<PAGE>
                                       1



                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549


                                    FORM 10-Q

(Mark one)

             [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended October 2, 1999


                                       OR


              [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to
                                -------------------      -------------------

                        Commission file number 000-25103

                              E-TEK Dynamics, Inc.
             (Exact name of registrant as specified in its charter)

         Delaware                                59-2337308
State or other jurisdiction          (I.R.S. Employer Identification Number)
of Incorporation ororganization)


                     1865 Lundy Avenue
                  San Jose, California 95131
     (Address of principal executive office and zip code)

                       (408) 546-5000
          (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to filing requirements for the past 90 days.

           YES       X                 NO
                ---------                  ---------

As of October 2, 1999,  67,395,069 shares of the Registrant's  common stock were
outstanding.


<PAGE>


                                       2

                              E-TEK Dynamics, Inc.

                                    FORM 10-Q
                                 October 2, 1999


                                      INDEX

<TABLE>
<CAPTION>
                                                                 Page
<S>              <C>                                             <C>

Part I.          Financial Information

Item 1.          Financial Statements

                 Consolidated Statements of Operations
                 for the Quarter Ended October 2, 1999
                 and October 2, 1998                               3

                 Consolidated Balance Sheets as of
                 October 2, 1999 and June 30, 1999                 4

                 Consolidated Statements of Cash Flows
                 for the Quarter Ended October 2, 1999
                 and October 2, 1998                               5

                 Notes to Consolidated Financial Statements        6

Item 2.          Management's Discussion and Analysis of
                 Financial Condition and Results of Operations     7

Part II.         Other Information

Item 1.          Legal Proceedings                                 16

Item 2.          Changes in Securities and Use of Proceeds         16

Item 6.          Exhibits and Reports on Form 8-K                  16

Signatures                                                         16
</TABLE>








<PAGE>

                                       3

PART I. Financial Information

Item 1.  Financial Statements

                              E-TEK Dynamics, Inc.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                    (In thousands, except per-share amounts)
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                   Quarter Ended
                                          -----------------------------
                                               Oct. 2,        Oct. 2,
                                                1999            1998
<S>                                          <C>                 <C>


Net revenues                           $       60,342    $      32,942
Cost of goods sold                             30,181           15,989
                                           --------------  -------------

   Gross profit                                30,161           16,953
                                         --------------    -------------

Operating expenses:
   Research and development                     4,913            3,076
   Selling, general and administrative          7,622            5,395
   Purchased in-process research and
     development                                1,630              -
   Amortization of intangibles                  6,265              -
                                            --------------  -------------
   Total operating expenses                    20,430            8,471
                                            --------------  -------------

Operating income                                9,731            8,482
Interest income                                 1,539              588
Interest expense                                 (492)            (285)
                                            --------------  -------------

Income before income taxes                     10,778            8,785
Provision for income taxes                      4,096            3,514
                                            --------------  -------------

Net income                                      6,682            5,271
Convertible Preferred Stock accretion             -              2,400
                                            --------------  -------------

   Net income available to
     Common Stockholders               $        6,682    $       2,871
                                            ==============  =============

Net Income per share:
   Basic                                $         0.11   $        0.13
   Diluted                              $         0.10   $        0.09
                                           ==============  =============
Shares used in net income per share Calculations:
   Basic                                        61,938          22,037
   Diluted                                      67,322          58,573

</TABLE>

                 See Notes to Consolidated Financial Statements.




<PAGE>

                                       4

                            E-TEK Dynamics, Inc.
                        CONSOLIDATED BALANCE SHEETS
                             (In thousands)
<TABLE>
<CAPTION>
                                             October 2,             June 30,
                                                1999                  1999
                                         -----------------   -------------------
                        ASSETS             (Unaudited)             (Audited)
<S>                                          <C>                   <C>

  Current assets:
     Cash and cash equivalents         $       178,718      $          55,090
     Accounts receivable                        35,996                 29,831
     Inventories                                35,156                 20,367
     Deferred income taxes                      13,673                 13,542
     Other current assets                        5,391                  3,542
                                        -----------------   -------------------
           Total current assets                268,934                122,372

  Property and equipment, net                   73,971                 61,874
  Long-term investments                         12,666                 11,665
  Goodwill & other intangibles, net             90,543                 34,585
                                        -----------------   -------------------
           Total assets                $       446,114      $         230,496
                                        =================   ===================

                        LIABILITIES AND STOCKHOLDERS' EQUITY

  Current liabilities:
     Accounts payable                  $        21,261      $          17,762
     Accrued liabilities                        33,750                 26,352
     Income taxes payable                        6,442                  4,337
     Current portion of capital
       lease obligations                         1,301                  1,277
     Current portion of long-term debt           6,984                  6,101
                                        -----------------   -------------------

           Total current liabilities            69,738                 55,829
  Capital lease obligations,
    net of current portion                       1,958                  2,281
  Long-term debt, net of current portion        17,644                 19,232
  Deferred income taxes                         18,802                  3,481

                                       -----------------   -------------------
           Total liabilities                   108,142                 80,823
                                       -----------------   -------------------


  Stockholders' equity:
     Common stock, $0.001 par value, 300,000 shares
       Authorized, 67,395 and 62,054 shares issued
       and outstanding, respectively                67                    63
     Additional paid-in capital                395,786               216,124
     Notes receivable from stockholders        (10,155)              (11,454)
     Deferred compensation                      (3,197)               (3,805)
     Distribution in excess of net book value  (83,901)              (83,901)
     Retained earnings                          39,328                32,646
     Cumulative translation adjustment              44                    -
                                        -----------------   -------------------
           Total stockholders' equity          337,972               149,673
                                        =================   ===================
           Total liabilities and
           stockholders' equity        $       446,114     $         230,496
                                        =================   ===================

</TABLE>

                   See Notes to Consolidated Financial Statements.


<PAGE>
                                       5

                               E-TEK Dynamics, Inc.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (In thousands, unaudited)

<TABLE>
<CAPTION>

                                                           Quarter Ended
                                                 Oct. 2,              Oct. 2,
                                                  1999                 1998
                                               ---------------------------------
<S>                                               <C>                  <C>

  Cash flows from operating activities:
  Net income                        $             6,682     $             5,271
  Adjustments to reconcile net income
   to net cash provided by operating activities:
     Depreciation and amortization                9,982                   2,409
     Stock compensation expense                     215                     376
     Imputed interest income                        (79)                   (241)
     Purchased in-process research and
      development                                 1,630                       -
     Changes in assets and liabilities:
        Accounts receivable                      (2,707)                   (293)
        Inventories                             (10,703)                 (2,374)
        Deferred income taxes                        -                       -
        Other current assets                     (1,210)                    128
        Accounts payable                            671                  (2,904)
        Accrued liabilities                       3,283                   3,666
        Income taxes payable                      2,104                   3,489
                                      ------------------     -------------------
            Net cash provided by
             operating activities                 9,868                   9,527
                                      ------------------     -------------------

  Cash flows from investing activities:
     Additions to property and equipment        (10,314)                 (4,110)
     Payment from (advance to) joint venture     (1,001)                  7,000
     Acquisition of Fibx, net of cash received  (12,550)                      -
     Acquisition of Kaifa, net of cash received (10,551)                      -
                                               ----------               --------
            Net cash provided by (used in)
             investing activities               (34,416)                  2,890
                                      ------------------     -------------------

  Cash flows from financing activities:
     Proceeds from issuance of
      Common Stock, net                           2,892                      49
     Proceeds from secondary offering, net      146,990                       -
     Principal payments on capital lease
      obligations                                  (299)                   (286)
     Principal repayments on notes receivable
      from stockholders                           1,750                       -
     Borrowings on short-term debt                  269                       -
     Payment on short-term debt                    (898)                      -
     Borrowings on long-term debt                     -                   5,440
     Payments on long-term debt                  (2,571)                 (2,954)
     Other, net                                      43                       -
                                      ------------------     -------------------
            Net cash provided by
             financing activities               148,176                   2,249
                                      ------------------     -------------------

  Net increase in cash and cash
   equivalents                                  123,628                  14,666
  Cash and cash equivalents at
   beginning of period                           55,090                  21,918
                                      ==================     ===================
  Cash and cash equivalents
   at end of period                  $           178,718   $              36,584
                                      ==================     ===================

  Supplemental disclosure of cash flow information:
  Interest paid                      $           527       $                 286
  Income taxes paid                  $         1,991       $                  25

</TABLE>
                 See Notes to Consolidated Financial Statements.
<PAGE>
                                       6

                              E-TEK Dynamics, Inc.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1. Basis of Presentation

The  accompanying  unaudited  financial  data as of October 2, 1999 and June 30,
1999, and for the quarters ended October 2, 1999 and October 2, 1998,  have been
prepared by us  pursuant  to the rules and  regulations  of the  Securities  and
Exchange  Commission.  Certain  information  and footnote  disclosures  normally
included in financial  statements prepared in accordance with generally accepted
accounting  principles have been condensed or omitted pursuant to such rules and
regulations.   These  consolidated   financial  statements  should  be  read  in
conjunction with the financial  statements and the notes thereto included in our
Registration Statement on Form S-1 declared effective on August 11, 1999.


In the  opinion of  management,  all  adjustments  (which  include  only  normal
recurring  adjustments)  necessary  to present  fairly the  financial  position,
results of operations, and cash flows as of October 2, 1999 and for the quarters
ended  October  2, 1999 and  October 2, 1998,  have been  made.  The  results of
operations for the quarter ended October 2, 1999 are not necessarily  indicative
of the operating results for the full year.


2. Inventories

The components of inventories consist of the following (in thousands):

<TABLE>
<CAPTION>

                                               Oct. 2,               June 30,
                                                 1999                   1999
                                      ------------------     ------------------
<S>                                             <C>                    <C>
       Raw materials............. .....         $18,026                $10,613
       Work in process.................          15,105                  7,577
       Finished goods..................           2,025                  2,177
                                       ==================     ==================
                                                $35,156                $20,367
                                       ==================     ==================
</TABLE>




<PAGE>

                                       7

3.  Earnings per share

The following table sets forth the computation of basic and diluted earnings per
share (in thousands):

<TABLE>
<CAPTION>
                                                      Quarter Ended
                                                   Oct. 2,         Oct. 2,
                                                      1999           1998
<S>                                                    <C>           <C>
Numerator:
   Net income...................                    $ 6,682        $ 5,271
   Convertible Preferred Stock accretion....              -          2,400
                                                 --------------- --------------
   Net income available to Common
     Stockholders (Basic)............................ 6,682          2,871
   Convertible Preferred Stock accretion.............     -          2,400
                                                  ============== ==============
   Net income available to Common Stockholders
     and assumed Conversions (Diluted)............  $ 6,682        $ 5,271
                                                  =============== ==============
Denominator:
   Denominator for basic earnings per
     Share-weighted average common shares..........  61,938         22,037
   Effect of dilutive securities
     Common Stock options..........................   1,151          2,572
   Unvested Common Stock subject
     to repurchase.................................   2,812          5,385
   Convertible Preferred Stock...................         -         30,000
                                                  --------------- --------------
   Denominator for dilutive earnings per
     Share-adjusted weighted average common
     Shares and assumed conversions................. 67,322         58,573

Basic earnings per share.....................         $0.11          $0.13
                                                  --------------- --------------
Diluted earnings per share...................         $0.10          $0.09
                                                  --------------- --------------
</TABLE>


Comprehensive income

Comprehensive income for the quarter ended October 2, 1999 was $6,726,000.


5. Recent Financial Pronouncements


In  June  1998,  the  Financial  Accounting  Standards  Board  issued  SFAS  133
"Accounting  for  Derivative  Instruments  and  Hedging  Activities."  SFAS  133
establishes  accounting and reporting  standards for derivative  instruments and
for hedging activities. The adoption of SFAS 133 has been deferred to all fiscal
quarters of fiscal years  beginning  after June 15, 2000, by SFAS 137. We do not
expect  the  adoption  of SFAS 133 to have a material  impact on our  results of
operations.


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


Certain statements  contained in this Quarterly Report on Form 10-Q,  including,
without limitation,  statements containing the words "believes,"  "anticipates,"
"estimates,"  "expects," and words of similar  import,  may  constitute  forward
looking  statements  within the  meaning of the  Private  Securities  Litigation
Reform Act of 1995.  Readers are  referred to the Risk  Factors  section in this
report and to the risk factors set out in our Registration Statement on Form S-1
(File No.  333-83857) and Annual Report on Form 10-K which describe factors that
could cause actual events to differ from those  contained in the forward looking
statements.
<PAGE>

                                       8
Overview


We design, manufacture and sell high quality fiber optic components, modules and
subsystems  for  optical  networks.  Optical  networks  are  being  deployed  by
telecommunications  service  providers like AT&T and MCI WorldCom to address the
demand for applications such as Internet access, e-mail, and electronic commerce
that  require  high  capacity,  high speed data  transmission.  Our products are
designed into optical  systems built for these  service  providers'  networks by
telecommunications equipment manufacturers. Our products guide, route or amplify
the light signals which transmit data within the network.

Revenues from product sales are generally  recognized at the time the product is
shipped,   with  provisions   established  for  estimated  product  returns  and
allowances.  A  relatively  small  number  of  customers  has  accounted  for  a
significant  portion of our revenues to date, and we expect that this trend will
continue for the foreseeable  future.  This has historically  resulted in uneven
orders and fluctuating demand for our products.

The fiber optic component industry is characterized by rapidly declining average
selling prices, increasing unit volumes and declining gross margins. These price
declines have had an adverse affect on our gross margins.

In June 1999, we acquired  ElectroPhotonics  Solutions  Corporation,  a Canadian
company,  for a total acquisition cost of $41.5 million,  primarily comprised of
400,062 shares of our common stock with a market value of $13.7 million and cash
of $26.7 million.  We accounted for the transaction as a purchase.  We allocated
$4.2 million of the purchase price to in-process research and development, which
was expensed at the time of the  acquisition,  and $34.9 million of goodwill and
other intangibles, which will generally be amortized over three years.


In July 1999, we increased  our ownership in FibX,  our joint venture in Taiwan,
from 45.3% to 95.9% for $12.0  million in cash,  and in August 1999, to 100% for
$1.0  million in cash.  As a result of these  transactions,  we  recorded  $14.5
million of intangibles,  partially offset by a related deferred tax liability of
$5.5 million. The intangibles will be amortized over three years.


In August 1999, we completed our  acquisition  of SMC Kaifa  (Holdings)  Ltd., a
British Virgin Islands  company with operations in the U.S and China, by issuing
697,000 shares of our common stock with a market value of $29.8 million and cash
of $12.0 million. As a result of the acquisition, we recorded goodwill and other
intangibles  of $47.4  million,  partially  offset  by a  related  deferred  tax
liability of $9.7 million.  The goodwill and other intangibles will generally be
amortized over three years.



<PAGE>
                                       9


Results of Operations

The following table sets forth,  for the periods  indicated,  the percentages of
net  revenues  represented  by  certain  items  reflected  in  our  Consolidated
Statement of Operations:
<TABLE>
<CAPTION>

                                                     Quarter ended
                                                Oct. 2,          Oct. 2,
                                                 1999             1998
                                                 ----             ----
<S>                                             <C>              <C>
Net revenues                                    100.0%           100.0%
Cost of goods sold..........................     50.0             48.5
                                            ----------------- ----------------
     Gross profit............................    50.0             51.5
                                            ----------------- ----------------
Operating expenses:
     Research and development..................   8.1              9.3
     Selling, general and administrative.......  12.6             16.4
     Purchased in-process research
      and development..........................   2.7               -
     Amortization of goodwill and intangibles... 10.5               -
                                            ----------------- ----------------

          Total operating expenses............   33.9             25.7
                                            ----------------- ----------------
Operating income.....................            16.1             25.8
Interest income...............................    2.6              1.8
Interest expense.............................    (0.8)            (0.9)
                                            ----------------- ----------------
Income before income taxes.................      17.9             26.7
Provision for income taxes..................      6.8             10.7
                                            ----------------- ----------------
Net income..................................     11.1%            16.0%
                                            ----------------- ----------------
</TABLE>


Quarter Ended October 2, 1999 and October 2, 1998

Net Revenues


Net revenues  increased  83.2% to $60.3  million in the first  quarter of fiscal
2000 from  $32.9  million  in the first  quarter  of fiscal  1999.  The  revenue
increase was primarily  due to increased  shipments of our  Wavelength  Division
Multiplexer   components,   modules  and  subsystems   ("WDMs"),   couplers  and
micro-optic integrated components ("MOICs").  WDMs accounted for the majority of
our total  revenues and this is expected to continue for the remainder of fiscal
2000.  Customers  are also  demanding a wider variety of  wavelengths  with more
difficult  specifications,  which  may  cause  us to not be able to  obtain  the
filters  we need and may  reduce  our  ability  to ship  products  and  generate
revenues.


Gross Profit


Gross profit  increased  77.9% to $30.2  million for the first quarter of fiscal
2000 from $17.0 million in the first quarter of fiscal 1999.  Cost of goods sold
consists of raw material costs,  direct labor costs,  warranty costs,  royalties
and overhead  related to our  manufacturing  operations.  Gross  profit  margins
declined  from 51.5% to 50.0%  between  these  periods due to declining  average
selling prices ("ASPs") and increased  costs  associated with both the expansion
of our manufacturing  capacity to address unit volume growth and the integration
of our recent  ElectroPhotonics,  FibX and Kaifa  acquisitions.  We expect these
issues to continue to have an adverse  affect on our margins until we can absorb
the additional  manufacturing  capacity through increased revenues.  Also, as we
hire more people to meet increased  unit volumes,  the risk of yield and quality
issues  increases,  which may have an  adverse  impact on our  margins.  We also
expect the decline in ASPs to continue in the future.

<PAGE>
                                       10
Research and Development Expenses


Research and development  expenses consist of compensation  costs for personnel,
depreciation  of equipment,  and prototype  materials.  Research and development
expenses  were $4.9  million for the first  quarter of fiscal 2000  representing
8.1% of net revenues. This represents a 59.7% increase over the first quarter of
fiscal  1999  research  and  development  expenses  of $3.1  million  or 9.3% of
revenues.  The  increase  was  primarily  due to the  increase in  research  and
development   personnel  and  material   costs.  We  expect  that  research  and
development  expenses  will  continue to  increase  in absolute  dollars for the
remainder of fiscal 2000.



Selling, General and Administrative Expenses

Selling,  general and administrative  expenses consist of compensation costs for
personnel, sales commissions,  travel expenses, marketing programs, professional
services,  accounting,  human  resources,  executive  management and consulting.
Selling,  general and  administrative  expenses  were $7.6 million for the first
quarter of fiscal 2000,  representing  12.6% of net revenues.  This represents a
41.3% increase over selling,  general and administrative  expenses for the first
quarter of fiscal 1999 of $5.4 million or 16.4% of net revenues. The increase in
absolute  dollars  of  expenditures  over this  period  reflected  the hiring of
additional  selling,   marketing  and  administrative  personnel  and  increased
commissions paid on higher revenues. We anticipate that our selling, general and
administrative  expenses will increase in absolute  dollars for the remainder of
fiscal 2000.

Interest Income and Interest Expense

Our interest  income was  approximately  $1.5  million for the first  quarter of
fiscal  2000.  We  earned  interest  income  on our cash  investments.  Interest
expense,  incurred on borrowings  secured by our property and equipment,  and on
capital leases, was $0.5 million for the first quarter of fiscal 2000.

Provision for Income Taxes

Our  combined  federal  and state  income  tax  provision  was 38% for the first
quarter of fiscal 2000, slightly lower than the rate for fiscal 1999. The higher
rate for fiscal 1999 is due to a permanent  tax  difference  resulting  from our
purchase of ElectroPhotonics.Our  future tax rate may be impacted by acquisition
related activities.


Liquidity and Capital Resources

Since  inception,  we have financed  operations and met our capital  expenditure
requirements  primarily  through cash flows from our operations and  borrowings.
Our  operating  activities  provided  cash of $9.9 million for the quarter ended
October 2, 1999 as compared to $9.5  million  for the quarter  ended  October 2,
1998.  Cash  provided by operating  activities  is  primarily  the result of net
income,  depreciation  and  amortization  expenses,  and  increases  in  accrued
liabilities  and  accounts  payable,  offset in part by  increases  in  accounts
receivable and inventory. At October 2, 1999 we had cash and cash equivalents of
$178.7 million and working capital of $199.2 million.

Net cash used in investing  activities  was $34.4  million for the quarter ended
October 2, 1999 as compared to $2.9 million provided by investing activities for
the  quarter  ended  October 2,  1998.  The net cash used in the  quarter  ended
October  2,  1999  related  to the  Kaifa  and  FibX  acquisitions  and  capital
expenditures.

Net cash  provided by financing  activities  was $148.2  million for the quarter
ended October 2, 1999, as compared to $2.3 million for the quarter ended October
2, 1998. Net cash provided by financing activities for the quarter ended October
2, 1999 resulted  primarily  from net proceeds of  approximately  $147.0 million
from our follow-on public offering.


Our cash is invested in short term taxable funds with a maximum  duration of 120
days, and our debt instruments are all fixed rate  instruments.  Currently,  the
majority of our  international  sales are U.S. dollar  denominated.  We have not
entered into any currency hedging activities.


<PAGE>
                                       11
Year 2000 Compliance

Many computer  programs use two digits rather than four to define the applicable
year.  Computer programs or hardware that have date sensitive  software or chips
may recognize a date using "00" as the year 1900 rather than the year 2000. This
could  result in systems  failures or  miscalculations  causing  disruptions  of
operations for any company using computer programs or hardware.

We rely on our  systems,  applications  and  control  devices in  operating  and
monitoring  all major  aspects of our  business.  We  installed  new  Enterprise
Resource  Planning  software during fiscal 1998 at a cost of approximately  $1.0
million  which we  believe  is year  2000  compliant.  With  respect  to our own
systems,  we rely on the  representations  of our primary  software vendors that
their products are year 2000 compliant.  Based in part on representations of our
software  vendors and our  internal  review of our  information  technology  and
non-information  technology  systems,  software  and  devices,  we  believe  our
systems,   software  and  devices  are  year  2000   compliant.   However,   the
noncompliance  of our systems,  software and devices could severely  disrupt our
operations  and  have a  material  adverse  effect  on our  business,  financial
condition and results of operations.  Based on our assessment to date, we do not
anticipate that costs  associated with  remediating any of our internal  systems
will be material.

We also rely,  directly and  indirectly,  on external  systems of our customers,
suppliers,   creditors,   financial   organizations,   utilities  providers  and
governmental entities, both domestic and international. None of these systems is
under our  control.  Consequently,  we could be affected by  disruptions  in the
operations  of  the  enterprises  with  which  we  interact.   Furthermore,  the
purchasing  frequency  and volume of  customers or  potential  customers  may be
affected by year 2000 issues as companies expend  significant  resources to make
their current systems year 2000 compliant. Some of our customers, including each
of our three largest  customers,  have requested  information from us concerning
our exposure to year 2000 problems,  the steps we have taken to resolve any year
2000  problems and what level of  management  attention is being  focused on the
issue.

Similarly,  we have  sent  inquiries  to  certain  of our  suppliers  requesting
substantially  the same information from them. We have received  representations
from certain of our suppliers,  including each of our sole source suppliers,  as
to the year 2000 compliance of their systems and products.  We have not assessed
the year 2000 compliance of our customers.  If our customers encounter year 2000
problems that prevent their products from functioning properly,  these customers
may be forced to devote  significant  resources to fixing these problems and may
reduce or suspend the  manufacture of new  telecommunications  equipment  during
that time.  As a result,  our sales of components  to these  customers  could be
materially and adversely affected. In addition,  if our suppliers,  particularly
our sole source  suppliers,  are unable to manufacture or deliver supplies to us
as a result of year 2000  problems,  our  ability  to  manufacture  and sell our
products would be materially and adversely affected.

We have not adopted a formal year 2000  contingency  plan because,  based on the
information available to us, we believe that we do not have material exposure to
significant business interruptions as a result of year 2000 compliance issues.

The  foregoing is a Year 2000  Readiness  Disclosure as defined by the Year 2000
Information and Readiness Disclosure Act of 1998.

Risk Factors


You should  carefully  consider  these risk  factors,  in  addition to the other
information  in this  Report,  as well as the risk  factors  set  forth in other
documents  filed with the SEC,  including the Annual Report on Form 10-K for the
fiscal year ended June 30,  1999,  and the  Registration  Statement  on Form S-1
dated August 11, 1999. Any of these factors could have a material adverse impact
on our business, financial condition and results of operations.


If a major  customer  delays,  reduces or defers  purchases,  our revenues  will
decline.

We have depended on a small number of large customers for a substantial  portion
of our sales, and we expect this to continue for the foreseeable  future. In the
first  quarter of fiscal 2000,  our three  largest  customers  and their related
entities accounted for 59.8% of our revenues.  Industry consolidation may reduce
the number of potential  customers and increase our dependence on a small number
of customers.

Further,  we do not  have  long-term  contracts  with  many  customers,  and our
existing  contracts do not obligate our customers to buy material amounts of our
products.  Therefore,  sales in a particular period are difficult to predict and
we may experience  unforeseen decreases in purchases,  cancellations of purchase
orders or deferrals of purchases.

If sales of our wavelength division  multiplexing  products decline, our revenue
will be materially reduced.

<PAGE>
                                       12
Sales of wavelength  division  multiplexing  components,  modules and subsystems
accounted for 58.8% of our revenues in the first quarter of fiscal year 2000. We
expect  sales of WDMs to  account  for more  than 50% of our total  revenues  in
fiscal 2000. If sales of this product line decline, our overall revenues will be
lower,  which could  result in operating  losses.  We may not be  successful  in
taking  steps to  mitigate  the risks  associated  with  reduced  demand for our
existing products.


If we  cannot  obtain an  adequate  supply  of thin  film  filters  or other raw
materials or equipment, our product revenues may decline.


Thin film filters are a key raw material for WDMs and are  difficult to produce.
We have  previously  experienced  and continue to experience  shortages of these
filters, which has limited our ability to ship product and generate revenues.


Also,  we depend on a limited  number of suppliers  for other key  materials and
equipment, some of which are sole sources. Delivery delays, quality problems and
price  increases could hurt our ability to supply our customers with products in
a timely manner, which can cause our shipments and revenues to decline.


The  increase in the number of  wavelengths  and narrower  spacing  requirements
increases  product  complexity,  which  may  adversely  affect  our  yields  and
revenues.

The increased need for bandwidth is being satisfied with more  wavelengths  with
narrow spacing between each wavelength.  Both of these trends (more  wavelengths
and tighter  spacing)  increase the complexity and variety of filters needed and
the risk of lower yields. In addition,  the trend towards increased  integration
from devices to modules,  and to subsystems  means that any missing  wavelengths
can delay shipment of the whole module or subsystem, which would have an adverse
impact on our revenues.


We may not be able to reduce our  manufacturing  costs  sufficiently or plan our
manufacturing expansion accurately.


We expect the price of our existing  products to decline due to various factors,
such as increased  competition,  including  from  companies with lower labor and
production  costs;  a limited  number of potential  customers  with  significant
bargaining  leverage;  introduction of new products by competitors;  and greater
economies  of scale for higher  volume  manufacturers.  To maintain our existing
revenues,  we must  increase  our unit volumes and our  manufacturing  capacity.
Adding  capacity  increases  our fixed costs and the level of unit  shipments we
must  achieve  to  maintain  gross  margins.  As a result,  if we are  unable to
continuously reduce our manufacturing  costs, our net revenues and gross margins
may decline and we could incur losses.

We are in the process of increasing our  manufacturing  capacity at our existing
facilities as well as pursuing the expansion of overseas manufacturing in Taiwan
and China.  Developing overseas manufacturing  capabilities involves significant
risks which could  materially  adversely  affect our gross margins and revenues,
including:

         - our inability to qualify a new manufacturing line for
           all of our customers;

         - unanticipated cost increases;

         - unavailability or late delivery of equipment;

         - unforeseen environmental or engineering problems;

         - personnel recruitment delays; and

         - political instability.

Expanding our manufacturing  capacity requires substantial time to build out and
equip  facilities and train  personnel.  If we receive orders  substantially  in
excess of our planned  capacity,  we might not be able to fulfill  them  quickly
enough to meet customer  requirements.  Our inability to deliver products timely
could enable competitors to win business from our customers.


We may not be able to effectively  increase  production and maintain  acceptable
manufacturing yields,  resulting in delay of product shipments and impairment of
our gross margins.

Manufacturing our products is highly complex and labor intensive.  As we rapidly
increase production and hire more people, our manufacturing  yield, which is the
percentage of our products  which meet customer  specifications,  could decline,
resulting in product  shipment  delays,  possible  lost  revenue  opportunities,
higher customer returns,  and impaired gross margins.  Some of our manufacturing
lines have experienced  lower than expected yields,  which could continue in the
future.  Rapid increases in production levels to meet  unanticipated  demand may
also result in higher overtime costs and other expenses.
<PAGE>
                                       13
Our stock price could fluctuate significantly due to the unpredictability of our
quarterly results.

Our revenues and operating results have fluctuated  significantly  from quarter-
to-quarter in the past and may fluctuate significantly in the future as a result
of several  factors,  some of which are outside of our  control.  These  factors
include:

         - the size and timing of customer orders;

         - our ability to manufacture and ship our products on a timely basis;

         - our ability to obtain sufficient supplies to meet our product
           manufacturing needs;

         - our ability to meet customer product specifications and
           qualifications;

         - long and unpredictable sales cycles of up to a year or more;

         - our ability to sustain high levels of quality across all
           product lines;

         - changes in our product mix;

         - customer cancellations or delivery deferrals;

         - seasonality of customer demand; and

         - difficulties in collecting accounts receivable.

Due to these  factors,  results are difficult to predict and you should not rely
on quarter-to-quarter  comparisons of our results of operations as an indication
of our future performance.  It is possible that, in future periods,  our results
of  operations  may be below the  expectations  of public  market  analysts  and
investors.

If we do not achieve  our planned  revenues,  we could  incur  operating  losses
because our expenses are fixed in the short term.

We make  manufacturing  and related  capital  expenditures  in anticipation of a
level of customer orders that may vary over multiple quarters.  Our expenditures
are largely based on anticipated  future sales and a significant  portion of our
expenses is fixed in the short term. If  anticipated  levels of customer  orders
are not received,  we may not be able to reduce our expenses  quickly  enough to
prevent a decline in our gross margins and operating income.

The fiber-optic component market is highly competitive,  and we could lose sales
to our competitors.

Many of our competitors  have greater  financial and other resources than us and
they may be able to more quickly:

         - respond to new technologies or technical standards;

         - react to changing customer requirements and expectations;

         - manufacture, market and sell current products;

         - develop new products or technologies; and

         - deliver competitive products at lower prices.

In addition,  our competitors may acquire our suppliers or potential  suppliers.
For example,  JDS Uniphase Corp has announced the  acquisition of EPITAXX,  Inc.
and Optical Coating  Laboratory,  Inc., both of which supply raw materials to us
or our competitors.  As a result of these factors, our customers could decide to
purchase  products from our  competitors and reduce their purchases from us. Our
competitors'  introduction of new products incorporating new technologies or the
emergence  of  new  industry   standards   could  make  our  existing   products
noncompetitive.  In addition,  some of our customers have fiber optic  component
manufacturing  capabilities,  and could decide to manufacture  and sell products
that they currently purchase from us.

If our new  product  introductions  are  delayed,  or if our new  products  have
defects, our revenues would be harmed and our costs could increase.


If we do not  introduce  new  products  in a timely  manner,  we will not obtain
incremental  revenues  from these  products  or be able to replace  more  mature
products with  declining  revenues or gross margins.  Customers  could decide to
purchase  components  from our  competitors,  resulting  in lost  revenue over a
longer  term.   We  could  also  incur   unanticipated   costs  if  new  product
introductions are delayed or we need to fix defective new products.
<PAGE>
                                       14

Acquisitions and investments may adversely affect our business.


Our strategy  involves the acquisition and integration of additional  companies'
products,  technologies and personnel.  We have limited  experience in acquiring
outside  businesses.  Acquisition of businesses  requires  substantial  time and
attention of management personnel and may also require additional equity or debt
financings.  Integration  of newly  established  or acquired  businesses  can be
disruptive.  There is no assurance  that we will identify  appropriate  targets,
will acquire such  businesses on favorable  terms,  or will be able to integrate
such organizations into our business successfully.


Financial   consequences  of  our   acquisitions  and  investments  may  include
potentially dilutive issuances of equity securities;  large one-time write-offs;
reduced cash balances and related interest  income;  higher fixed expenses which
require a higher level of revenues to maintain gross margins;  the incurrence of
debt and contingent  liabilities;  and amortization expenses related to goodwill
and other intangible assets.

If a key sales representative or distributor stopped selling or reduced sales of
our products, our revenues would suffer.

We sell substantially all of our products through a network of independent sales
representatives and distributors,  the majority of whom have exclusive rights to
sell  our  products  in  certain  territories.  Our  sales  representatives  and
distributors could decide to reduce or stop selling our products.

We may not be able to recruit and retain the personnel we need to succeed.

If we cannot  hire and  retain  technical  personnel  with  advanced  skills and
experience in the  specialized  field of fiber optics,  our product  development
programs may be delayed and our customer  support efforts may be less effective.
If we  are  unable  to  hire  the  necessary  managerial,  sales  and  marketing
personnel, we may not be able to grow our revenues.


Our  international  sales could be delayed or could have additional  costs which
would lower their contribution to our gross profit.


We  generate a  significant  portion  of our  revenues  from sales to  companies
located  outside  the  United  States,  principally  in Europe.  As a result,  a
significant   portion  of  our  sales  faces  risks  inherent  in  international
operations, including:

         - government controls, which can delay sales or increase our costs;

         - export licensing requirements and restrictions, which can delay or
           prevent sales;

         - tariffs and other trade barriers, which can increase our costs and
           make our products uncompetitive; and

         - greater  difficulty  in  accounts  receivable   collection  and
           longer collection periods, which can increase our need for working
           capital.


Currently,  the majority of our international sales are U.S. dollar denominated.
As a result,  our customers'  orders could  fluctuate  significantly  based upon
changes  in our  customers'  currency  exchange  rates in  relation  to the U.S.
dollar. A large increase in the value of the U.S. dollar could make our products
more  expensive  to our foreign  customers,  resulting  in  cancelled or delayed
orders and decreased revenues.


Our  international  operations  expose us to additional  costs, some of which we
cannot predict.


Our recent  expansion of our operations  into other  countries,  such as Canada,
Taiwan and China, has increased the legal,  tax and other business  complexities
that we must comply with. If we cannot comply with local  regulations,  we could
incur unexpected costs and potential  litigation.  Our international  operations
could cause our average tax rate to increase.  We could also incur  expenses due
to the exchange  rate risk because many expenses  relating to our  international
operations are denominated in foreign currencies, while our revenues are in U.S.
dollars.

<PAGE>
                                       15
If  we  cannot  protect  or  enforce  our  intellectual   property  rights,  our
competitive position may be impaired.

Third parties may attempt to use our  confidential  information  and proprietary
technologies without  authorization.  Policing unauthorized use is expensive and
difficult.  We cannot be sure that will be able to prevent  misappropriation  or
infringement of our intellectual property.

Intellectual property claims against us could cause our business to suffer.

In the past, we have received  notifications alleging that we are infringing the
intellectual  property  rights of third  parties,  and we may in the future face
claims that our products  infringe  the rights of another.  Whether or not these
claims are successful,  we would likely incur significant costs and diversion of
our resources defending these claims.

We could incur costs and experience  disruptions  complying  with  environmental
regulations.

We handle  small  amounts of hazardous  materials  as part of our  manufacturing
activities.  We may be  required  to incur  environmental  remediation  costs to
comply with current or future environmental laws.

Our operations could be disrupted by natural disasters.

Earthquakes,  fire,  floods,  loss of power or water supply,  telecommunications
failures and similar events could significantly disrupt our operations.

Our business could be disrupted by year 2000 compliance issues.

We believe our own  software  is year 2000  compliant,  but if we are wrong,  we
could face unexpected expenses to fix the problems or significant disruptions of
our business.  We do not have any  contingency  plans for our operations if year
2000 issues are not resolved in time or go undetected.

We also rely on external  systems and software of third  parties that may not be
year 2000  compliant.  We do not know if those  external  systems  are year 2000
compliant.  If our  customers or suppliers  encounter  year 2000  problems,  our
business could be disrupted as well.

<PAGE>
                                       16
Part II. Other Information

Item 1. Legal Proceedings

We are involved in disputes and litigation in the normal course of our business.
We do not believe that the outcome of any of these  disputes or litigation  will
have a material adverse effect on our business,  financial  condition or results
of operations.


Item 2.  Changes in Securities and Use of Proceeds

As noted under Part I., Item 2, in August 1999, we issued  697,000 shares of our
common stock pursuant to the purchase of SMC Kaifa  (Holdings) Ltd. The issuance
of the common stock was exempt from registration  pursuant to Regulation D under
the  Securities  Act of 1933,  as  amended.  The stock was  issued to SMC Optics
Communications Corporation and Cylinder Company Limited.


Item 6. Exhibits and Reports on Form 8-K

(a)      Exhibits
                        The following exhibit is filed herewith.

                           27.1 Financial data schedule

(b)      Reports on Form 8-K

                        The  Company  filed a report  on Form  8-K on  September
1,1999 reporting the purchase of SMC Kaifa (Holdings) Ltd.


Signatures

In accordance with the  requirements  of the Securities  Exchange Act of 1934 as
amended, the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.





Date: November 12, 1999             By    /s/ Sanjay Subhedar
                                          --------------------------------------
                             Chief Operating Officer and Chief Financial Officer
                                            (Principal Financial Officer)