $
    451,933
    (4)
    
    
    
    
    
    $
    3,115Operations
    
    
    2002
    
    
    $
    144,814
    
    
    
    
    
    
    $
    251,074
    
    
    
    
    
    
    $
    3,587Jannett Wang
    
    
    2004
    
    
    $
    116,667
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vice President of
    
    
    2003
    
    
    $
    76,859
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Administration
    
    
    2002
    
    
    $
    75,128
    
    
    
    20,368
    
    
    
    
    
    
    
    
    
    
    
    Anthony T. Miller
    
    
    2004
    
    
    $
    226,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    General Counsel
    
    
    2003
    
    
    $
    233,015
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    and Secretary
    
    
    2002
    
    
    $
    251,682
    
    
    
    22,400
    
    
    
    
    
    
    
    
    
    
    
    
  (1)
    
    Effective March 31, 2001, DiCon offered a new Employee Stock Option
Plan to replace its Phantom Stock Plan which had been in place since
1999. Under the terms of the Employee Stock Option Plan, employees who
were participants in the Phantom Stock Plan were allowed to convert
their vested phantom stock units and their promised phantom stock
units to cash payments of $4.11 per share (paid in equal annual
installments over four years), additional employee stock options, or a
combination of both. Options that were converted from vested phantom
stock units vested immediately. Options that were converted from
promised phantom stock units vest in accordance with the original
vesting schedule for the phantom stock 27




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##### Table of Contents



units, but not less than 20 percent per year. The number of shares shown
in this column includes stock options granted on the conversion from the
Phantom Stock Plan to the Employee Stock Option Plan.(2)
    
    The amounts in this column represent cash payments received by the
named employees under the conversion from the Phantom Stock Plan to the
Employee Stock Option Plan. Amounts shown for the fiscal year ended
March 31, 2002, are the first annual installments paid on March 28,
2002. For amounts shown for the fiscal year ended March 31, 2003, see
footnote (4) below.(3)
    
    The amounts in this column include DiCons contributions to the
401(k) plan which covers all eligible employees who meet certain service
requirements.Employees may elect to defer a portion of their gross salary to their
accounts within the 401(k) plan. DiCon at its option may make additional
contributions to the employee accounts. For the fiscal years ended March
31, 2004, 2003, and 2002, DiCon elected to match 50 percent of the first 6
percent of the employee contributions. DiCons contributions are subject
to a six-year vesting schedule.(4)
    
    The amount is the cash payment received pursuant to the Companys
offer for an early discounted payment to employees who were entitled to
future cash payments in installments under the conversion of the Phantom
Stock Plan to the Employee Stock Option Plan. The first installment of
$251,074 was paid on March 28, 2002. The amount of the remaining future
promised cash payments of $753,221 were reduced by $301,288, resulting
in a discounted cash payment of $451,933 on January 10, 2003. Options Grants in Last Fiscal Year There were no stock options for DiCon shares granted to the executive
officers listed in the Summary Compensation Table during the fiscal year ended
March 31, 2004. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year  End Option
Values The following table sets forth for each executive listed in the Summary
Compensation Table the number of options exercised in the fiscal year ended
March 31, 2004, and the number of shares subject to both exercisable and
unexercisable stock options as of March 31, 2004. In addition, the table sets
forth the value of unexercised options as of March 31, 2004. Number Of SharesUnderlying Unexercised
    
    Value of Unexercised in-the-Shares
    
    
    
    Options at Fiscal Year-End
    
    money Options at Fiscal YearAcquired OnExercise
    
    ValueRealized
    
    (# of shares)
    
    End (1)Name
    
    (# of shares)
    
    ($)
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisablePaul Ming-Ching Lo
Vice President of
Manufacturing and
Operations
    
    
    
    
    
    
    
    
    
    
    676,354
    
    
    
    
    
    
    
    
    
    
    
    Jannett Wang
Vice President of
Administration
    
    
    
    
    
    
    
    
    
    
    94,830
    
    
    
    47,746
    
    
    
    
    
    
    
    Anthony T. Miller
General Counsel
and Secretary
    
    
    
    
    
    
    
    
    
    
    99,840
    
    
    
    56,960
    
    
    
    
    
    
    
    
  (1)
    
    The value of unexercised options is based on the fair market value of
the underlying stock at fiscal year end, as determined by the Board of
Directors. Compensation of Directors All Directors are reimbursed for out-of-pocket expenses incurred in
connection with attending Board meetings. 28




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##### Table of Contents



Gilles M. Corcos received compensation of $51,200 for the fiscal year
ended March 31, 2004. Non-employee Directors receive stock options under the Employee Stock
Option Plan as follows: Upon first joining the Board, each Director is granted 20,000 stock
options. These options vest in twelve equal quarterly installments, commencing
on the last day of the calendar quarter in which the option was granted. Immediately after each annual shareholders meeting, each Director elected
to the Board is granted 10,000 stock options. These options vest in four equal
quarterly installments, commencing on the last day of the calendar quarter in
which the option was granted. The exercise price for the options is the fair market value of the shares
on the date of the grant. The term of the options is ten years from the date of the grant. 
 Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters. (a) Security Ownership of Certain Beneficial Owners. The following table sets forth information regarding persons who are known
to DiCon to be the beneficial owner of more than five percent of DiCons common
stock as of March 31, 2004. Name
    
    AmountAnd Address
    
    And Nature OfTitle Of Class
    
    Of Beneficial Owner
    
    Beneficial Ownership
    
    
    
    Percent Of ClassCommon
    
    Ho-Shang Lee, Ph.D.
    
    
    27,909,912
    (1)
    
    
    
    
    24.1
    %1689 Regatta Blvd.Richmond, CA 94804Common
    
    Gilles M. Corcos, Ph.D., as
    
    
    14,626,410
    
    
    
    
    
    12.6
    %Trustee for The Gilles M. CorcosTrust1689 Regatta Blvd.Richmond, CA 94804Common
    
    Anne Bleecker Corcos, as Trustee
    
    
    11,786,000
    
    
    
    
    
    10.2
    %for The Anne Bleecker CorcosRevocable Trust88 Codornies RoadBerkeley, CA 94708Common
    
    Mei-Li Lee
    
    
    21,279,273
    (2)
    
    
    
    
    18.4
    %1689 Regatta Blvd.Richmond, CA 94804Common
    
    Andrew F. Mathieson, as co-Trustee
    
    
    7,454,333
    (3)
    
    
    
    
    6.4
    %for the Charlotte Bliss TaylorTrust300 Drakes Landing Road, Suite 250Greenbrae, CA 94904-2498Common
    
    Samuel L. Taylor
    
    
    14,522,920
    (4)
    
    
    
    
    12.6
    %506 Arlington Ave.Berkeley, CA 94707
  (1)
    
    Includes 955,912 shares issued to employees under the Employee Stock
Option Plan and the Employee Stock Purchase Plan which are subject to
voting right agreements pursuant to which Dr. Lee has sole voting
rights.(2)
    
    Includes 269,524 shares subject to stock options under the Employee
Stock Option Plan which are exercisable.(3)
    
    Includes 28,333 shares subject to stock options under the Employee
Stock Option Plan which are exercisable or exercisable within 60 days,
7,076,000 shares owned by Mr. Mathieson as co-Trustee for the Charlotte
Bliss Taylor Trust, and 350,000 shares owned by Darlington Partners,
L.P., an investment partnership for which Fairview Capital Investment
Management LLC (Fairview) is the general partner. Mr. Mathieson is
the managing member of Fairview. 29




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##### Table of Contents



(4)
    
    Includes 7,076,000 shares held by Mr. Taylor as co-Trustee for the
Charlotte Bliss Taylor Trust. (b) Security Ownership of Management. The following table sets forth information regarding DiCons common stock
beneficially owned by all directors and executive officers as of March 31,
2004. AmountName
    
    And Nature OfTitle Of Class
    
    Of Beneficial Owner
    
    Beneficial Ownership
    
    
    
    
    
    Percent Of ClassCommon
    
    Ho-Shang Lee, Ph.D.
    
    
    27,909,912
    (1)
    
    
    
    
    
    
    24.1
    %Common
    
    Gilles M. Corcos, Ph.D., as Trustee
for The Gilles M. Corcos Trust
    
    
    14,626,410
    
    
    
    
    
    
    
    12.6
    %Common
    
    Chung-Lung Lin
    
    
    3,691,885
    (2)
    
    
    
    
    
    
    3.2
    %Common
    
    Andrew F. Mathieson, as co-Trustee
for the Charlotte Bliss Taylor Trust
    
    
    7,454,333
    (3)
    
    
    
    
    
    
    6.4
    %Common
    
    Dunson Cheng
    
    
    -0-
    (4)
    
    
    
    
    
    
    0.00
    %Common
    
    Paul Ming-Ching Lo
    
    
    744,165
    (5)
    
    
    
    
    
    
    0.6
    %Common
    
    Jannett Wang
    
    
    117,520
    (6)
    
    
    
    
    
    
    0.1
    %Common
    
    Anthony T. Miller
    
    
    137,624
    (7)
    
    
    
    
    
    
    0.1
    %Total for directors and executive officers
    
    
    54,681,849
    
    
    
    
    
    
    
    47.1
    %
  (1)
    
    Includes 955,912 shares issued to employees under the Employee Stock
Option Plan and the Employee Stock Purchase Plan which are subject to
voting right agreements pursuant to which Dr. Lee has sole voting
rights.(2)
    
    Includes 32,000 shares subject to stock options under the Employee
Stock Option Plan which are exercisable and 1,180,000 shares held by a
company owned by Mr. Lin.(3)
    
    Includes 28,333 shares subject to stock options under the Employee
Stock Option Plan which are exercisable or exercisable within 60 days,
7,076,000 shares owned by Mr. Mathieson as co-Trustee for the Charlotte
Bliss Taylor Trust, and 350,000 shares owned by Darlington Partners,
L.P., an investment partnership for which Fairview Capital Investment
Management LLC (Fairview) is the general partner. Mr. Mathieson is
the managing member of Fairview.(4)
    
    In January 2004, Dunson Cheng voluntarily surrendered past and future
stock option awards under the Employee Stock Option Plan.(5)
    
    Includes 676,354 shares subject to stock options under the Employee
Stock Option Plan which are exercisable.(6)
    
    Includes 114,630 shares subject to stock options under the Employee
Stock Option Plan which are exercisable or exercisable within 60 days.(7)
    
    Includes 126,240 shares subject to stock options under the Employee
Stock Option Plan which are exercisable or exercisable within 60 days. (c) Changes in Control. There are no arrangements, known to the small business issuer, the
operation of which may at a subsequent date result in a change in control of
the registrant. 
 Item 12. Certain Relationships and Related Transactions. Dunson Cheng is the Chairman, President and a shareholder of Cathay Bank.
Cathay Bank was the lender under the construction loan for the Companys
corporate headquarters and manufacturing facility in Richmond, California, and
is the lender under the 30




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##### Table of Contents



mortgage loan which refinanced the construction loan. (See Note 12 to
financial statements appearing herein). Dunson Cheng became a Director of
DiCon in February 2002. 
 During the fiscal year ended March 31, 2004, DiCon paid Cathay Bank
$1,753,183 in principal and interest on the mortgage loan. The loan balance at
March 31, 2004, was $25,515,043. On June 28, 2004, the bank agreed to extend
the maturity date of the mortgage loan to October 20, 2007, subject to
additional terms and conditions requiring the Company to make additional
principal repayments as follows: $1.5 million on June 15, 2004; $1.0 million on
October 1, 2004; and seven installments each in the amount of $0.5 million on
the first day of each calendar quarter, commencing on January 1, 2005 and
ending on July 1, 2006. DiCon anticipates that it will refinance the mortgage
loan at maturity, but there can be no certainty that it will be able to do so
at that time. 
 Ho-Shang
Lee, President and Chief Executive Officer of DiCon, has personally
indemnified Cathay Bank against any loss, expense or damage suffered
by Cathay Bank resulting from Cathay Banks reliance upon certain representations and warranties provided by DiCon under the mortgage loan. The bank line of credit to Global from a Taiwan bank is personally
guaranteed by Ho-Shang Lee, and
corporately guaranteed by DiCon. Neither guarantor receives any fee or other
compensation for issuing its guarantee. The line of credit to Global backed by commercial paper issued by Global
is personally guaranteed by Chun-Lung Lin, President of Global. Guarantor does
not receive any fee or other compensation for issuing its guarantee. 
 Item 13. Exhibits and Reports on Form 8-K. (a) Exhibits. ExhibitNo.
    
    Description3.1
    
    Articles of Incorporation of DiCon Fiberoptics, Inc., filed June 2, 1986. (a)3.1.1
    
    Certificate of Amendment of Articles of Incorporation of DiCon Fiberoptics, Inc., filed November 9, 1988.
(a)3.1.2
    
    Certificate of Amendment of the Articles of Incorporation of DiCon Fiberoptics, Inc., filed April 12, 2000.
(a)3.1.3
    
    Certificate of Amendment of the Articles of Incorporation of DiCon Fiberoptics, Inc., filed January 24,
2001. (a)3.1.4
    
    Certificate of Amendment of the Articles of Incorporation of DiCon Fiberoptics, Inc., filed June 26, 2002.
(a)3.2
    
    By-Laws of DiCon Fiberoptics, Inc., as amended dated May 15, 2002. (a)4.1
    
    Specimen Common Stock Certificate. (a)4.2
    
    Form of Buy-Sell Agreement (investors). (a)4.2.1
    
    Form of Buy-Sell Agreement (employees). (a)9.1
    
    Form of Voting Rights Agreement. (a)10.1
    
    DiCon Fiberoptics, Inc. Employee Stock Option Plan. (a)10.2
    
    DiCon Fiberoptics, Inc. Employee Stock Purchase Plan. (a)10.3
    
    Term Loan Agreement with Cathay Bank dated November 20, 2001, together with Promissory Note issued
thereunder. (a)10.3.1
    
    Indemnity from Ho-Shang Lee in favor of Cathay Bank dated November 20, 2001. (a)10.4
    
    Equipment Loan and Security Agreement with First Bank & Trust dated April 25, 2001, together with
Promissory Note (Equipment Loan) issued thereunder. (a)10.4.1
    
    Modification to Loan and Security Agreement dated May 31, 2002. (a)
 31




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##### Table of Contents



ExhibitNo.
    
    Description10.5
    
    Lease Agreement with Lincoln Marina Bay, a California limited partnership, dated August 8, 2000, for
premises at 1100 Marina Way South, Richmond, California. (a)10.6
    
    Multi-Tenant Industrial Triple Net Lease with Catellus Development Corporation dated December 3, 1999, for
premises at 938 Marina Way South, Richmond, California. (a)10.7
    
    Multi-Tenant Industrial Triple Net Lease with Catellus Development Corporation dated December 3, 1999, for
premises at 914 Marina Way South, Richmond, California. (a)21.1
    
    Subsidiaries of Registrant. (a)23.2
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Certificate of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes  Oxley Act of
2002.31.2
    
    Certificate of Vice President of Administration pursuant to Section 302 of the Sarbanes  Oxley Act of 2002.32.1
    
    Certificate of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.32.2
    
    Certificate of Vice President of Administration pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
   (a)
    
    Incorporated by reference from the correspondingly numbered Exhibit
to the Form 10 Registration Statement filed by registrant with the
Securities and Exchange Commission on July 23, 2002. (b) Reports on Form 8-K. None. 
 Item 14. Principal Accountant Fees and Services. Audit Fees 
 The aggregate fees billed for each of the last two fiscal years for
professional services rendered by the principal accountant for the audit of
DiCons annual financial statements and review of financial statements included
in DiCons Form 10-Q quarterly reports and services normally provided by
the accountant in connection with statutory and regulatory filings or
engagements were $155,812 for the fiscal year ended March 31, 2004 and $165,400
for the fiscal year ended March 31, 2003. 
 Audit-Related Fees There were no other fees for audit related services for the fiscal year
ended March 31, 2004 or for the fiscal year ended March 31, 2003. Tax Fees 
 The aggregate fees billed for the fiscal year ended March 31, 2003 for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning were $18,500. There were $4,988 in fees billed for tax
compliance for the fiscal year ended March 31,
2004. 
 All Other Fees There were no other fees billed in either of the fiscal years ended March
31, 2003 and 2004 for products and services provided by the principal
accountant, other than reported above. Policy on Board Approval of Accountant Services The Board of Directors does not have an audit committee. 32




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It is the policy of the Board of Directors that before an accountant is
engaged by DiCon to render audit or non-audit services, the engagement will be
approved by the Board of Directors. 33




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SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized. DICON FIBEROPTICS, INC.(Registrant)Date: June 28, 2004
    
    By:
    
    /s/ Ho-Shang Lee(Signature)Name:
    
    Ho-Shang Lee, Ph.D.Title:
    
    President and Chief Executive Officer(principal executive officer)Date: June 28, 2004
    
    By:
    
    /s/ Jannett Wang(Signature)Name:
    
    Jannett WangTitle:
    
    Vice President of Administration(principal financial officer)
 In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated. DICON FIBEROPTICS, INC.(Registrant)Date: June 28, 2004
    
    By:
    
    /s/ Jannett Wang(Signature)Name:
    
    Jannett WangTitle:
    
    Vice President of Administration(principal accounting officer)Date: June 28, 2004
    
    By:
    
    /s/ Gilles M. Corcos(Signature)Name:
    
    Gilles M. CorcosTitle:
    
    Chairman of the Board of DirectorsDate: June 28, 2004
    
    By:
    
    /s/ Ho-Shang Lee(Signature)Name:
    
    Ho-Shang LeeTitle:
    
    Member of the Board of DirectorsDate: June 28, 2004
    
    By:
    
    /s/ Andrew F. Mathieson(Signature)Name:
    
    Andrew F. MathiesonTitle:
    
    Member of the Board of DirectorsDate: June 28, 2004
    
    By:
    
    /s/ Chun-Lung Lin(Signature)Name:
    
    Chun-Lung LinTitle:
    
    Member of the Board of DirectorsDate: June 28, 2004
    
    By:
    
    /s/ Dunson Cheng(Signature)Name:
    
    Dunson ChengTitle:
    
    Member of the Board of Directors
 34




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EXHIBIT INDEX ExhibitNo.
    
    Description3.1
    
    Articles of Incorporation of DiCon Fiberoptics, Inc., filed June 2, 1986. (a)3.1.1
    
    Certificate of Amendment of Articles of Incorporation of DiCon Fiberoptics, Inc., filed November 9, 1988. (a)3.1.2
    
    Certificate of Amendment of the Articles of Incorporation of DiCon Fiberoptics, Inc., filed April 12, 2000. (a)3.1.3
    
    Certificate of Amendment of the Articles of Incorporation of DiCon Fiberoptics, Inc., filed January 24, 2001.
(a)3.1.4
    
    Certificate of Amendment of the Articles of Incorporation of DiCon Fiberoptics, Inc., filed June 26, 2002. (a)3.2
    
    By-Laws of DiCon Fiberoptics, Inc., as amended dated May 15, 2002. (a)4.1
    
    Specimen Common Stock Certificate. (a)4.2
    
    Form of Buy-Sell Agreement (investors). (a)4.2.1
    
    Form of Buy-Sell Agreement (employees). (a)9.1
    
    Form of Voting Rights Agreement. (a)10.1
    
    DiCon Fiberoptics, Inc. Employee Stock Option Plan. (a)10.2
    
    DiCon Fiberoptics, Inc. Employee Stock Purchase Plan. (a)10.3
    
    Term Loan Agreement with Cathay Bank dated November 20, 2001, together with Promissory Note issued thereunder.
(a)10.3.1
    
    Indemnity from Ho-Shang Lee in favor of Cathay Bank dated November 20, 2001. (a)10.4
    
    Equipment Loan and Security Agreement with First Bank & Trust dated April 25, 2001, together with Promissory
Note (Equipment Loan) issued thereunder. (a)10.4.1
    
    Modification to Loan and Security Agreement dated May 31, 2002. (a)10.5
    
    Lease Agreement with Lincoln Marina Bay, a California limited partnership, dated August 8, 2000, for premises
at 1100 Marina Way South, Richmond, California. (a)10.6
    
    Multi-Tenant Industrial Triple Net Lease with Catellus Development Corporation dated December 3, 1999, for
premises at 938 Marina Way South, Richmond, California. (a)10.7
    
    Multi-Tenant Industrial Triple Net Lease with Catellus Development Corporation dated December 3, 1999, for
premises at 914 Marina Way South, Richmond, California. (a)16.1
    
    Letters re Change in Certifying Accountant. (a)21.1
    
    Subsidiaries of Registrant. (a)23.2
    
    Consent of PricewaterhouseCoopers LLP.31.1
    
    Certificate of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes  Oxley Act of
2002.31.2
    
    Certificate of Vice President of Administration pursuant to Section 302 of the Sarbanes  Oxley Act of 2002.
 35




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ExhibitNo.
    
    Description32.1
    
    Certificate of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.32.2
    
    Certificate of Vice President of Administration pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.
   (a)
    
    Incorporated by reference from the correspondingly numbered Exhibit to
the Form 10 Registration Statement filed by registrant with the Securities
and Exchange Commission on July 23, 2002. 36