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UNITED STATES
SECURITIES AND EXCHANGE COMMISISSION

WASHINGTON, DC 20549


FORM 10-K



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(Mark One)

|  |  |                                                                                         
|- |  | ----------------------------------------------------------------------------------------
|x |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|  |  |                                                                                         
|  |  | For the fiscal year ended March 31, 2003, or                                            
|  |  |                                                                                         
|o |  | Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
|  |  |                                                                                         
|  |  | For the transition period from               to                                         
|  |  |                                                                                         
|  |  | Commission file number 0-49939                                                          



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DICON FIBEROPTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                                                          |  |                                             
|------------------------------------------------------------------------- |  | --------------------------------------------
|California
(State or Other Jurisdiction of
Incorporation or Organization) |  | 94-3006185
(IRS Employer
Identification No.)

|                                                              |  |                 
|------------------------------------------------------------- |  | ----------------
|1689 Regatta
Blvd.                                            |  |                 
|Richmond, California
(Address of Principal Executive Offices) |  | 94804
(Zip Code)

(510) 620-5000
(Registrants Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock,
no par value

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

Yes   x     No  o

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).

Yes
  o     No  x

The registrant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 registrants common stock outstanding on March
31, 2003, was 112,039,831.

DOCUMENTS INCORPORATED BY REFERENCE

None



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TABLE OF CONTENTS



|              |                                                                                                         |  |  |  |  |  |  | 
|------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                                       
|              | Item 2. Properties                                                                                     
|              | Item 3. Legal Proceedings                                                                              
|              | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|              | Item 6. Selected Financial Data                                                                        
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|              | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|              | Item 8. Financial Statements and Financial Statement Schedule                                          
|              | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant                                            
|              | Item 11. Executive Compensation                                                                        
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|              | Item 13. Certain Relationships and Related Transactions                                                
|              | Item 14. Controls and Procedures                                                                       
|              | Item 15. Exhibits and Reports on Form 8-K                                                              
|SIGNATURES   
|CERTIFICATION
|Exhibit Index
|Exhibit 99.1 
|Exhibit 99.2 



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Table of Contents

|         |  |                                                                                                 |  |   
|-------- |  | ----------------------------------------------------------------------------------------------- |  | --
|PART I   |  |                                                                                                 |  |   
|Item 1.  |  | Business.                                                                                       |  | 4 
|Item 2.  |  | Properties.                                                                                     |  | 13
|Item 3.  |  | Legal proceedings.                                                                              |  | 14
|Item 4.  |  | Submission of Matters to a Vote of Security Holders.                                            |  | 14
|PART II  |  |                                                                                                 |  |   
|Item 5.  |  | Market for Registrants Common Equity and Related Stockholder Matters.                          |  | 14
|Item 6.  |  | Selected Financial Data.                                                                        |  | 15
|Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations.          |  | 16
|Item 7A. |  | Quantitative and Qualitative Disclosures About Market Risk.                                     |  | 26
|Item 8.  |  | Financial Statements and Financial Statement Schedule.                                          |  | 27
|Item 9.  |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.           |  | 51
|PART III |  |                                                                                                 |  |   
|Item 10. |  | Directors and Executive Officers of the Registrant.                                             |  | 52
|Item 11. |  | Executive Compensation.                                                                         |  | 53
|Item 12. |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters. |  | 56
|Item 13. |  | Certain Relationships and Related Transactions.                                                 |  | 57
|Item 14. |  | Controls and Procedures.                                                                        |  | 57
|Item 15. |  | Exhibits and Reports on Form 8-K.                                                               |  | 58
|         |  | Signatures.                                                                                     |  | 60
|         |  | Certifications.                                                                                 |  | 61
|         |  | Exhibit Index.                                                                                  |  | 63





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PART I




Item 1. Business.

This annual report on Form 10-K 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.

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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, France Telecom,
and Huawei.

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.

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.

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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 produces Gradient Index (GRIN) lenses, which are used to collimate
and focus light. The Company is currently one of only three known suppliers of
GRIN lenses in the world.

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 Ended      
|             |  |                |    |                |  |               
|Product Line |  | March 31, 2003 |    | March 31, 2002 |  | March 31, 2001
|             |  |                |    |                |  |               
|WDM          |  |                | 50 | %              |  |                | 60 | % |  |  | 68 | %
|Switch       |  |                | 50 | %              |  |                | 40 | % |  |  | 32 | %



|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, 2003, DiCon had a broad customer base
consisting of over 300 accounts, including major NEMs such as Agilent
Technologies, ALCATEL, Cisco Systems, Lucent Technologies, 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 33.4% during 2002.



|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, was
approximately $1.9 million and $3.9 million on March 31, 2003 and 2002,
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.

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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. Its product
return rate is low (approximately one percent, typically due to manufacturing
defects occurring within the warranty period which is normally one year from
the shipment date).



|10. |  | Inventory.
|--- |  | ----------

DiCons inventory consists of raw material, work in process and finished
goods.

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, 2003, DiCon has written off $4.1 million of surplus or obsolete
inventory as compared to $9.2 million 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.
GRIN lenses constitute the most critical of raw materials and, until recently,
were externally supplied. Historically, DiCon carried approximately six months
of inventory of GRIN lenses. With the Companys newly developed capability to
manufacture GRIN lenses, DiCon is largely self sufficient in this product and
is currently one of only three known suppliers of GRIN lenses in the world for
other component manufacturers.



|12. |  | Research and Development.
|--- |  | -------------------------

Since its formation, DiCon has been active in the development of new,
commercially viable technologies. As of March 31, 2003, the Company had 22
patents granted and 10 pending 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 Ended      
|                        |  |                |        |                |  |               
|                        |  | March 31, 2003 |        | March 31, 2002 |  | March 31, 2001
|                        |  |                |        |                |  |               
|Total Amount (000s)    |  | $              | 13,178 |                |  | $              | 16,659 |   |  | $ | 20,580 |  
|Percentage of Net
Sales |  |                | 63.6   | %              |  |                | 23.6   | % |  |   | 12.6   | %



|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 and Corning, as well as
the internal manufacturing divisions of some of its large customers.

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|14. |  | Employment.
|--- |  | -----------

As of March 31, 2003, DiCon had 221 employees in the US and Global had 157
employees in Taiwan.



|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 Ended      
|                    |  |                |        |                |  |               
|Revenues (in 000s) |  | March 31, 2003 |        | March 31, 2002 |  | March 31, 2001
|                    |  |                |        |                |  |               
|Within the US       |  | $              | 13,671 |                |  | $              | 46,313 |  |  | $ | 117,894 | 
|Outside the US      |  |                | 7,064  |                |  |                | 24,300 |  |  |   | 45,900  | 
|                    |  |                |        |                |  |                |        |  |  |   |         | 
|Total               |  | $              | 20,735 |                |  | $              | 70,613 |  |  | $ | 163,794 | 
|                    |  |                |        |                |  |                |        |  |  |   |         | 

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:

|               |  |                |        |                |  |                |        |  |  |   |        | 
|-------------- |  | -------------- | ------ | -------------- |  | -------------- | ------ |  |  | - | ------ | 
|(in 000s)     |  | March 31, 2003 |        | March 31, 2002 |  | March 31, 2001
|               |  |                |        |                |  |               
|Within the US  |  | $              | 56,532 |                |  | $              | 65,174 |  |  | $ | 59,985 | 
|Outside the
US |  |                | 12,278 |                |  |                | 13,322 |  |  |   | 14,964 | 
|               |  |                |        |                |  |                |        |  |  |   |        | 
|Total          |  | $              | 68,810 |                |  | $              | 78,496 |  |  | $ | 74,949 | 
|               |  |                |        |                |  |                |        |  |  |   |        | 



|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 two
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.

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DiCon faces increasing competition in the fiberoptics markets that could
adversely affect its revenues and gross margins, or cause it to lose market
share.

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.

Over the past several years, 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 sufficiently, 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
processes.

DiCons need to develop innovative new products requires that DiCon be
able to attract and retain a sufficient number of specially qualified
engineers.

In addition to hiring, training and retaining its work force, there are a
number of challenges faced by DiCon 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, investments in research and development including material processing
and engineering core technologies, and expansion of sales to different
geographical areas and new customers. Failure to meet these challenges in any
single area may impact the Companys future operating activities.

Finally, while DiCon remains a privately held corporation, many of its
larger competitors are publicly traded and therefore may have greater access to
capital. This capital may better allow them to survive the downturn or to
acquire other companies and benefit rapidly from these acquired technologies
and product lines. The Companys inability to raise future capital may prevent
it from remaining technologically competitive.

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 important 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.

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Although the Company has not suffered material credit losses to date, it
may do so in the future.

The telecommunications industry is currently undergoing rapid 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 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.

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.

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Further, 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.

The Companys headquarters in Richmond, California, is financed with a
mortgage loan with a balloon payment due in November 2004. 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.

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 product
reliability. 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, 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 and replace 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.

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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
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.

Risks Relating to Arthur Andersen LLP

Arthur Andersen LLP, which audited DiCons financial statements for the
year ended March 31, 2001, was convicted on June 15, 2002, of federal
obstruction of justice arising from the governments investigation of Enron
Corp. Due to the publicly announced troubles of Arthur Andersen LLP, the
Company selected PricewaterhouseCoopers LLP as the Companys independent
accountants as of and for the year ended March 31, 2002. Subsequent to the issuance of
the consolidated financial statements for the year ended

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March 31, 2001, the Company identified certain adjustments that were necessary in order to correct
errors in the financial statements as of March 31, 2001. The errors related to
the conversion and settlement of the phantom stock plan and the introduction of
two new equity incentive plans. Details of the restatement of previously
reported results (unaudited) can be found in Note 3 of the consolidated
financial statements presented herein. The errors identified do not impact
previously reported net income for the year ended March 31, 2001. The
consolidated financial statements for the year ended March 31, 2001, have been
restated to reflect the correcting adjustments and reclassifications.

Management of the Company requested Arthur Andersen LLP to reissue their
opinion on the consolidated financial statements as of and for the year ended
March 31, 2001, to include the correcting adjustments; however, they were
unable to reissue their opinion since the personnel assigned to this audit were
no longer employed by Arthur Andersen LLP as of the date of the proposed
reissuance. Due to the inability of Arthur Andersen LLP to reissue their
opinion on the consolidated financial statements as of and for the year ended
March 31, 2001, the consolidated financial statements as restated and presented
herein are unaudited.

DiCon may have no effective remedy against Arthur Andersen LLP in
connection with a material misstatement or omission in these financial
statements.

DiCons inability to include in future registration statements financial
statements as of and for the year ended March 31, 2001, which were audited by
Arthur Andersen LLP or to obtain Arthur Andersen LLPs consent to the inclusion
of their previously issued report on the Companys financial statements may
impede the Companys access to the capital markets.

Should DiCon seek to access the public capital markets, SEC rules will
require DiCon to include or incorporate by reference in any prospectus three
years of audited financial statements. This means that DiCon would be unable
to access the public capital markets until DiCons audited financial statements
for the fiscal year ending March 31, 2004, become available, unless
PricewaterhouseCoopers LLP, DiCons current independent accounting firm, or
another independent accounting firm, is able to audit the financial statements
originally audited by Arthur Andersen LLP.

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.

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 inventory (for
anticipated excess and obsolete inventory), estimate for losses on future rent
(for buildings abandoned by the Company for which it is obligated under long
term leases), allowances for bad debt, and gains (losses) on dissolution of
joint venture. The Company also reported a valuation allowance for deferred
tax assets due to the reduction in the Companys forecasts of future taxable
income. The Company has recorded total net deferred tax assets as of March 31,
2003, only to the extent of recoverable income taxes.

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. Properties.

DiCon conducts research, development, manufacturing and direct marketing
at its headquarters in Richmond, California. DiCon owns the 200,000
square-foot facility in Richmond located on a 28-acre parcel of land. DiCon
can build an additional 200,000 square-feet of buildings on the site under the
approved development plan.

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.
Additional space may be readily available if expansion is required. 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. For the
year ending March 31, 2003, the rental is expected to be approximately $13,000.

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In mid 2001, DiCon moved from its leased facilities in Berkeley,
California, to its newly owned facility in Richmond, California. At the time
of the move, DiCon leased 93,000 square feet of space in Berkeley with
remaining terms of one to four years. As of March 31, 2002, the Company had
terminated one lease and reserved an estimated liability for remaining costs,
net of estimated sublease income, in the amount of $1.8 million.

Prior to the end of the 2002 fiscal year, the Company terminated four of
the leases for leased facilities and vacated another 50,000 square feet of
leased space in Richmond, California. As a result, an additional charge of
$512,000 related to the consolidation of existing excess leased space was
generated. 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, 2003, the reserve for future lease expenses, net of expected
sublease income, is $519,000, and is included in accounts payable and accrued
liabilities in the Consolidated Balance Sheets.

As of March 31, 2003, DiCons future (gross) commitments under all leases
are as follows:

|                             |   |        
|---------------------------- | - | -------
|Fiscal Year Ending March 31, |   | (000's)
|2004                         | $ | 502    
|2005                         |   | 409    
|2006                         |   | 199    
|2007                         |   | 21     
|2008                         |   | 21     
|Thereafter                   |   | 57     
|                             |   |        
|                             | $ | 1,209  
|                             |   |        

While DiCon is making a concerted effort to obtain subleases for these
facilities, there can be no certainty that DiCon will be able to sublease any
of the remaining space under current market conditions for rental space in the
Northern California Bay Area.




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, 2003.




PART II




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

(a) Market Information.

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 of DiCon Common Stock.

There are approximately 412 holders of DiCon common stock as of March 31,
2003.

(c) Dividends.

DiCon declared a dividend of $0.00743 per share on its common stock on
June 10, 2000. DiCon has not declared a dividend since June 2000. DiCon does
not currently intend to pay dividends on its common stock in the foreseeable
future.

(d) Securities Authorized for Issuance under Equity Compensation Plans.

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Equity Compensation Plan Information

|                                         |  |                         |           |                      |  |                              |      |  |  |                      |           |    
|---------------------------------------- |  | ----------------------- | --------- | -------------------- |  | ---------------------------- | ---- |  |  | -------------------- | --------- | ---
|                                         |  |                         |           |                      |  |                              |      |  |  | (c)                 
|                                         |  |                         |           |                      |  |                              |      |  |  | Number of Securities
|                                         |  | (a)                     |           | (b)                  |  | remaining available for     
|                                         |  | Number of securities to |           | Weighted-average     |  | future issuance under equity
|Plan category                            |  | be issued upon exercise |           | exercise price of    |  | compensation plans          
|Equity Compensation Plans                |  | of outstanding options, |           | outstanding options, |  | (excluding securities       
|Approved by Shareholders                 |  | warrants and rights     |           | warrants and rights  |  | reflected in column (a))    
|(1)                                      |  | (shares)                |           | ($)                  |  | (shares)                    
|                                         |  |                         |           |                      |  |                             
|Employee Stock
Option Plan (ESOP)        |  |                         | 4,770,943 | (2)                  |  | $                            | 3.81 |  |  |                      | 7,068,257 | (2)
|Employee Stock
Purchase Plan

(ESPP) (3) |  |                         | 1,002,818 | (3)                  |  | $                            | 2.75 |  |  |                      | 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 ESOP is 11,840,000. As of March 31, 2003, 11,052,306
options were granted, 800 options were exercised and 6,280,563 options
terminated under the ESOP.                                                                                                        
|   
|(3) |  | The maximum number of shares that may be issued under the ESPP is
3,230,000 which includes shares issued pursuant to the Global
Fiberoptics Profit Distribution Sharing Plan Alternative. As of March
31, 2003, 1,242,579 shares were issued under the ESPP and DiCon
exercised the option to repurchase 239,761 shares upon employment
termination.




Item 6. Selected Financial Data.

The following selected condensed consolidated statement of operations data
for each of the two fiscal years ended March 31, 1999 and 2000, are derived
from DiCons unaudited financial statements. The data for the fiscal year
ended March 31, 2001, are derived from DiCons unaudited and restated financial
statements. The data for the fiscal years ended March 31, 2002 and 2003, are
derived from DiCons financial statements audited by PricewaterhouseCoopers
LLP. The historical selected financial information may not be indicative of
DiCons future performance and should be read in conjunction with the
information contained in Managements Discussion and Analysis of Financial
Condition and Results of Operations and the financial statements and related
notes included elsewhere in this document.

|                                                |         |   |                              |         |      |   |        |         |      |   |              |         |             |   |             |         |  |   |        |         | 
|----------------------------------------------- | ------- | - | ---------------------------- | ------- | ---- | - | ------ | ------- | ---- | - | ------------ | ------- | ----------- | - | ----------- | ------- |  | - | ------ | ------- | 
|                                                |         |   | Fiscal Years Ended March 31,
|                                                |         |   | 2003                         |         | 2002 |   | 2001   |         | 2000 |   | 1999        
|                                                |         |   |                              |         |      |   |        |         |      |   | (unaudited & |         | (unaudited) |   | (unaudited)
|                                                |         |   |                              |         |      |   |        |         |      |   | restated)    |         |            
|                                                |         |   |                              |         |      |   |        |         |      |   | (1)          |         |             |   |             |         |  |   |       
|                                                |         |   |                              |         |      |   |        |         |      |   |             
|Condensed Consolidated Statement of
Operations: |         |   |                              |         |      |   |        |         |      |   |              |         |             |   |             |         |  |   |        |        
|(in thousands, except per share data)           |         |   |                              |         |      |   |        |         |      |   |              |         |             |   |             |         |  |   |        |        
|Net sales                                       |         | $ | 20,735                       |         |      | $ | 70,613 |         |      | $ | 163,794      |         |             | $ | 53,378      |         |  | $ | 22,765 |        
|Gross profit                                    |         |   | (3,578                       | )       |      |   | 24,765 |         |      |   | 107,030      |         |             |   | 28,303      |         |  |   | 10,979 |        
|Income (loss) from operations                   |         |   | (25,973                      | )       |      |   | (6,197 | )       |      |   | 53,151       |         |             |   | 12,099      |         |  |   | 4,908  |        
|Net income (loss)                               |         |   | (23,187                      | )       |      |   | (3,109 | )       |      |   | 38,593       |         |             |   | 7,174       |         |  |   | 3,740  |        
|Net income (loss) per share:                    |         |   |                              |         |      |   |        |         |      |   |              |         |             |   |             |         |  |   |        |        
|                                                | Basic   |   |                              | (0.21   | )    |   |        | (0.03   | )    |   |              | 0.36    |             |   |             | 0.07    |  |   |        | 0.04    | 
|                                                | Diluted |   |                              | (0.21   | )    |   |        | (0.03   | )    |   |              | 0.35    |             |   |             | 0.07    |  |   |        | 0.03    | 
|Weighted average shares outstanding:            |         |   |                              |         |      |   |        |         |      |   |              |         |             |   |             |         |  |   |        |        
|                                                | Basic   |   |                              | 111,068 |      |   |        | 108,458 |      |   |              | 105,875 |             |   |             | 108,400 |  |   |        | 108,400 | 
|                                                | Diluted |   |                              | 111,068 |      |   |        | 108,458 |      |   |              | 110,115 |             |   |             | 110,650 |  |   |        | 110,850 | 

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|                                      |  |                              |         |      |  |      |         |      |  |              |         |             |  |             |        |   |  |   |        | 
|------------------------------------- |  | ---------------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ------------ | ------- | ----------- |  | ----------- | ------ | - |  | - | ------ | 
|                                      |  | Fiscal Years Ended March 31,
|                                      |  | 2003                         |         | 2002 |  | 2001 |         | 2000 |  | 1999        
|                                      |  |                              |         |      |  |      |         |      |  | (unaudited & |         | (unaudited) |  | (unaudited)
|                                      |  |                              |         |      |  |      |         |      |  | restated)    |         |            
|                                      |  |                              |         |      |  |      |         |      |  |             
|Condensed Consolidated Balance Sheet: |  |                              |         |      |  |      |         |      |  |              |         |             |  |             |        |   |  |   |        | 
|(in thousands)                        |  |                              |         |      |  |      |         |      |  |              |         |             |  |             |        |   |  |   |        | 
|Working capital                       |  | $                            | 25,425  |      |  | $    | 29,076  |      |  | $            | 1,530   |             |  | $           | (1,665 | ) |  | $ | 10,068 | 
|Total assets                          |  |                              | 106,142 |      |  |      | 136,466 |      |  |              | 143,486 |             |  |             | 49,479 |   |  |   | 20,909 | 
|Long term liabilities                 |  |                              | 31,598  |      |  |      | 40,244  |      |  |              | 10,887  |             |  |             | 2,925  |   |  |   | 3,875  | 
|Shareholders equity                  |  |                              | 63,376  |      |  |      | 76,218  |      |  |              | 75,488  |             |  |             | 20,750 |   |  |   | 13,035 | 



|(1)  Subsequent to the issuance of the consolidated financial statements
as of and for the year ended March 31, 2001, the Company identified certain
adjustments that were necessary in order to correct errors in those
consolidated financial statements. The errors related to the conversion and
settlement of the phantom stock plan and the introduction of two new equity
incentive plans. Neither the errors identified nor the reclassifications
impact previously reported net income for the year ended March 31, 2001. These
consolidated financial statements for the year ended March 31, 2001, have been
restated to reflect the correcting adjustments and reclassifications. See Note
3 of the Consolidated Financial Statements presented herein for the detail of
the impact of the correcting adjustments to the Consolidated Balance Sheet as
of March 31, 2001.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 7. 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 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. 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 been in a significant period of consolidation
following a dramatic curtailment of capital spending by most carriers faced
with substantial excess bandwidth capacity and very high levels of corporate
debt. DiCon believes its customers, who typically are manufacturers of
telecommunications equipment, generally view the purchase of DiCons products
as a significant and strategic decision. As a result, customers typically
expend substantial effort in evaluating, testing and qualifying DiCon, its
products and its manufacturing processes. This customer evaluation and
qualification process frequently results in a lengthy initial sales cycle of
nine months or longer.

Beginning in January 2001, as the industry entered its downturn and
consolidation phase, various customers cancelled existing orders. In some
cases, DiCon was able to recover a portion of its costs through subsequent
transactions with these customers. However, the Company also incurred
substantial costs associated with obsolete inventory and cancelled orders.
During the fiscal year ended March 31, 2003, DiCon has written off $4.1 million
of obsolete inventory as compared to $9.2 million in the prior year.

In 2001, DiCon relocated its operations from leased facilities in
Berkeley, California, to a newly owned 200,000 square feet facility in
Richmond, California, which currently contains all of DiCons domestic
manufacturing, R&D, sales and administration operations. DiCon has continued
its efforts to consolidate its operations from different facilities in Berkeley
and Richmond, California. The Company has terminated four of its leased
facilities. The Company has reduced the reserve for future lease expenses for
unused premises, net of estimated sublease income, from $1.8 million as of
March 31, 2002, to $519,000 as of March 31, 2003.

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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.

DiCons cost of goods sold consists primarily of the cost of direct
materials, labor and manufacturing overhead associated with products sold, as
well as production start up costs. As demand changes, DiCon attempts to manage
its manufacturing capacity to meet demand for existing and new products;
however, 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 fiberoptic products.
DiCon expenses all of its research and development costs as incurred and does
not capitalize any research and development expenditures except for equipment
which has a useful life longer than one year and is useful for purposes other
than the current research and development project. DiCon believes that
research and development is critical to strategic product development and
expects to continue to devote significant resources to product research and
development, even in the face of decreased demand and a slow economy. 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.

DiCon maintains an Employee Stock Option Plan and an Employee Stock
Purchase Plan as a means of motivating its employees to make a tangible
contribution towards achieving its corporate objectives. See Note 11 of the
Consolidated Financial Statements presented herein for more information
regarding these plans. In September 2002, DiCon suspended the sale of DiCon
shares to employees under the Employee Stock Purchase Plan.

Critical Accounting Policies and Estimates

The preparation of the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires estimates and judgments that affect the reported amounts of
assets and liabilities, net sales and expenses, and the related disclosures.
Estimates are based on historical experience, knowledge of economic and market
factors and various other assumptions that the Company believes to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions. The following critical
accounting policies are affected by significant estimates, assumptions and
judgments used in the preparation of the Companys consolidated financial
statements.

Revenue recognition

The Company recognizes revenue upon shipment of the product provided that
persuasive evidence of a final agreement exists, delivery has occurred, the
selling price is fixed or determinable and collectibility is reasonably
assured. Revenue associated with contract-related cancellation payments from
customers is not recognized until a formal agreement is signed or a purchase
order issued by the customer covering such payments and the collectibility of
the cancellation payments is determined to be probable. The Company records
provisions against gross revenue for estimated product returns and allowances
in the period when the related revenue is recorded. Should actual product
returns and allowances exceed the Companys estimates, additional reductions to
revenue would result.

Allowances for doubtful accounts

The Company performs ongoing credit evaluations of its customers.
Allowances for doubtful accounts for estimated losses are maintained resulting
from the inability or unwillingness of customers to make required payments.
When the Company becomes aware that a specific customer is unable to meet its
financial obligations, such as bankruptcy or deterioration in the customers
operating results or financial position, the Company records a specific
allowance to reflect the level of credit risk in the customers outstanding
receivable balance. The Company is not able to predict changes in the financial
condition of customers, and if circumstances related to the Companys customers
deteriorate, estimates of the recoverability of trade receivables could be
materially affected and the Company may be required to record additional
allowances. Alternatively, if the Company provides for more allowances than
needed, the Company may reverse a portion of such provisions in future periods
based on actual collection experience.

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Warranty accrual

The Company normally provides warranties for its products for one year.
The Company provides reserves for the estimated costs of product warranties at
the time revenue is recognized. Because the Companys products are
manufactured, in most cases, to customer specifications and their acceptance is
based on meeting those specifications, the Company historically has experienced
minimal warranty costs. Estimates of the costs of warranty obligations are
based on the Companys historical experience of known product failure rates,
use of materials and service delivery costs incurred in correcting product
failures. In addition, from time to time, specific warranty accruals may be
made if unforeseen technical problems arise. Should the Companys actual
experience relative to these factors differ from estimates, the Company may be
required to record additional warranty reserves. Alternatively, if the Company
provides more reserves than needed, the Company may reverse a portion of such
provisions in future periods.

Inventory valuation

The Company regularly assesses the valuation of inventories and writes
down those inventories which are obsolete or in excess of forecasted usage to
their estimated realizable value. Estimates of realizable value are based upon
the Companys analyses and assumptions including, but not limited to,
forecasted sales levels by product, expected product lifecycle, product
development plans and future demand requirements. If market conditions are less
favorable than the Companys forecast or actual demand from customers is lower
than the Companys estimates, the Company may be required to record additional
inventory write-downs. If demand is higher than expected, the Company may sell
inventories that had previously been written down.

Property, plant and equipment

The Company evaluates the carrying value of property, plant and equipment
whenever certain events or changes in circumstances indicate that the carrying
amount may not be recoverable. Such events or circumstances include, but are
not limited to, a prolonged industry downturn, a significant decline in the
Companys market value, or significant reductions in projected future cash
flows. In assessing the recoverability of property, plant and equipment, the
Company compares the carrying value to the undiscounted future cash flows the
assets are expected to generate. If the total of the undiscounted future cash
flows is less than the carrying amount of the assets, the Company writes down
such assets based on the excess of the carrying amount over the fair value of
the assets. Fair value is generally determined by calculating the discounted
future cash flows using a discount rate based upon the Companys weighted
average cost of capital. Significant judgments and assumptions are required in
the forecast of future operating results used in the preparation of the
estimated future cash flows, including long-term forecasts of the amounts and
timing of overall market growth and the Companys percentage of that market,
groupings of assets, discount rate and terminal growth rates. Changes in these
estimates could have a material adverse effect on the assessment of property,
plant and equipment, thereby requiring the Company to write down the assets.

Deferred taxes

The Company regularly assesses the likelihood that deferred tax assets
will be recovered from future taxable income. If necessary, the Company records
a valuation allowance to reduce deferred tax assets to the amount that the
Company believes to be realizable. The Company considers projected future
taxable income and ongoing tax planning strategies in assessing the amount of
the valuation allowance. If it is determined that the Company will not realize
all or part of deferred tax assets, an adjustment to the deferred tax asset
will be charged to earnings in the period such determination is made.

Recent Accounting Pronouncements

In August 2001, the Financial Accounting Standards Board (the FASB)
issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which was effective for years beginning after December 15, 2001. SFAS
No. 144 supersedes FASB Statement No. 121 and parts of APB Opinion No. 30,
Reporting the Results of OperationsReporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions Relating to Extraordinary Items. However, SFAS No.
144 retains the requirement of APB Opinion No. 30 to report discontinued
operations separately from continuing operations and extends that reporting to
a component of an entity that either has been disposed of (by sale, by
abandonment, or in a distribution to owners) or is classified as held for sale.
SFAS No. 144 addresses financial accounting and reporting for the impairment of
certain long-lived assets and for long-lived assets to be disposed of. The
implementation of this standard did not have a material impact on the Companys
consolidated financial position, results of operations or cash flows.

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In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring). SFAS No.
146 requires that a liability for costs associated with an exit or disposal
activity be recognized and measured initially at fair value only when the
liability is incurred. The provisions of this statement are effective for exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS No. 146 did not have a material impact on the Companys consolidated
financial position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about guarantees that an
entity has issued, including a rollforward of the entitys product warranty
liabilities. The Company will apply the recognition provisions of FIN 45
prospectively to guarantees issued or modified after December 31, 2002. The
Company has included additional disclosure in accordance with FIN 45 in Note 16
to the Companys audited consolidated financial statements included elsewhere
in this report. The Company believes the adoption of this standard will not
have a material impact on its consolidated financial position, results of
operations or cash flows.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure - an amendment of FASB
Statement No. 123. SFAS No. 148 amends SFAS No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting for stock-based
employee compensation and the effect of the method used on reported results.
The Company is required to follow the prescribed format and provide the
additional disclosures required by SFAS No. 148 in its annual financial
statements for the year ended March 31, 2003 and must also provide the
disclosures in its quarterly reports containing condensed financial statements
for interim periods beginning with the quarterly period ended June 30, 2003.
The Company did not elect to adopt the fair value method of accounting for
stock-based employee compensation and, accordingly, the adoption of this
standard had no material impact on its consolidated financial position, results
of operations or cash flows. The Company has included such additional
disclosures in accordance with SFAS No. 148 in Note 2 to the Companys audited
consolidated financial statements included elsewhere in this report.

In January 2003, the EITF issued Issue No. 00-21 Accounting for Revenue
Arrangements with Multiple Deliverables. This EITF establishes the criteria
for recognizing revenue in arrangements when several items are bundled into one
agreement. EITF 00-21 does not allow revenue recognition unless the fair value
of the undelivered element is available and the element has stand-alone value
to the customer. EITF 00- 21 also provides guidance on allocating the total
contract revenue to the individual elements based upon the available fair value
of each deliverable. The Company does not expect the implementation of this
statement to have a material impact on its consolidated financial position,
results of operations or cash flows.

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

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Results of Operations

|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|----------------------------------------------- |  | --------------------- | ------- | ---- |  | - | ------ | -- |  | ---------------------- | ------ | - |  |  | ----- | -- |  | ---------------------- | ------- | - |  |  | ----- | --
|                                                |  | Years Ended March 31,
|                                                |  | 2003                  |         | 2002 |  |   |        |    |  | 2001                  
|                                                |  |                       |         |      |  |   |        |    |  | (unaudited & restated)
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  | See Note 1 in Selected
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  | Financial Data        
|                                                |  |                       |         |      |  |  
|                                                |  | $                     |         | %    |  | $ |        | %  |  | $                      |        | %
|Consolidated Statement of Operations:           |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|(in thousands and as a percentage of
net sales) |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|Net sales                                       |  | $                     | 20,735  |      |  |   | 100.0  | %  |  | $                      | 70,613 |   |  |  | 100.0 | %  |  | $                      | 163,794 |   |  |  | 100.0 | % 
|Cost of goods sold                              |  |                       | 24,313  |      |  |   | 117.3  | %  |  |                        | 45,848 |   |  |  | 64.9  | %  |  |                        | 56,764  |   |  |  | 34.7  | % 
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|Gross (loss) profit                             |  |                       | (3,578  | )    |  |   | (17.3  | %) |  |                        | 24,765 |   |  |  | 35.1  | %  |  |                        | 107,030 |   |  |  | 65.3  | % 
|Selling, general and administrative
expenses    |  |                       | 9,217   |      |  |   | 44.5   | %  |  |                        | 14,847 |   |  |  | 21.0  | %  |  |                        | 31,198  |   |  |  | 19.0  | % 
|Research and development expenses               |  |                       | 13,178  |      |  |   | 63.6   | %  |  |                        | 16,659 |   |  |  | 23.6  | %  |  |                        | 20,580  |   |  |  | 12.6  | % 
|(Gain) loss on dissolved joint venture          |  |                       |        |      |  |   | 0.0    | %  |  |                        | (544   | ) |  |  | (0.8  | %) |  |                        | 2,101   |   |  |  | 1.3   | % 
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|                                                |  |                       | 22,395  |      |  |   | 108.0  | %  |  |                        | 30,962 |   |  |  | 43.8  | %  |  |                        | 53,879  |   |  |  | 32.9  | % 
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|(Loss) income from operations                   |  |                       | (25,973 | )    |  |   | (125.3 | %) |  |                        | (6,197 | ) |  |  | (8.7  | %) |  |                        | 53,151  |   |  |  | 32.4  | % 
|Other income (expense)                          |  |                       | (3,392  | )    |  |   | (16.3  | %) |  |                        | (2,129 | ) |  |  | (3.0  | %) |  |                        | 2,173   |   |  |  | 1.3   | % 
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|(Loss) income before income taxes               |  |                       | (29,365 | )    |  |   | (141.6 | %) |  |                        | (8,326 | ) |  |  | (11.7 | %) |  |                        | 55,324  |   |  |  | 33.8  | % 
|Income tax benefit (provision)                  |  |                       | 6,178   |      |  |   | 29.8   | %  |  |                        | 5,217  |   |  |  | 7.4   | %  |  |                        | (16,731 | ) |  |  | (10.2 | %)
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   
|Net (loss) income                               |  | $                     | (23,187 | )    |  |   | (111.8 | %) |  | $                      | (3,109 | ) |  |  | (4.4  | %) |  | $                      | 38,593  |   |  |  | 23.6  | % 
|                                                |  |                       |         |      |  |   |        |    |  |                        |        |   |  |  |       |    |  |                        |         |   |  |  |       |   

Financial Results

Net Sales

During the fiscal year ended March 31, 2003, the Company reported $20.7
million of net sales, a 70.7% reduction from the previous year. Also, net
sales declined 43.1% from $163.8 million in the fiscal year ended March 31,
2001, to $70.6 million in the fiscal year ended March 31, 2002. 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, 2003, the Company recorded revenue from
cancellation of prior supply agreements with customers of $1.2 million compared
with $7.5 million in cancellation revenue from this source in the same period
of the prior year. This revenue represents actual cash payments received
during the periods.

In the fiberoptic communications industry, the pace of technological
change is dramatic. Specific products have a relatively short product life,
although basic product designs may have a substantial life. Generally,
customers expect that prices will decline 10% to 25% per year for comparable
products from DiCon and from its competitors. In 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 reduce costs. There is no certainty that these programs will be successful to offset the pricing
pressure from customers in the future. Historically, DiCons increased
revenues were mainly due to increased volumes of production rather than
increases in average selling prices. For the fiscal year ended March 31, 2003,
the declining revenues were due both to a decline in selling prices and to a
significant decline in the volume of goods shipped.

Net sales to customers in the United States accounted for $13.7 million,
$46.3 million and $117.9 million of total net sales, or 66%, 65% and 72%, for
the years ended March 31, 2003, 2002 and 2001, respectively.

Despite the fact that the Company had over 300 customers in the year ended
March 31, 2003, 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.

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|                                                                             |  |                       |      |      |  |      |      |   |  |  |      |  
|---------------------------------------------------------------------------- |  | --------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                             |  | Years Ended March 31,
|                                                                             |  | 2003                  |      | 2002 |  | 2001
|                                                                             |  |                       |      |      |  |     
|Percentage of revenue for 3 largest customers                                |  |                       | 33.4 | %    |  |      | 33.6 | % |  |  | 47.2 | %
|No. of customers accounting for over 10% of net sale                         |  |                       | 1    |      |  |      | 2    |   |  |  | 4    |  
|No. of customers accounting for more than 10% of
account receivables balance |  |                       | 2    |      |  |      | 1    |   |  |  | 1    |  

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 downturn in the telecommunications industry continues, DiCon
expects telecommunications carriers to continue their current levels of capital
spending, which will further affect DiCons sales.

Cost of Goods Sold and Gross Margin

Costs of goods sold declined 47% from $45.8 million in the fiscal year
ended March 31, 2002, to $24.3 million in the fiscal year ended March 31, 2003.
Gross margin as a percentage of net sales was negative 17.3% in the fiscal
year ended March 31, 2003, compared to 35.1% in the fiscal year ended March 31,
2002, and 65.3% in the fiscal year ended March 31, 2001.

The decrease in gross margin in the fiscal year ended March 31, 2003, from
the fiscal year ended March 31, 2002, was primarily attributable to reductions
in sales volume coupled with a continued decline in average selling prices, a
lower margin product mix due to lower sales of high-margin components, and $4.1
million of write-downs of excess and obsolete inventories in fiscal year ended
March 31, 2003, or 19.8% of total net sales, compared to $9.2 million, or 13%
of total net sales, in the fiscal year ended March 31, 2002.

Gross margin decreased in the fiscal year ended March 31, 2002, from the
fiscal year ended March 31, 2001, primarily due to inventory write-downs, and
reductions in sales volume along with a continued decline in average selling
prices.

Gross margin can be affected by a number of factors, including product
mix, customer mix, applications mix, product demand, pricing pressures,
manufacturing constraints, higher costs resulting from new production
facilities, and product yield. Considering these factors, gross margin
fluctuations are difficult to predict and there can be no assurance that we
will achieve or maintain gross margin percentages at historical levels in
future periods.

Compensation expense related to the Companys stock compensation plans has
been reflected in the Statement of Operations and Comprehensive Income (Loss)
for the years ended March 31, 2003, 2002 and 2001 as follows:

|                                             |  |                       |       |      |  |             |       |  |  |   |        | 
|-------------------------------------------- |  | --------------------- | ----- | ---- |  | ----------- | ----- |  |  | - | ------ | 
|                                             |  | Years Ended March 31,
|(in thousands)                               |  | 2003                  |       | 2002 |  | 2001       
|                                             |  |                       |       |      |  | (unaudited)
|                                             |  |                       |       |      |  |            
|Cost of goods sold                           |  | $                     | 157   |      |  | $           | 293   |  |  | $ | 4,115  | 
|Selling, general and administrative expenses |  |                       | 957   |      |  |             | 1,068 |  |  |   | 15,051 | 
|Research and development expenses            |  |                       | 314   |      |  |             | 562   |  |  |   | 7,903  | 
|                                             |  |                       |       |      |  |             |       |  |  |   |        | 
|                                             |  | $                     | 1,428 |      |  | $           | 1,923 |  |  | $ | 27,069 | 
|                                             |  |                       |       |      |  |             |       |  |  |   |        | 

Operating Expenses

Selling, general and administrative.

Selling, general and administrative (SG&A) expense was $9.2 million in
the fiscal year ended March 31, 2003, compared to $14.8 million in the fiscal
year ended March 31, 2002, and $31.2 million in fiscal year ended March 31,
2001. 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.

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The increase in SG&A expense as a percentage of total net sales in fiscal
2003 was due to the Companys net sales declining more rapidly than its SG&A
spending.

Research and development.

Research and development (R&D) expense was $13.2 million in the fiscal
year ended March 31, 2003, compared to $16.7 million in fiscal year ended March
31, 2002, and $20.6 million in the fiscal year ended March 31, 2001. The
decrease in R&D spending reflects the cost reductions resulting from the
elimination of certain product development programs and workforce reductions.
The increase in R&D expense as a percentage of total net sales was due to the
Companys net sales declining more rapidly than its R&D spending. 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.

Loss (Gain) on Dissolved Joint Venture

In February 2000, DiCon and Lucent Technologies Inc. (now Agere Systems
Inc.) created a joint venture (LD Fiberoptics LLC) for the purpose of jointly
developing advanced fiberoptic components. In December 2000, the parties
mutually agreed to terminate the joint venture. In the fiscal year ended March
31, 2001, DiCon estimated its loss upon dissolution of the joint venture to
potentially be $2.1 million. Subsequently, upon distribution of assets, it was
determined that DiCons loss was only $1.6 million, resulting in a gain for the
fiscal year ended March 31, 2002, of $0.5 million.

Other Income (Expense)

Other income (expense) was expense of $3.4 million in the fiscal year
ended March 31, 2003, expense of $2.1 million in the fiscal year ended March
31, 2002, and income of $2.2 million in the fiscal year ended March 31, 2001 as
follows:

|                        |                                                          |      |                       |        |   |             |        |        |   |   |       |       |  
|----------------------- | -------------------------------------------------------- | ---- | --------------------- | ------ | - | ----------- | ------ | ------ | - | - | ----- | ----- | -
|                        |                                                          |      | Years Ended March 31,
|(in thousands)          |                                                          | 2003 |                       | 2002   |   | 2001       
|                        |                                                          |      |                       |        |   | (unaudited)
|                        |                                                          |      |                       |        |   |            
|Other income (expense): |                                                          |      |                       |        |   |             |        |        |   |   |       |      
|                        | Realized (losses) gain on sales of marketable securities |      | $                     | (616   | ) |             | $      | (41    | ) |   | $     | 2,395 |  
|                        | Interest expense, net                                    |      |                       | (3,445 | ) |             |        | (3,026 | ) |   |       | (900  | )
|                        | Loss on disposal of fixed assets                         |      |                       | (930   | ) |             |        | (608   | ) |   |       |       |  
|                        | Other income (expense), net                              |      |                       | 1,599  |   |             |        | 1,546  |   |   |       | 678   |  
|                        |                                                          |      |                       |        |   |             |        |        |   |   |       |      
|                        |                                                          | $    | (3,392                | )      |   | $           | (2,129 | )      |   | $ | 2,173 |      
|                        |                                                          |      |                       |        |   |             |        |        |   |   |       |      

Interest expense, net, for the fiscal years ending March 31, 2003, 2002
and 2001, primarily represents the costs of borrowing by DiCon for its real
estate 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, 2001, DiCon recognized total gains of
$2.4 million primarily from sales of certain marketable equity securities. 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.

Income Tax Expense (Benefit):

DiCon recorded $6.2 million and $5.2 million of income tax benefit in the
fiscal years ended March 31, 2003 and 2002, respectively. In the fiscal year
ended March 31, 2001, DiCon recorded $16.7 million of income tax expense.

The Company has had sufficient income for federal income tax purposes in
prior years to carryback the anticipated losses from this year, and to receive
a refund of $15.2 million. The Company has thus accrued an income tax
receivable of $15.2 million at March 31, 2003. 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. During the fiscal year ended March 31, 2002, the Company
received $9.2 million of federal income tax refunds.

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:
- 22 -Table of Contents

|                                             |  |                       |     |      |  |      |    |   |  |  |    |  
|-------------------------------------------- |  | --------------------- | --- | ---- |  | ---- | -- | - |  |  | -- | -
|                                             |  | Years Ended March 31,
|                                             |  | 2003                  |     | 2002 |  | 2001
|                                             |  |                       |     |      |  |     
|Provision computed at federal statutory rate |  |                       | 35  | %    |  |      | 35 | % |  |  | 35 | %
|State taxes, net of federal tax benefit      |  |                       | 6   |      |  |      | 6  |   |  |  | 6  |  
|Foreign taxes                                |  |                       | (1  | )    |  |      | 14 |   |  |  | (5 | )
|Permanent differences                        |  |                       | (1  | )    |  |      | 13 |   |  |  | 2  |  
|Valuation allowance                          |  |                       | (19 | )    |  |      |    |   |  |  |    |  
|Other                                        |  |                       | 1   |      |  |      | (5 | ) |  |  | (8 | )
|                                             |  |                       |     |      |  |      |    |   |  |  |    |  
|Effective income tax rate                    |  |                       | (21 | %)   |  |      | 63 | % |  |  | 30 | %
|                                             |  |                       |     |      |  |      |    |   |  |  |    |  

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 as of March 31, 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.

Quarterly Results of Operations

The following tables set forth certain unaudited statements of operations
data for the eight quarters ended March 31, 2003. This data has been derived
from the unaudited interim financial statements prepared on the same basis as
the audited consolidated financial statements contained in this annual report,
and, in the opinion of management, include all adjustments consisting only of
normal recurring adjustments that we consider necessary for a fair presentation
of such information when read in conjunction with the consolidated financial
statements and notes thereto appearing elsewhere in this annual report. The
operating results for any quarter should not be considered indicative of
results of any future period.



|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |        |  
|-------------------------------------------- | --------------------------------------------------------- | - | ------------------ | ----- | ------- | - | ------ | ------ | ------ | - | ------ | ------ | - | - | ------ | ------ | -
|                                             |                                                           |   | Three Months Ended
|                                             |                                                           |   |                   
|                                             |                                                           |   | June 30            |       | Sept 30 |   | Dec 31 |        | Mar 31
|                                             |                                                           |   | 2001               |       | 2001    |   | 2001   |        | 2002  
|                                             |                                                           |   |                    |       |         |   |        |        |       
|Net sales                                    |                                                           | $ | 29,204             |       |         | $ | 14,176 |        |        | $ | 13,910 |        |   | $ | 13,323 |       
|Cost of goods sold                           |                                                           |   | 19,422             |       |         |   | 9,485  |        |        |   | 8,735  |        |   |   | 8,206  |       
|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|Gross (loss) profit                          |                                                           |   | 9,782              |       |         |   | 4,691  |        |        |   | 5,175  |        |   |   | 5,117  |       
|Selling, general and administrative expenses |                                                           |   | 3,395              |       |         |   | 3,398  |        |        |   | 3,581  |        |   |   | 4,474  |       
|Research and development expenses            |                                                           |   | 3,765              |       |         |   | 3,898  |        |        |   | 3,782  |        |   |   | 5,213  |       
|(Gain) loss on dissolved joint venture       |                                                           |   |                   |       |         |   |       |        |        |   |       |        |   |   | (544   | )     
|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|                                             |                                                           |   | 7,160              |       |         |   | 7,296  |        |        |   | 7,363  |        |   |   | 9,143  |       
|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|                                             | (Loss) income from operations                             |   |                    | 2,622 |         |   |        | (2,605 | )      |   |        | (2,188 | ) |   |        | (4,026 | )
|Other income (expense):                      |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|                                             | Realized (losses) gains on sales of marketable securities |   |                   |       |         |   |       |        |        |   |       |        |   |   | (41    | )     
|                                             | Interest expense, net                                     |   | (609               | )     |         |   | (899   | )      |        |   | (733   | )      |   |   | (785   | )     
|                                             | Loss on disposal of fixed assets                          |   |                   |       |         |   |       |        |        |   | 66     |        |   |   | (674   | )     
|                                             | Other income (expense), net                               |   | (815               | )     |         |   | (76    | )      |        |   | 753    |        |   |   | 1,683  |       
|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|                                             | (Loss) income before income taxes                         |   |                    | 1,198 |         |   |        | (3,580 | )      |   |        | (2,102 | ) |   |        | (3,843 | )
|Income tax benefit (provision)               |                                                           |   | (751               | )     |         |   | 2,244  |        |        |   | 1,316  |        |   |   | 2,409  |       
|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|Net (loss) income                            |                                                           | $ | 447                |       |         | $ | (1,336 | )      |        | $ | (786   | )      |   | $ | (1,434 | )     
|                                             |                                                           |   |                    |       |         |   |        |        |        |   |        |        |   |   |        |       
|Basic net (loss) income per share            |                                                           | $ | 0.00               |       |         | $ | (0.01  | )      |        | $ | (0.01  | )      |   | $ | (0.01  | )     

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |        |  
|-------------------------------------------- | --------------------------------------------------------- | - | ------------------ | ------ | ------- | - | ------ | ------ | ------ | - | ------ | ------ | - | - | ------- | ------ | -
|                                             |                                                           |   | Three Months Ended
|                                             |                                                           |   |                   
|                                             |                                                           |   | June 30            |        | Sept 30 |   | Dec 31 |        | Mar 31
|                                             |                                                           |   | 2002               |        | 2002    |   | 2002   |        | 2003  
|                                             |                                                           |   |                    |        |         |   |        |        |       
|Net sales                                    |                                                           | $ | 6,579              |        |         | $ | 5,368  |        |        | $ | 4,245  |        |   | $ | 4,543   |       
|Cost of goods sold                           |                                                           |   | 6,527              |        |         |   | 5,420  |        |        |   | 5,544  |        |   |   | 6,822   |       
|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|Gross (loss) profit                          |                                                           |   | 52                 |        |         |   | (52    | )      |        |   | (1,299 | )      |   |   | (2,279  | )     
|Selling, general and administrative expenses |                                                           |   | 3,013              |        |         |   | 1,836  |        |        |   | 1,959  |        |   |   | 2,409   |       
|Research and development expenses            |                                                           |   | 5,542              |        |         |   | 3,425  |        |        |   | 2,086  |        |   |   | 2,125   |       
|(Gain) loss on dissolved joint venture       |                                                           |   |                   |        |         |   |       |        |        |   |       |        |   |   |        |       
|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|                                             |                                                           |   | 8,555              |        |         |   | 5,261  |        |        |   | 4,045  |        |   |   | 4,534   |       
|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|                                             | (Loss) income from operations                             |   |                    | (8,503 | )       |   |        | (5,313 | )      |   |        | (5,344 | ) |   |         | (6,813 | )
|Other income (expense):                      |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|                                             | Realized (losses) gains on sales of marketable securities |   |                   |        |         |   |       |        |        |   |       |        |   |   | (616    | )     
|                                             | Interest expense, net                                     |   | (653               | )      |         |   | (1,485 | )      |        |   | (584   | )      |   |   | (723    | )     
|                                             | Loss on disposal of fixed assets                          |   |                   |        |         |   | (218   | )      |        |   | (659   | )      |   |   | (53     | )     
|                                             | Other income (expense), net                               |   | (138               | )      |         |   | 601    |        |        |   | 62     |        |   |   | 1,074   |       
|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|                                             | (Loss) income before income taxes                         |   |                    | (9,294 | )       |   |        | (6,415 | )      |   |        | (6,525 | ) |   |         | (7,131 | )
|Income tax benefit (provision)               |                                                           |   | 3,038              |        |         |   | 3,485  |        |        |   | 2,966  |        |   |   | (3,311  | )     
|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|Net (loss) income                            |                                                           | $ | (6,256             | )      |         | $ | (2,930 | )      |        | $ | (3,559 | )      |   | $ | (10,442 | )     
|                                             |                                                           |   |                    |        |         |   |        |        |        |   |        |        |   |   |         |       
|Basic net (loss) income per share            |                                                           | $ | (0.06              | )      |         | $ | (0.03  | )      |        | $ | (0.03  | )      |   | $ | (0.09   | )     

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Liquidity and Capital Resources

Net cash provided by operations declined from $37.4 million and $13.9
million for the fiscal years ended March 31, 2001 and 2002, respectively, to a
cash outflow of $15.1 million for the fiscal year ended March 31, 2003. The
growth in net cash generated by operating activities in the fiscal year ended
March 31, 2001, was primarily due to the growth in revenues and the improving
gross profit margins due to increased volumes and a shift of product mix to the
sale of products with higher gross margins over these periods. The decline in
the fiscal year ended March 31, 2002, was due to the dramatic reduction in
revenues, which was not offset by an equivalent reduction in costs. The
decrease in the fiscal year ended March 31, 2003, was primarily due to the net
loss experienced during the fiscal year from the further reduction of sales,
the $13.4 million in deferred compensation payments made upon the resignation
of employees and the early repayment program.

Accounts receivable were lower in the fiscal year ending March 31, 2003,
due to a decline in net sales. Inventory levels were lower primarily as a
result of lower purchase and production volumes and write-downs of excess and
obsolete inventories.

Net cash from operations may continue to be negative unless the business
climate for the Company improves or the Company is able to substantially reduce
operating costs. If sales remain at current levels or decline further and the
Company is unable to reduce its spending rates substantially, the Company will
continue to use cash for operating expenses and may suffer adverse consequences
at some future date.

Cash used in investing activities reflected new investments in
certificates of deposits with maturities in excess of 90 days of $13.2 million
in the current fiscal year ending March 31, 2003. This is primarily the result
of efforts to increase earnings on working capital by lengthening the maturity
of the portfolio. All certificates mature in one year or less. The Company
also made a long-term investment of $506,000 for a minority interest in a firm
in Taiwan.

Purchases of equipment declined from $57.7 million and $16.3 million in
the fiscal years ending March 31, 2001 and 2002, respectively, to approximately
$1.6 million in the current fiscal year. The expenditures were primarily
attributable to purchases of manufacturing and test equipment, equipment for
research and development, information systems equipment and office equipment,
as well as the investment in the Richmond, California, facility in the fiscal
years ended March 31, 2001 and 2002. In the fiscal years ended March 31, 2001
and 2002, the Company incurred substantial capital expenditures related to the
establishment of Globals operations in Kaohsiung, Taiwan, in the amount of
$14.9 million for 2001 and $2.0 million for 2002. The Company may from time to
time continue to purchase certain additional equipment necessary for new
production processes or for replacement.

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 and capital purchases that
were $14.6 million lower than in 2002.

Cash generated by financing activities was $26.2 million, $11.5 million,
and $7.7 million in the fiscal years ended March 31, 2001, 2002, and 2003,
respectively. For the fiscal year ended March 31, 2003, cash flows generated
were primarily the result of the sale of additional common stock net of
repurchases for $9.5 million. For the fiscal year ended March 31, 2002, the
increases were primarily due to increases in debt to finance the corporate
headquarters and manufacturing facility in Richmond, California, an increase in
debt to finance equipment purchases of $7.3 million and to the sale in that
period of additional common stock of $4.8 million. Cash generated in 2001 was
primarily due to borrowing for the construction of the facility in Richmond.

The Company financed, in part, a new corporate campus by borrowing from a
bank a construction loan of $27 million, which the Company entered into on
August 24, 2000. In November 2001, the same lender refinanced the outstanding
balance of the construction loan with a mortgage loan maturing November 20,
2004 with an amortization schedule based on a 25-year loan. Interest on the
mortgage loan is accrued at a variable interest rate based on changes in the
lenders prime rate as of the 20th of each month (4.25 percent at March 31,
2003). Principal and interest are payable monthly. The balance of the mortgage
loan as of March 31, 2003 was $26.2 million and the balance of the loan at
maturity is estimated to be $25.2 million at the current interest rate. 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.

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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, 2003, the loan balance was
$4.5 million. Effective April 30, 2002 and annually on April 30 of each year
thereafter, the Company may elect to fix the interest rate on the equipment
loan for a twelve month period at a rate of one-half of one percentage point
(0.5 percent) per annum in excess of the prime rate. As of March 31, 2003, the
Company had not elected the fixed rate option and the loan bore an interest
rate of prime plus 0.5 percent (4.75 percent on March 31, 2003). On March 31,
2003 and March 31, 2002, the Company was in violation of two of the financial
covenants under this loan agreement. The bank agreed to waive the covenants,
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,
2004. The Company was in compliance with the additional covenant as of March
31, 2003 and 2002.

In December 2001, Global issued commercial paper in the amount of 20
million New Taiwan Dollars. Proceeds were used to repay borrowings under the
bank line of credit for Global. This loan was repaid in April 2002.

In June 2002, Global renewed its lines of credit of 200 million New Taiwan
Dollars (or approximately $5.8 million as of March 31, 2003) from a Taiwan
bank, with interest based on a rate set by the bank at the time funds are
drawn. The line matures on June 30, 2003. The amount drawn as of March 31, 2003
was $1.0 million. The interest rate as of March 31, 2003 was 2.95 percent and
fluctuates based on the lending banks prime rate.

In December 2002, Global renewed its line of credit in Taiwan backed by
commercial paper issued by Global for a maximum of 220 million New Taiwan
Dollars (or approximately $6.4 million as of March 31, 2003). The outstanding
balance of any commercial paper under this line must be fully secured by either
cash deposit or bond fund certificate. As of March 31, 2003 Global had issued
commercial paper in the amount of 27.5 million New Taiwan Dollars (or
approximately $0.8 million as of March 31, 2003) under this line which will
mature on December 24, 2003. The interest rate at March 31, 2003 was 1.50% and
was based on a rate set by bank at the time funds are drawn.

The maturities of mortgage, and other debt outstanding and commitments
under operating leases as of March 31, 2003 are summarized as follows:

|                      |       |           |     |         |  |          |       |           |  |       |        |        |  |   |       |       |  |   |        |        | 
|--------------------- | ----- | --------- | --- | ------- |  | -------- | ----- | --------- |  | ----- | ------ | ------ |  | - | ----- | ----- |  | - | ------ | ------ | 
|Year Ending March 31, |       | Operating |     | Line of |  | Mortgage |       | Equipment |  |      
|(in thousands)        |       | Leases    |     | Credit  |  | Loan     |       | Loan      |  | Total
|                      |       |           |     |         |  |          |       |           |  |      
|2004                  |       | $         | 502 |         |  | $        | 1,828 |           |  | $     | 649    |        |  | $ | 1,450 |       |  | $ | 4,429  |       
|2005                  |       |           | 409 |         |  |          |      |           |  |       | 25,544 |        |  |   | 1,450 |       |  |   | 27,403 |       
|2006                  |       |           | 199 |         |  |          |      |           |  |       |       |        |  |   | 1,450 |       |  |   | 1,649  |       
|2007                  |       |           | 21  |         |  |          |      |           |  |       |       |        |  |   | 121   |       |  |   | 142    |       
|Thereafter            |       |           | 78  |         |  |          |      |           |  |       |       |        |  |   |      |       |  |   | 78     |       
|                      |       |           |     |         |  |          |       |           |  |       |        |        |  |   |       |       |  |   |        |       
|                      | Total |           | $   | 1,209   |  |          | $     | 1,828     |  |       | $      | 26,193 |  |   | $     | 4,471 |  |   | $      | 33,701 | 
|                      |       |           |     |         |  |          |       |           |  |       |        |        |  |   |       |       |  |   |        |       

As of March 31, 2003, DiCon had cash and cash equivalents totaling $3.7
million and marketable securities of $10.8 million. 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 July 2001, the Company sold 664,000 shares of common stock through a
private placement. The proceeds of $3.0 million were used for general
corporate purposes.

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 and the Employee Stock Option Plan for
an 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.

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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. 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.




Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Interest Rate Sensitivity

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, 2003. Accordingly, it does not believe
that its investments have material exposure to interest rate risk.

Because its loans are variable rate, DiCon is subject to interest rate
risk for these liabilities. A 1% change in the prime rate would result in a
change in interest expense of up to $325,000 per year at the maximum level of
loan commitments DiCon has secured.

The book value of the Companys debt approximates fair value due to 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, 2003, the Company had marketable equity securities with an original
cost of $173,940 that had an unrealized gain of $81,209. As of March 31, 2002,
the Company had marketable equity securities with an original cost of $1.3
million that had an unrealized loss of $90,000.

The Company invests its funds in excess of short-term working capital in
certificates of deposit and investment funds. It diversifies its investments
in several different financial institutions to minimize market risk. Certain
of these investments are subject to market risks as interest rates change.

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 has entered into a number of
foreign currency forward contracts and options. Gains or losses on these
contracts are recognized as other income (expense) and have not been
significant. The Company does not use derivatives for trading purposes. As of
March 31, 2003, the accumulated currency translation losses resulting from the
translation of the financial position of Global were $2.1 million compared to a
loss of $2.4 million as of the end of the fiscal year ended March 31, 2002.

DiCon considers its investment in its Taiwanese subsidiary to be
essentially permanent in duration. At March 21, 2003, the undistributed
foreign earnings amounted to approximately $11.4 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.

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Item 8. Financial Statements and Financial Statement Schedule.

Index to Financial Statements

|                              |                                                                                                                                                     |  |  |    | 
|----------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Financial Statements:         |                                                                                                                                                     |  |  |   
|                              | Reports of Independent Accountants                                                                                                                  |  |  | 28 | 
|                              | Consolidated Balance Sheets at March 31, 2003 and 2002                                                                                              |  |  | 30 | 
|                              | Consolidated Statements of Operations and Comprehensive
Income (Loss) for each of the three years in the period ended March 31,
2003, 2002 and 2001 |  |  | 31 | 
|                              | Consolidated Statement of Changes in Shareholders Equity
for each of the three years in the period ended March 31, 2003, 2002 and
2001             |  |  | 32 | 
|                              | Consolidated Statement of Cash Flows for each of the three years
in the period ended March 31, 2003, 2002 and
2001                                  |  |  | 33 | 
|                              | Notes to Consolidated Financial Statements                                                                                                          |  |  | 35 | 
|Financial Statement Schedule: |                                                                                                                                                     |  |  |   
|                              | Valuation and Qualifying Accounts for each of the three years in the
period
ended March 31,
2003                                                    |  |  | 51 | 

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.

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Report of Independent Accountants

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 Subsidiary (the Company) at March 31,
2003 and 2002, and the results of their operations and their cash flows for the
years then ended, 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 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. The 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 auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

/s/ PricewaterhouseCoopers LLP

San Francisco, California
May 16, 2003

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THE FOLLOWING REPORT IS A COPY OF A REPORT PREVIOUSLY ISSUED BY
ARTHUR ANDERSEN LLP AND HAS NOT BEEN REISSUED BY
ARTHUR ANDERSEN LLP

Due to the correction of errors related to the conversion and settlement of the phantom stock
plan and introduction of two new equity incentive plans, the financial statements which are the
subject of this report have been restated to (1) properly account for the conversion and
settlement of the phantom stock plan (see Note 3 to the financial statements) and (2) conform the
presentation of certain items to the current year presentation.
Arthur Andersen LLP did not participate in the preparation of the restatement and accordingly
this report does not extend to the restated financial statements presented herein.

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
DiCon Fiberoptics, Inc.:

We have audited the accompanying consolidated balance sheet of DiCon
Fiberoptics, Inc. (a California corporation) and Subsidiary as of March 31,
2001, and the related consolidated statements of income, shareholders equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the 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.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of DiCon Fiberoptics, Inc. and
Subsidiary as of March 31, 2001, and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP

San Francisco, California,
           June 8, 2001

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Consolidated Balance Sheets
(in thousands, except per share date)

|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |         | 
|----------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | --------- | ------- | --------- | ------ | ------ | ------- | 
|                                                      |                                                                                                                                    |                                            |        | March 31, |         | March 31,
|                                                      |                                                                                                                                    |                                            |        | 2003      |         | 2002     
|                                                      |                                                                                                                                    |                                            |        |           |         |          
|Assets                                                |                                                                                                                                    |                                            |        |           |         |           |        |       
|Current assets:                                       |                                                                                                                                    |                                            |        |           |         |           |        |       
|                                                      | Cash and cash equivalents                                                                                                          |                                            | $      | 3,757     |         |           | $      | 10,170 |        
|                                                      | Marketable securities                                                                                                              |                                            |        | 10,851    |         |           |        | 13,756 |        
|                                                      | Accounts receivable, net of allowance of $77 and $634, respectively                                                                |                                            |        | 2,203     |         |           |        | 5,112  |        
|                                                      | Inventories, net                                                                                                                   |                                            |        | 3,864     |         |           |        | 6,596  |        
|                                                      | Prepaid expenses and other current assets                                                                                          |                                            |        | 388       |         |           |        | 3,988  |        
|                                                      | Income tax receivable                                                                                                              |                                            |        | 15,262    |         |           |        | 8,899  |        
|                                                      | Deferred income taxes                                                                                                              |                                            |        | 268       |         |           |        | 559    |        
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |        
|                                                      |                                                                                                                                    | Total current assets                       |        |           | 36,593  |           |        |        | 49,080  | 
|Property, plant and equipment, net                    |                                                                                                                                    |                                            | 68,202 |           |         |           | 78,292 |       
|Deferred income taxes                                 |                                                                                                                                    |                                            | 739    |           |         |           | 8,890  |       
|Other assets                                          |                                                                                                                                    |                                            | 608    |           |         | $         | 204    |       
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |        
|                                                      |                                                                                                                                    | Total assets                               |        | $         | 106,142 |           |        | $      | 136,466 | 
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |        
|Liabilities and Shareholders Equity                  |                                                                                                                                    |                                            |        |           |         |           |        |       
|Current liabilities:                                  |                                                                                                                                    |                                            |        |           |         |           |        |       
|                                                      | Accounts payable and accrued liabilities                                                                                           |                                            | $      | 7,185     |         |           | $      | 10,922 |        
|                                                      | Mortgage and other debt                                                                                                            |                                            |        | 3,927     |         |           |        | 3,632  |        
|                                                      | Income taxes payable                                                                                                               |                                            |        | 23        |         |           |        | 1,311  |        
|                                                      | Deferred compensation payable                                                                                                      |                                            |        | 33        |         |           |        | 4,139  |        
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |        
|                                                      |                                                                                                                                    | Total current liabilities                  |        |           | 11,8    |           |        |        | 20,004  | 
|Deferred compensation payable, net of current portion |                                                                                                                                    |                                            | 36     |           |         |           | 7,382  |       
|Deferred income taxes                                 |                                                                                                                                    |                                            | 2,997  |           |         |           | 2,157  |       
|Mortgage and other debt, net of current portion       |                                                                                                                                    |                                            | 28,565 |           |         |           | 30,705 |       
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |        
|                                                      |                                                                                                                                    | Total liabilities                          |        |           | 42,766  |           |        |        | 60,248  | 
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |       
|Commitments (Note 16)                                 |                                                                                                                                    |                                            |        |           |         |           |        |       
|                                                     
|Shareholders equity:                                 |                                                                                                                                    |                                            |        |           |         |           |        |       
|                                                      | Common stock: no par value; 200,000,000 shares authorized; 112,039,831 and 108,841,795 shares issued and outstanding, respectively |                                            |        | 22,333    |         |           |        | 12,786 |        
|                                                      | Additional paid-in capital                                                                                                         |                                            |        | 13,199    |         |           |        | 13,438 |        
|                                                      | Deferred compensation                                                                                                              |                                            |        | (970      | )       |           |        | (1,659 | )      
|                                                      | Retained earnings                                                                                                                  |                                            |        | 30,838    |         |           |        | 54,025 |        
|                                                      | Accumulated other comprehensive loss                                                                                               |                                            |        | (2,024    | )       |           |        | (2,372 | )      
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |        |        
|                                                      |                                                                                                                                    | Total shareholders equity                 |        |           | 63,376  |           |        |        | 76,218  | 
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |       
|                                                      |                                                                                                                                    | Total liabilities and shareholders equity |        | $         | 106,142 |           |        | $      | 136,466 | 
|                                                      |                                                                                                                                    |                                            |        |           |         |           |        |       

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

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except per share data)

|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |        |        | 
|-------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------- | ------- | --------------------- | ------- | ---- | ------- | ----------- | ------ | - | ------- | ------ | ------ | 
|                                                                     |                                                                                                                                                    |                                   |         | Years Ended March 31,
|                                                                     |                                                                                                                                                    |                                   |         |                      
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         | 2001  
|                                                                     |                                                                                                                                                    |                                   |         | 2003                  |         | 2002 |         | (unaudited)
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |            
|Net sales                                                            |                                                                                                                                                    | $                                 | 20,735  |                       |         | $    | 70,613  |             |        | $ | 163,794 |       
|Cost of goods sold                                                   |                                                                                                                                                    |                                   | 24,313  |                       |         |      | 45,848  |             |        |   | 56,764  |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Gross (loss) profit                                                  |                                                                                                                                                    |                                   | (3,578  | )                     |         |      | 24,765  |             |        |   | 107,030 |       
|Selling, general and administrative expenses                         |                                                                                                                                                    |                                   | 9,217   |                       |         |      | 14,847  |             |        |   | 31,198  |       
|Research and development expenses                                    |                                                                                                                                                    |                                   | 13,178  |                       |         |      | 16,659  |             |        |   | 20,580  |       
|(Gain) loss on dissolved joint venture                               |                                                                                                                                                    |                                   |        |                       |         |      | (544    | )           |        |   | 2,101   |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|                                                                     |                                                                                                                                                    |                                   | 22,395  |                       |         |      | 30,962  |             |        |   | 53,879  |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|                                                                     |                                                                                                                                                    | (Loss) income from operations     |         |                       | (25,973 | )    |         |             | (6,197 | ) |         |        | 53,151 | 
|Other income (expense):                                              |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|                                                                     | Realized (losses) gains on sales of marketable securities                                                                                          |                                   |         | (616                  | )       |      |         | (41         | )      |   |         | 2,395  |       
|                                                                     | Interest expense, net                                                                                                                              |                                   |         | (3,445                | )       |      |         | (3,026      | )      |   |         | (900   | )     
|                                                                     | Loss on disposal of fixed assets                                                                                                                   |                                   |         | (930                  | )       |      |         | (608        | )      |   |         |       |       
|                                                                     | Other income (expense), net                                                                                                                        |                                   |         | 1,599                 |         |      |         | 1,546       |        |   |         | 678    |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|                                                                     |                                                                                                                                                    | (Loss) income before income taxes |         |                       | (29,365 | )    |         |             | (8,326 | ) |         |        | 55,324 | 
|Income tax benefit (provision)                                       |                                                                                                                                                    |                                   | 6,178   |                       |         |      | 5,217   |             |        |   | (16,731 | )     
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Net (loss) income                                                    |                                                                                                                                                    | $                                 | (23,187 | )                     |         | $    | (3,109  | )           |        | $ | 38,593  |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Other comprehensive income (loss):                                   |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|                                                                     | Foreign currency translation adjustment                                                                                                            |                                   |         | 165                   |         |      |         | (1,519      | )      |   |         | (846   | )     
|                                                                     | Unrealized holding gains (losses) on marketable securities arising
during the period, net of realized gains (losses) included in net income (loss) |                                   |         | 183                   |         |      |         | (28         | )      |   |         | (1,426 | )     
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Comprehensive (loss) income                                          |                                                                                                                                                    | $                                 | (22,839 | )                     |         | $    | (4,656  | )           |        | $ | 36,321  |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Basic net (loss) income per share                                    |                                                                                                                                                    | $                                 | (0.21   | )                     |         | $    | (0.03   | )           |        | $ | 0.36    |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Diluted net (loss) income per share                                  |                                                                                                                                                    | $                                 | (0.21   | )                     |         | $    | (0.03   | )           |        | $ | 0.35    |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Average shares used in computing basic net (loss) income
Per share   |                                                                                                                                                    |                                   | 111,068 |                       |         |      | 108,458 |             |        |   | 105,875 |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       
|Average shares used in computing diluted net (loss) income
Per share |                                                                                                                                                    |                                   | 111,068 |                       |         |      | 108,458 |             |        |   | 110,115 |       
|                                                                     |                                                                                                                                                    |                                   |         |                       |         |      |         |             |        |   |         |       

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

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Consolidated Statement of Shareholders Equity
(in thousands)

|                                                                                                                         |  |              |         |         |  |          |        |              |  |               |        |               |  |       |        |   |  |   |         |             |  |   |        |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------- | ------- |  | -------- | ------ | ------------ |  | ------------- | ------ | ------------- |  | ----- | ------ | - |  | - | ------- | ----------- |  | - | ------ | - |  | - | ------- | -
|                                                                                                                         |  |              |         |         |  |          |        |              |  |               |        |               |  |       |        |   |  |   |         | Accumulated |  |   |        |  
|                                                                                                                         |  |              |         |         |  |          |        |              |  | Additional    |        |               |  |       |        |   |  |   |         | Other       |  |   |        |  
|                                                                                                                         |  | Common Stock |         | Paid-In |  | Deferred |        | Retained     |  | Comprehensive |        |               |  |      
|                                                                                                                         |  | Shares       |         | Amount  |  | Capital  |        | Compensation |  | Earnings      |        | Income (Loss) |  | Total
|                                                                                                                         |  |              |         |         |  |          |        |              |  |               |        |               |  |      
|Balance, March 31, 2000 (unaudited)                                                                                      |  |              | 97,100  |         |  | $        | 360    |              |  | $             |       |               |  | $     |       |   |  | $ | 18,943  |             |  | $ | 1,447  |   |  | $ | 20,750  |  
|Issuance of common stock in connection
with private placement                                                            |  |              | 10,536  |         |  |          | 7,577  |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   |       |   |  |   | 7,577   |  
|Dividends on common stock                                                                                                |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   | (402    | )           |  |   |       |   |  |   | (402    | )
|Conversion of Phantom Stock Plan
(Restated  see Notes 3 and 11)                                                         |  |              |        |         |  |          |       |              |  |               | 13,165 |               |  |       |       |   |  |   |        |             |  |   |       |   |  |   | 13,165  |  
|Issuance of stock options                                                                                                |  |              |        |         |  |          |       |              |  |               |       |               |  |       | (1,923 | ) |  |   |        |             |  |   |       |   |  |   | (1,923  | )
|Unrealized gain (loss) on securities
available for sale, net of realized
gains (losses) included in net income
(loss)    |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   | (1,426 | ) |  |   | (1,426  | )
|Foreign currency translation adjustment                                                                                  |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   | (846   | ) |  |   | (846    | )
|Net income                                                                                                               |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   | 38,593  |             |  |   |       |   |  |   | 38,593  |  
|                                                                                                                         |  |              |         |         |  |          |        |              |  |               |        |               |  |       |        |   |  |   |         |             |  |   |        |   |  |   |         |  
|Balance, March 31, 2001 (unaudited)                                                                                      |  |              | 107,636 |         |  |          | 7,937  |              |  |               | 13,165 |               |  |       | (1,923 | ) |  |   | 57,134  |             |  |   | (825   | ) |  |   | 75,488  |  
|Issuance of common stock pursuant to
stock option and stock purchase plans,
net of repurchases                           |  |              | 542     |         |  |          | 1,849  |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   |       |   |  |   | 1,849   |  
|Issuance of common stock in connection
with private placement                                                            |  |              | 664     |         |  |          | 3,000  |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   |       |   |  |   | 3,000   |  
|Issuance of stock options                                                                                                |  |              |        |         |  |          |       |              |  |               | 273    |               |  |       | (273   | ) |  |   |        |             |  |   |       |   |  |   |        |  
|Amortization of deferred compensation                                                                                    |  |              |        |         |  |          |       |              |  |               |       |               |  |       | 537    |   |  |   |        |             |  |   |       |   |  |   | 537     |  
|Unrealized 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 | ) |  |   | 76,218  |  
|Issuance of common stock pursuant to
stock option and stock purchase plans,
net of repurchases                           |  |              | 462     |         |  |          | 950    |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   |       |   |  |   | 950     |  
|Issuance of common stock in connection
with private placement                                                            |  |              | 2,736   |         |  |          | 8,597  |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   |       |   |  |   | 8,597   |  
|Reversal of deferred compensation due
to employee terminations prior to
vesting                                          |  |              |        |         |  |          |       |              |  |               | (239   | )             |  |       | 239    |   |  |   |        |             |  |   |       |   |  |   |        |  
|Amortization of deferred compensation                                                                                    |  |              |        |         |  |          |       |              |  |               |       |               |  |       | 450    |   |  |   |        |             |  |   |       |   |  |   | 450     |  
|Unrealized gains (losses) on
securities available for sale, net of
realized gains (losses) included in
net income (loss) |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   | 183    |   |  |   | 183     |  
|Foreign currency translation adjustment                                                                                  |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   |        |             |  |   | 165    |   |  |   | 165     |  
|Net loss                                                                                                                 |  |              |        |         |  |          |       |              |  |               |       |               |  |       |       |   |  |   | (23,187 | )           |  |   |       |   |  |   | (23,187 | )
|                                                                                                                         |  |              |         |         |  |          |        |              |  |               |        |               |  |       |        |   |  |   |         |             |  |   |        |   |  |   |         |  
|Balance, March 31, 2003                                                                                                  |  |              | 112,040 |         |  | $        | 22,333 |              |  | $             | 13,199 |               |  | $     | (970   | ) |  | $ | 30,838  |             |  | $ | (2,024 | ) |  | $ | 63,376  |  
|                                                                                                                         |  |              |         |         |  |          |        |              |  |               |        |               |  |       |        |   |  |   |         |             |  |   |        |   |  |   |         |  

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

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Consolidated Statement of Cash Flows
(in thousands )

|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |         |         |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ----------------------------- | ------- | ------ | ------- | --------------- | ------- | ------ | ------- | ------- | ------- | -
|                                                             |                                                                                                  |                                                                                  |                                                     |         | For the Years Ended March 31,
|                                                             |                                                                                                  |                                                                                  |                                                     |         | 2003                          |         | 2002   |         | 2001(unaudited)
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                
|Cash flows from operating activities:                        |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |        
|                                                             | Net (loss) income                                                                                |                                                                                  | $                                                   | (23,187 | )                             |         | $      | (3,109  | )               |         | $      | 38,593  |        
|                                                             | Adjustments to reconcile net (loss) income to net cash used in provided by operating activities: |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|                                                             |                                                                                                  | Depreciation                                                                     |                                                     |         | 10,245                        |         |        |         | 10,641          |         |        |         | 8,559   |        
|                                                             |                                                                                                  | Deferred incomes taxes                                                           |                                                     |         | 9,282                         |         |        |         | 2,823           |         |        |         | (13,228 | )      
|                                                             |                                                                                                  | Provision for inventory                                                          |                                                     |         | 4,081                         |         |        |         | 9,186           |         |        |         |        |        
|                                                             |                                                                                                  | Provision for bad debt                                                           |                                                     |         | (365                          | )       |        |         | 721             |         |        |         |        |        
|                                                             |                                                                                                  | Loss on disposal of fixed assets                                                 |                                                     |         | 930                           |         |        |         | 608             |         |        |         |        |        
|                                                             |                                                                                                  | Provision for estimated losses due to vacated properties, net of sublease income |                                                     |         | (80                           | )       |        |         | 1,457           |         |        |         | 449     |        
|                                                             |                                                                                                  | (Gain) loss on dissolved joint venture                                           |                                                     |         |                              |         |        |         | (544            | )       |        |         | 2,101   |        
|                                                             |                                                                                                  | Realized (gain) loss on available-for-sale marketable securities                 |                                                     |         | 616                           |         |        |         | 41              |         |        |         | (2,395  | )      
|                                                             |                                                                                                  | Interest accretion on deferred compensation liability                            |                                                     |         | 1,942                         |         |        |         | 1,199           |         |        |         |        |        
|                                                             |                                                                                                  | Stock compensation expense                                                       |                                                     |         | 450                           |         |        |         | 537             |         |        |         | 27,069  |        
|                                                             |                                                                                                  | Changes in assets and liabilities:                                               |                                                     |         |                               |         |        |         |                 |         |        |         |         |        
|                                                             |                                                                                                  |                                                                                  | Accounts receivable                                 |         |                               | 3,436   |        |         |                 | 16,388  |        |         |         | (12,196 | )
|                                                             |                                                                                                  |                                                                                  | Inventories                                         |         |                               | (1,350  | )      |         |                 | 3,229   |        |         |         | (16,658 | )
|                                                             |                                                                                                  |                                                                                  | Prepaid expenses and other current assets           |         |                               | 3,591   |        |         |                 | (2,018  | )      |         |         | (1,340  | )
|                                                             |                                                                                                  |                                                                                  | Federal income tax receivable                       |         |                               | (6,355  | )      |         |                 | (8,899  | )      |         |         |        |  
|                                                             |                                                                                                  |                                                                                  | Other assets                                        |         |                               | 98      |        |         |                 | 1,100   |        |         |         | (1,144  | )
|                                                             |                                                                                                  |                                                                                  | Accounts payable and accrued liabilities            |         |                               | (3,757  | )      |         |                 | (15,820 | )      |         |         | 8,584   |  
|                                                             |                                                                                                  |                                                                                  | Income taxes payable                                |         |                               | (1,300  | )      |         |                 | 1,203   |        |         |         | (1,008  | )
|                                                             |                                                                                                  |                                                                                  | Deferred compensation payable                       |         |                               | (13,395 | )      |         |                 | (4,810  | )      |         |         |        |  
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|                                                             |                                                                                                  |                                                                                  | Net cash (used in) provided by operating activities |         |                               | (15,118 | )      |         |                 | 13,933  |        |         |         | 37,386  |  
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|Cash flows from investing activities:                        |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |        
|                                                             | Purchases of marketable securities                                                               |                                                                                  |                                                     | (13,174 | )                             |         |        | (20,367 | )               |         |        | (500    | )      
|                                                             | Sales of marketable securities                                                                   |                                                                                  |                                                     | 15,641  |                               |         |        | 6,921   |                 |         |        | 5,591   |        
|                                                             | Investment in joint venture and long-term investment                                             |                                                                                  |                                                     | (506    | )                             |         |        |        |                 |         |        | (3,748  | )      
|                                                             | Sales of property, plant and equipment                                                           |                                                                                  |                                                     | 645     |                               |         |        | 642     |                 |         |        |        |        
|                                                             | Purchases of property and equipment                                                              |                                                                                  |                                                     | (1,622  | )                             |         |        | (16,264 | )               |         |        | (57,734 | )      
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|                                                             |                                                                                                  |                                                                                  | Net cash provided by (used in) investing activities |         |                               | 984     |        |         |                 | (29,068 | )      |         |         | (56,391 | )
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|Cash flows from financing activities:                        |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |        
|                                                             | Borrowings under mortgages and other debt                                                        |                                                                                  |                                                     | 797     |                               |         |        | 9,401   |                 |         |        | 47,866  |        
|                                                             | Repayment of mortgages and other debt                                                            |                                                                                  |                                                     | (2,652  | )                             |         |        | (2,793  | )               |         |        | (28,875 | )      
|                                                             | Proceeds from issuance of common stock, net of repurchases                                       |                                                                                  |                                                     | 9,547   |                               |         |        | 4,849   |                 |         |        | 7,577   |        
|                                                             | Dividends paid                                                                                   |                                                                                  |                                                     |        |                               |         |        |        |                 |         |        | (402    | )      
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|                                                             |                                                                                                  |                                                                                  | Net cash provided by financing activities           |         |                               | 7,692   |        |         |                 | 11,457  |        |         |         | 26,166  |  
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|Effect of exchange rate changes on cash and cash equivalents |                                                                                                  |                                                                                  | 29                                                  |         |                               |         | (192   | )       |                 |         | (151   | )      
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|Net change in cash and cash equivalents                      |                                                                                                  |                                                                                  | (6,413                                              | )       |                               |         | (3,870 | )       |                 |         | 7,010  |        
|Cash and cash equivalents, beginning of period               |                                                                                                  |                                                                                  | 10,170                                              |         |                               |         | 14,040 |         |                 |         | 7,030  |        
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        
|Cash and cash equivalents, end of period                     |                                                                                                  | $                                                                                | 3,757                                               |         |                               | $       | 10,170 |         |                 | $       | 14,040 |        
|                                                             |                                                                                                  |                                                                                  |                                                     |         |                               |         |        |         |                 |         |        |         |        

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

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Consolidated Statement of Cash Flows
(in thousands )

|                                                                     |                                                                          |  |   |       |  |  |   |       |  |  |   |       | 
|-------------------------------------------------------------------- | ------------------------------------------------------------------------ |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|Supplemental disclosures of cash flow information:                   |                                                                          |  |   |       |  |  |   |       |  |  |   |      
|                                                                     | Cash paid for interest                                                   |  | $ | 1,561 |  |  | $ | 1,940 |  |  | $ |      | 
|                                                                     |                                                                          |  |   |       |  |  |   |       |  |  |   |      
|                                                                     | Cash paid for income taxes                                               |  | $ | 817   |  |  | $ | 1,075 |  |  | $ |      | 
|                                                                     |                                                                          |  |   |       |  |  |   |       |  |  |   |      
|Supplemental schedule of noncash investing and financing activities: |                                                                          |  |   |       |  |  |   |       |  |  |   |      
|                                                                     | Property, plant and equipment received from dissolution of joint venture |  | $ |      |  |  | $ |      |  |  | $ | 2,447 | 
|                                                                     |                                                                          |  |   |       |  |  |   |       |  |  |   |      
|                                                                     | Liabilities assumed in dissolution of joint venture                      |  | $ |      |  |  | $ |      |  |  | $ | 845   | 
|                                                                     |                                                                          |  |   |       |  |  |   |       |  |  |   |      

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

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



|1. |  | Nature of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The 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 Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  
|   |  | Principles of consolidation
The 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 uncertainties
The optical communications markets have experienced a severe downturn,
resulting in a significant decline in the demand for the optical components
supplied by the Company and its competitors. Management believes it has the
financial resources, and will take the necessary actions, to manage through
this downturn. However, a prolonged downturn in the optical 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 estimates
The preparation of the Companys consolidated financial statements in
conformity with accounting principles generally accepted in the United States
of America requires estimates and judgments that affect the reported amounts
of assets and liabilities, net sales and expenses, and the related
disclosures. Estimates are based on historical experience, knowledge of
economic and market factors and various other assumptions that the Company
believes to be reasonable under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.                                                                                                                                                                                              
|  
|   |  | Translation adjustment
The 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 equivalents
The 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 securities
The 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.                                                                                

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



| |  | 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 300 customers in the year ended
March 31, 2003, 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, 2003, 2002 and 2001, the Company
experienced the following concentrations associated with sales and accounts
receivable:                                                                                                                                                                                                                                                                                                                                                                   

|                                                                              |  |                       |      |      |  |      |      |   |  |  |      |  
|----------------------------------------------------------------------------- |  | --------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                                              |  | Years Ended March 31,
|                                                                              |  | 2003                  |      | 2002 |  | 2001
|                                                                              |  |                       |      |      |  |     
|Percentage of revenue for 3 largest customers                                 |  |                       | 33.4 | %    |  |      | 33.6 | % |  |  | 47.2 | %
|No. of customers accounting for over 10% of net sales                         |  |                       | 1    |      |  |      | 2    |   |  |  | 4    |  
|No. of customers accounting for more than 10% of
accounts receivables balance |  |                       | 2    |      |  |      | 1    |   |  |  | 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 provides
reserves for 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 years                                                              
|Building and leasehold improvements |  | 39 years or the shorter of the life of the improvement or term of the lease



| |  | 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, 2003, 2002 and 2001.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



| |  | 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 16).                                                                                                                              
|
| |  | Research and development costs
Research and development costs are charged to operations as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Stock-based compensation
The Company accounts for stock-based compensation issued to employees using
the intrinsic value method of Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees, and, accordingly, presents
disclosure of pro forma information required under Statement of Financial
Accounting Standard (SFAS) No. 123, Accounting for Stock-Based
Compensation, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation, Transition and Disclosure. Stock and other equity instruments
issued to non-employees are accounted for in accordance with SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services, and recorded at their fair
value.
|
| |  | 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,
|                                                                      |  | 2003                  |      | 2002 |  | 2001       
|                                                                      |  |                       |      |      |  | (unaudited)
|                                                                      |  |                       |      |      |  |            
|Expected life (in years)                                              |  |                       | 5    |      |  |             | 5          |   |  |   | 5    |  
|Risk-free interest rate                                               |  |                       | 4.63 | %    |  |             | 4.08%-5.04 | % |  |   | 6.00 | %
|Volatility                                                            |  |                       | 0.00 | %    |  |             | 0.00       | % |  |   | 0.00 | %
|Dividend yield                                                        |  |                       | 0.00 | %    |  |             | 0.00       | % |  |   | 0.33 | %
|Estimated weighted average fair value of options at the date of grant |  | $                     | 0.72 |      |  | $           | 1.06       |   |  | $ | 0.99 |  



| |  | 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:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )

|                                                                                                  |                       |   |                       |         |      |   |             |         |   |   |        |         | 
|------------------------------------------------------------------------------------------------- | --------------------- | - | --------------------- | ------- | ---- | - | ----------- | ------- | - | - | ------ | ------- | 
|                                                                                                  |                       |   | Years Ended March 31,
|                                                                                                  |                       |   | 2003                  |         | 2002 |   | 2001       
|                                                                                                  |                       |   |                       |         |      |   | (unaudited)
|                                                                                                  |                       |   |                       |         |      |   |            
|Net (loss) income, as reported                                                                    |                       | $ | (23,187               | )       |      | $ | (3,109      | )       |   | $ | 38,593 |        
|Add: Stock-based employee
compensation expense included in
reported net (loss) income, net of
tax |                       |   | 1,555                 |         |      |   | 2,029       |         |   |   | 17,596 |        
|Deduct: Compensation expense based
on fair value method, net of tax                               |                       |   | (987                  | )       |      |   | (1,782      | )       |   |   | (3,253 | )      
|                                                                                                  |                       |   |                       |         |      |   |             |         |   |   |        |        
|Pro forma net (loss) income                                                                       |                       | $ | (22,619               | )       |      | $ | (2,862      | )       |   | $ | 52,936 |        
|                                                                                                  |                       |   |                       |         |      |   |             |         |   |   |        |        
|(Loss) income per share:                                                                          |                       |   |                       |         |      |   |             |         |   |   |        |        
|                                                                                                  | Basic - as reported   |   |                       | (0.21   | )    |   |             | (0.03   | ) |   |        | 0.36    | 
|                                                                                                  | Basic - pro forma     |   |                       | (0.20   | )    |   |             | (0.03   | ) |   |        | 0.50    | 
|                                                                                                  | Diluted - as reported |   |                       | (0.21   | )    |   |             | (0.03   | ) |   |        | 0.35    | 
|                                                                                                  | Diluted - pro forma   |   |                       | (0.20   | )    |   |             | (0.03   | ) |   |        | 0.48    | 
|Weighted average shares outstanding:                                                              |                       |   |                       |         |      |   |             |         |   |   |        |        
|                                                                                                  | Basic                 |   |                       | 111,068 |      |   |             | 108,458 |   |   |        | 105,875 | 
|                                                                                                  | Diluted               |   |                       | 111,068 |      |   |             | 108,458 |   |   |        | 110,115 | 



| |  | 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, 2003 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 does not use derivatives for trading purposes.
|
| |  | Basic net (loss) income per share
Basic net (loss) income per share is computed by dividing the net (loss)
income (numerator) by the weighted average number of common shares
outstanding (denominator) during the periods, excluding the dilutive effect
of stock options. Diluted net (loss) income per share gives effect to all
potentially dilutive common stock equivalents outstanding during the period.
In computing diluted net (loss) income per share, the average stock price for
the period is used in determining the number of shares assumed to be
purchased from the proceeds of stock option exercises.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The following is a reconciliation of the numerators and denominators of the
basic and diluted net (loss) income per share computations for the periods
presented below:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )

|                             |                                                                                     |  |                       |         |      |  |             |         |   |  |   |         | 
|---------------------------- | ----------------------------------------------------------------------------------- |  | --------------------- | ------- | ---- |  | ----------- | ------- | - |  | - | ------- | 
|                             |                                                                                     |  | Years Ended March 31,
|                             |                                                                                     |  | 2003                  |         | 2002 |  | 2001       
|                             |                                                                                     |  |                       |         |      |  | (unaudited)
|                             |                                                                                     |  |                       |         |      |  |            
|Numerator:                   |                                                                                     |  |                       |         |      |  |             |         |   |  |   |        
|                             | Net (loss) income                                                                   |  | $                     | (23,187 | )    |  | $           | (3,109  | ) |  | $ | 38,593  | 
|Denominator:                 |                                                                                     |  |                       |         |      |  |             |         |   |  |   |        
|                             | Basic weighted average shares                                                       |  |                       | 111,068 |      |  |             | 108,458 |   |  |   | 105,875 | 
|                             | Potentially dilutive common
stock equivalents-stock
options and phantom stock
units |  |                       |        |      |  |             |        |   |  |   | 4,240   | 
|                             |                                                                                     |  |                       |         |      |  |             |         |   |  |   |         | 
|                             | Diluted weighted average shares                                                     |  |                       | 111,068 |      |  |             | 108,458 |   |  |   | 110,115 | 
|                             |                                                                                     |  |                       |         |      |  |             |         |   |  |   |         | 
|Net (loss) income per share: |                                                                                     |  |                       |         |      |  |             |         |   |  |   |        
|                             | Basic                                                                               |  | $                     | (.21    | )    |  | $           | (.03    | ) |  | $ | 0.36    | 
|                             | Diluted                                                                             |  | $                     | (.21    | )    |  | $           | (.03    | ) |  | $ | 0.35    | 



| |  | As a result of the losses incurred by the Company for the years ended March
31, 2003 and 2002, weighted average options to purchase 8,228 and 9,977
shares of common stock were anti-dilutive and excluded from the net loss per
share calculations, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Reclassification
Certain financial information for the year ended March 31, 2002, has been
reclassified to conform with current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Recent accounting pronouncements
In August 2001, the Financial Accounting Standards Board (the FASB) issued
SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which was effective for years beginning after December 15, 2001.
SFAS No. 144 supersedes FASB Statement No. 121 and parts of APB Opinion No.
30, Reporting the Results of OperationsReporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions Relating to Extraordinary Items. However,
SFAS No. 144 retains the requirement of APB Opinion No. 30 to report
discontinued operations separately from continuing operations and extends
that reporting to a component of an entity that either has been disposed of
(by sale, by abandonment, or in a distribution to owners) or is classified as
held for sale. SFAS No. 144 addresses financial accounting and reporting for
the impairment of certain long-lived assets and for long-lived assets to be
disposed of. The implementation of this standard did not have a material
impact on the Companys consolidated financial position, results of
operations or cash flows.
|
| |  | In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities. SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring). SFAS No. 146 requires that a liability for costs associated
with an exit or disposal activity be recognized and measured initially at
fair value only when the liability is incurred. The provisions of this
statement are effective for exit or disposal activities that are initiated
after December 31, 2002. The adoption of SFAS No. 146 did not have a material
impact on the Companys consolidated financial position, results of
operations or cash flows.                                                                                                                                                                                                                                                                                 
|
| |  | In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 requires that a
liability be recorded in the guarantors balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires disclosures about guarantees that an
entity has issued, including a rollforward of the entitys product warranty
liabilities. The Company will apply the recognition provisions of FIN 45
prospectively to guarantees issued or modified after December 31, 2002. The
Company has included additional disclosure in accordance with FIN 45 in Note
16. The Company believes the adoption of this standard will not have a
significant impact on its consolidated financial position, results of
operations or cash flows.                                                                                                                                                                                                                                                                                                                                               

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



|   |  | In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure - an amendment of FASB Statement No.
123. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. The
Company is required to follow the prescribed format and provide the
additional disclosures required by SFAS No. 148 in its annual financial
statements for the year ended March 31, 2003 and must also provide the
disclosures in its quarterly reports containing condensed financial
statements for interim periods beginning with the quarterly period ended June
30, 2003. The Company did not elect to adopt the fair value method of
accounting for stock-based employee compensation and, accordingly, the
adoption of this standard had no material impact on its consolidated
financial position, results of operations or cash flows. The Company has
included such additional disclosures in accordance with SFAS No. 148 in Note
2.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In January 2003, the EITF issued Issue No. 00-21 Accounting for Revenue
Arrangements with Multiple Deliverables. This EITF establishes the criteria
for recognizing revenue in arrangements when several items are bundled into
one agreement. EITF 00-21 does not allow revenue recognition unless the fair
value of the undelivered element is available and the element has stand-alone
value to the customer. EITF 00- 21 also provides guidance on allocating the
total contract revenue to the individual elements based upon the available
fair value of each deliverable. The Company does not expect the
implementation of this statement to have a material impact on its
consolidated financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | In January 2003, the FASB issued Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No.
51. FIN 46 requires certain variable interest entities to be consolidated
by the primary beneficiary of the entity, if the equity investors in the
entity do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support from other
parties. FIN 46 is effective for all new variable interest entities created
or acquired after January 31, 2003. For variable interest entities created
or acquired prior to February 1, 2003, the provisions of FIN 46 must be
applied for the first interim or annual period beginning after June 15, 2003.
The Company believes the adoption of FIN 46 will not have a material impact
on its consolidated financial position, results of operations or cash flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|3. |  | Restatement of Previously Reported Results of Operations for the Year
Ended March 31, 2001 (unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Subsequent to the issuance of the consolidated financial statements as of and
for the year ended March 31, 2001, the Company identified certain adjustments
that were necessary in order to correct errors in those consolidated
financial statements. The errors related to the conversion and settlement of
the phantom stock plan and the introduction of two new equity incentive
plans. Specifically, deferred compensation payable and deferred compensation
included as a reduction of equity were overstated due to the inclusion of
amounts that were contingent upon the employees continued service to the
Company. In addition, deferred compensation payable was understated and
additional paid-in capital was overstated due to use of an incorrect discount
calculation of the liability for future cash payments to be paid in the
future to employees upon the conversion of fully vested phantom stock units.
Also, deferred compensation payable was overstated and additional paid-in
capital was understated in relation to unvested stock options issued to
employees in relation to the conversion. Lastly, deferred income taxes were
overstated and additional paid-in capital was understated following the
conversion and settlement of the phantom stock plan.                                                                                                                                                      
|  
|   |  | Details of the conversion and settlement of the phantom stock plan are
discussed in Note 11. Certain other immaterial fiscal 2001 amounts as
originally reported have been reclassified to conform to the fiscal 2003 and
2002 presentation. Neither the errors identified nor the reclassifications
impact previously reported net income for the year ended March 31, 2001. The
consolidated financial statements for the year ended March 31, 2001 have been
restated to reflect the correcting adjustments and reclassifications.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



| |  | Management of the Company requested Arthur Andersen LLP to reissue their
opinion on the consolidated financial statements as of and for the year ended
March 31, 2001 to include the correcting adjustments; however, they were
unable to reissue their opinion since the personnel assigned to this audit
were no longer employed by Arthur Andersen LLP as of the date of the proposed
reissuance. Due to the inability of Arthur Andersen LLP to reissue their
opinion on the consolidated financial statements as of and for the year ended
March 31, 2001, the consolidated financial statements as restated and
presented herein are unaudited.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In the opinion of management, the accompanying consolidated financial
statements contain all normal and recurring adjustments necessary to present
fairly the Companys consolidated financial position, results of operations
and cash flow activities for the year ended March 31, 2001.                                                                                                                                                                                                                                                                                                                                                           
|
| |  | The impact of the correcting adjustments to the Consolidated Balance Sheet as
of March 31, 2001 (which is not presented herein) is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                      |                                                         |   |            |         |             |   |        |         |          |   |        |        |  
|--------------------- | ------------------------------------------------------- | - | ---------- | ------- | ----------- | - | ------ | ------- | -------- | - | ------ | ------ | -
|                      |                                                         |   | As         |         |             |   |        |         |          |   |       
|                      |                                                         |   | Previously |         |             |   |        |         | As      
|                      |                                                         |   | Reported   |         |             |   |        |         | Adjusted
|                      |                                                         |   | 2001       |         | Adjustments |   | 2001  
|                      |                                                         |   |            |         |             |   |       
|Assets:               |                                                         |   |            |         |             |   |        |         |          |   |        |       
|                      | Deferred income taxes, net of
current portion of $1,419 |   | $          | 13,823  |             |   | $      | (5,115  | )        |   | $      | 8,708  |  
|                      |                                                         |   |            |         |             |   |        |         |          |   |        |        |  
|Liabilities:          |                                                         |   |            |         |             |   |        |         |          |   |        |       
|                      | Deferred compensation payable, current portion          |   | $          | 4,567   |             |   | $      | (323    | )        |   | $      | 4,244  |  
|                      | Deferred compensation payable, net of current portion   |   |            | 12,893  |             |   |        | (2,006  | )        |   |        | 10,887 |  
|                      |                                                         |   |            |         |             |   |        |         |          |   |        |        |  
|                      |                                                         | $ | 17,460     |         |             | $ | (2,329 | )       |          | $ | 15,131 |       
|                      |                                                         |   |            |         |             |   |        |         |          |   |        |        |  
|Shareholders equity: |                                                         |   |            |         |             |   |        |         |          |   |        |       
|                      | Additional paid-in capital                              |   | $          | 26,011  |             |   | $      | (12,846 | )        |   | $      | 13,165 |  
|                      | Deferred compensation                                   |   |            | (11,983 | )           |   |        | 10,060  |          |   |        | (1,923 | )
|                      |                                                         |   |            |         |             |   |        |         |          |   |        |        |  
|                      |                                                         | $ | 14,028     |         |             | $ | (2,786 | )       |          | $ | 11,242 |       
|                      |                                                         |   |            |         |             |   |        |         |          |   |        |        |  



|4. |  | Marketable Securities                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------
|  
|   |  | Available for sale securities included in the Consolidated Balance Sheets as
of March 31, 2003 and 2002 are as follows:

|                  |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |        | 
|----------------- | ----- | - | ------ | ------ | ----- | - | ---------- | -- | ---------- | - | ---- | ---- | - | - | ------ | ------ | 
|                  |       |   |        |        |       |   | Unrealized |    | Unrealized |   | Fair
|                  |       |   | Cost   |        | Gains |   | Losses     |    | Value     
|                  |       |   |        |        |       |   |            |    |           
|March 31, 2003    |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |       
|Equity securities |       | $ | 174    |        |       | $ | 81         |    |            | $ |     |      |   | $ | 255    |       
|Debt securities   |       |   | 10,596 |        |       |   |           |    |            |   |     |      |   |   | 10,596 |       
|                  |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |       
|                  | Total |   | $      | 10,770 |       |   | $          | 81 |            |   | $    |     |   |   | $      | 10,851 | 
|                  |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |       
|March 31, 2002    |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |       
|Equity securities |       | $ | 1,345  |        |       | $ |           |    |            | $ | (90  | )    |   | $ | 1,255  |       
|Debt securities   |       |   | 12,512 |        |       |   |           |    |            |   | (11  | )    |   |   | 12,501 |       
|                  |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |       
|                  | Total |   | $      | 13,857 |       |   | $          |   |            |   | $    | (101 | ) |   | $      | 13,756 | 
|                  |       |   |        |        |       |   |            |    |            |   |      |      |   |   |        |       



| |  | Debt securities include certificates of deposit with original maturities of
greater than 90 days.
| |  | -------------------------------------------------------------------------------------------------

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



|5. |  | Inventories, net                                                        
|-- |  | ------------------------------------------------------------------------
|  
|   |  | Inventories, net consist of the following as of March 31, 2003 and 2002:

|                                   |       |   |           |       |           |   |       |       | 
|---------------------------------- | ----- | - | --------- | ----- | --------- | - | ----- | ----- | 
|                                   |       |   | March 31, |       | March 31,
|                                   |       |   | 2003      |       | 2002     
|                                   |       |   |           |       |          
|Raw materials                      |       | $ | 1,989     |       |           | $ | 5,804 |      
|Work-in-process and finished goods |       |   | 1,875     |       |           |   | 792   |      
|                                   |       |   |           |       |           |   |       |      
|                                   | Total |   | $         | 3,864 |           |   | $     | 6,596 | 
|                                   |       |   |           |       |           |   |       |      



|6. |  | Long-term investment                                                                                                                                                                                                                                                                                                                                     
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Global Fiberoptics, Inc. has invested $506 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 is included in Other Assets in the
Consolidated Balance Sheet as of March 31, 2003.
|  
|7. |  | Property, Plant and Equipment, net                                                                                                                                                                                                                                                                                                                       
|  
|   |  | Property, plant and equipment consist of the following as of March 31, 2003
and 2002:                                                                                                                                                                                                                                                                    

|                                    |                               |   |           |        |           |   |         |         | 
|----------------------------------- | ----------------------------- | - | --------- | ------ | --------- | - | ------- | ------- | 
|                                    |                               |   | March 31, |        | March 31,
|                                    |                               |   | 2003      |        | 2002     
|                                    |                               |   |           |        |          
|Land                                |                               | $ | 10,000    |        |           | $ | 10,000  |        
|Building and leasehold improvements |                               |   | 37,492    |        |           |   | 37,321  |        
|Machinery, equipment and fixtures   |                               |   | 52,191    |        |           |   | 56,324  |        
|                                    |                               |   |           |        |           |   |         |        
|                                    | Property, plant and equipment |   |           | 99,683 |           |   |         | 103,645 | 
|Less: Accumulated depreciation      |                               |   | (31,481   | )      |           |   | (25,353 | )      
|                                    |                               |   |           |        |           |   |         |        
|Property, plant and equipment, net  |                               | $ | 68,202    |        |           | $ | 78,292  |        
|                                    |                               |   |           |        |           |   |         |        



|   |  | Depreciation expense was $10,245 and $10,641 for the years ended March 31,
2003 and 2002. Capitalized interest expense (related to
construction-in-progress) was $0 and $331 for the years ended March 31, 2003
and 2002.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | During the year ended March 31, 2003, the Company disposed of equipment and
furniture with a net book value of $1,576 for proceeds of $645.                                                                              
|  
|8. |  | Accounts Payable and Accrued Liabilities                                                                                                                                                                                 
|  
|   |  | Accounts payable and accrued liabilities consist of the following as of March
31, 2003 and 2002:                                                                                                                         

|                                             |  |           |       |           |  |   |        | 
|-------------------------------------------- |  | --------- | ----- | --------- |  | - | ------ | 
|                                             |  | March 31, |       | March 31,
|                                             |  | 2003      |       | 2002     
|                                             |  |           |       |          
|Accounts payable                             |  | $         | 2,151 |           |  | $ | 2,245  | 
|Accrued payroll                              |  |           | 325   |           |  |   | 1,331  | 
|Accrual for vacated properties (see Note 16) |  |           | 519   |           |  |   | 1,813  | 
|Accrued liabilities                          |  |           | 519   |           |  |   | 1,565  | 
|Advance payments                             |  |           | 3,671 |           |  |   | 3,968  | 
|                                             |  |           |       |           |  |   |        | 
|                                             |  | $         | 7,185 |           |  | $ | 10,922 | 
|                                             |  |           |       |           |  |   |        | 

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



|9. |  | Mortgage and Other Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Company financed, in part, a new corporate campus by borrowing from a
bank a construction loan of $27,000, which the Company entered into on August
24, 2000. In November 2001, the same lender refinanced the outstanding
balance of the construction loan with a mortgage loan maturing November 20,
2004 with an amortization schedule based on a 25-year loan. Interest on the
mortgage loan is accrued at a variable interest rate based on changes in the
lenders prime rate as of the 20th of each month (4.25 percent at March 31,
2003). Principal and interest are payable monthly. The balance of the
mortgage loan as of March 31, 2003 was $26,193 and the balance of the loan at
maturity is estimated to be $25,154 at the current interest rate. 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 June 2002, Global Fiberoptics renewed its lines of credit of 200,000 New
Taiwan Dollars (or approximately $5,799 as of March 31, 2003) from a Taiwan
bank, with interest based on a rate set by the bank at the time funds are
drawn. The line matures on June 30, 2003. The amount drawn as of March 31,
2003 was $1,036. The interest rate as of March 31, 2003 was 2.95 percent and
fluctuates based on the lending banks prime rate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | In April 2001, the Company obtained an equipment loan from a bank in the
amount of $7,250. The loan is secured by specific pieces of equipment. The
loan is repayable in equal monthly installments of principal and interest
over 60 months beginning May 30, 2001. On March 31, 2003, the loan balance
was $4,471. Effective April 30, 2002 and annually on April 30 of each year
thereafter, the Company may elect to fix the interest rate on the equipment
loan for a twelve month period at a rate of one-half of one percentage point
(0.5 percent) per annum in excess of the prime rate. As of March 31, 2003,
the Company had not elected the fixed rate option and the loan bore an
interest rate of prime plus 0.5 percent (4.75 percent on March 31, 2003). On
March 31, 2003 and March 31, 2002, the Company was in violation of two of the
financial covenants under this loan agreement. The bank agreed to waive the
covenants, 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, 2004. The Company was in compliance with the additional
covenant as of March 31, 2003 and 2002.
|  
|   |  | In December 2001, Global Fiberoptics issued commercial paper in the amount of
20,000 New Taiwan Dollars. Proceeds were used to repay borrowings under the
bank line of credit for Global Fiberoptics. This loan was repaid in April
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | In December 2002, Global Fiberoptics renewed its 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).
The outstanding balance of any commercial paper under this line must be fully
secured by either cash deposit or bond fund certificate. As of March 31,
2003, Global Fiberoptics had issued commercial paper in the amount of 27,500
New Taiwan Dollars (or approximately $792 as of March 31, 2003) under this
line which will mature on December 24, 2003. The interest rate at March 31,
2003 was 1.50% and was based on a rate set by bank at the time funds are
drawn.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The maturities of mortgage and other debt outstanding as of March 31, 2003
are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                      |       |                |       |               |  |      |        |        |  |   |           |       |  |   |        |        | 
|--------------------- | ----- | -------------- | ----- | ------------- |  | ---- | ------ | ------ |  | - | --------- | ----- |  | - | ------ | ------ | 
|                      |       |                |       |               |  |      |        |        |  |   | Equipment |       |  |   |       
|Year Ending March 31, |       | Line of Credit |       | Mortgage Loan |  | Loan |        | Total 
|                      |       |                |       |               |  |      |        |       
|2004                  |       | $              | 1,828 |               |  | $    | 649    |        |  | $ | 1,450     |       |  | $ | 3,927  |       
|2005                  |       |                |      |               |  |      | 25,544 |        |  |   | 1,450     |       |  |   | 26,994 |       
|2006                  |       |                |      |               |  |      |       |        |  |   | 1,450     |       |  |   | 1,450  |       
|2007                  |       |                |      |               |  |      |       |        |  |   | 121       |       |  |   | 121    |       
|                      |       |                |       |               |  |      |        |        |  |   |           |       |  |   |        |       
|                      | Total |                | $     | 1,828         |  |      | $      | 26,193 |  |   | $         | 4,471 |  |   | $      | 32,492 | 
|                      |       |                |       |               |  |      |        |        |  |   |           |       |  |   |        |       

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



|10. |  | Common Stock (information prior to April 1, 2001 is unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On April 5, 2000, the Companys Board of Directors approved an increase in
the number of authorized shares of common stock from 20,000 to 100,000 and a
5-for-1 split of the common stock. On May 31, 2000, the Company issued
10,536 shares of common stock through a private placement. The proceeds of
$7,577 were used for the purchase of capital equipment and general corporate
purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | On January 12, 2001, the Board of Directors approved an increase in the
number of authorized shares of common stock from 100,000 to 200,000 and a
2-for-1 split of the common stock. The effect of the stock splits has been
reflected in the accompanying consolidated financial statements and all
applicable references to the number of common shares and per share
information have been restated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | In July 2001, the Company sold 664 shares of common stock through a private
placement. The proceeds of $3,000 were used for general corporate purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | In 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 and the Employee Stock Option Plan for an
aggregate cash consideration of $3,738. The proceeds were used for general
corporate purposes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|11. |  | Stock Plans and Deferred Compensation Liability (information prior to
April 1, 2001 is unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | As an incentive for key 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 less than 85 percent of the
stocks fair value 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.                                                                                                                                                                                                                                                                          

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data )



| |  | Cash payments related to the conversion are payable in four annual
installments beginning on March 31, 2002. As of March 31, 2001, the Company
anticipated making four annual payments of $5,930 each commencing March 31,
2002 for those employees who elected to receive a cash payout in lieu of
additional options. The present value of the cash payments related to the
conversion of vested phantom stock units of $15,131 was recorded as a
liability as of March 31, 2001. The cash payments related to the conversion
of the Contingently Promised Units are subject to continuing employment and,
accordingly, the related expense and liability is accrued as it is 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.            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In September 2002, an employee who was a participant in the Companys former
phantom stock plan resigned. This employees payments were fully vested
under the terms of the conversion of this plan to the stock option. Under
the terms of the plan, the Company paid $7,213 to the employee following his
resignation and 4,212 stock options exercisable at $4.11 per share were
cancelled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | 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 annual installment of $416 to those employees electing to receive
cash in lieu of additional options was paid on March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | 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 September 30 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 September 30, 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, 2003 and 2002 was $1.21 and $2.47 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, 2003, 2002 and 2001 as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

|                                             |  |                       |       |      |  |             |       |  |  |   |        | 
|-------------------------------------------- |  | --------------------- | ----- | ---- |  | ----------- | ----- |  |  | - | ------ | 
|                                             |  | Years Ended March 31,
|                                             |  | 2003                  |       | 2002 |  | 2001       
|                                             |  |                       |       |      |  | (unaudited)
|                                             |  |                       |       |      |  |            
|Cost of goods sold                           |  | $                     | 157   |      |  | $           | 293   |  |  | $ | 4,115  | 
|Selling, general and administrative expenses |  |                       | 957   |      |  |             | 1,068 |  |  |   | 15,051 | 
|Research and development expenses            |  |                       | 314   |      |  |             | 562   |  |  |   | 7,903  | 
|                                             |  |                       |       |      |  |             |       |  |  |   |        | 
|                                             |  | $                     | 1,428 |      |  | $           | 1,923 |  |  | $ | 27,069 | 
|                                             |  |                       |       |      |  |             |       |  |  |   |        | 

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data)



| |  |  | Included in the amounts noted above is non-cash compensation expense totaling
$451, $537 and $27,069 for the years ended March 31, 2003, 2002 and 2001,
respectively.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Information with respect to the Option Plan Activity for the years ended
March 31, 2003, 2002 and 2001 is set forth below:                                           

|                                      |  |                  |        |                   |  |                     |        |                  |  |   |      | 
|------------------------------------- |  | ---------------- | ------ | ----------------- |  | ------------------- | ------ | ---------------- |  | - | ---- | 
|                                      |  |                  |        |                   |  | Outstanding Options
|                                      |  |                  |        |                   |  |                    
|                                      |  | Shares Available |        |                   |  |                     |        | Weighted Average
|                                      |  | for Grant        |        | Number of Options |  | Exercise Price     
|                                      |  |                  |        |                   |  |                    
|Balance at March 31, 2000 (unaudited) |  |                  |       |                   |  |                     |       |                  |  | $ |     | 
|Options authorized during fiscal 2001 |  |                  | 11,840 |                   |  |                     |       |                  |  |   |     | 
|Options granted                       |  |                  | (9,599 | )                 |  |                     | 9,599  |                  |  |   | 4.11 | 
|                                      |  |                  |        |                   |  |                     |        |                  |  |   |      | 
|Balance at March 31, 2001             |  |                  | 2,241  |                   |  |                     | 9,599  |                  |  |   | 4.11 | 
|Options granted                       |  |                  | (1,009 | )                 |  |                     | 1,009  |                  |  |   | 2.92 | 
|Options cancelled                     |  |                  | 123    |                   |  |                     | (123   | )                |  |   | 4.11 | 
|                                      |  |                  |        |                   |  |                     |        |                  |  |   |      | 
|Balance at March 31, 2002             |  |                  | 1,355  |                   |  |                     | 10,485 |                  |  |   | 4.01 | 
|Options granted                       |  |                  | (445   | )                 |  |                     | 445    |                  |  |   | 2.37 | 
|Options exercised                     |  |                  | 1      |                   |  |                     | (1     | )                |  |   | 4.11 | 
|Options cancelled                     |  |                  | 6,158  |                   |  |                     | (6,158 | )                |  |   | 4.05 | 
|                                      |  |                  |        |                   |  |                     |        |                  |  |   |      | 
|Balance at March 31, 2003             |  |                  | 7,069  |                   |  |                     | 4,771  |                  |  |   | 3.80 | 
|                                      |  |                  |        |                   |  |                     |        |                  |  |   |      | 



| |  |  | As of March 31, 2003, the options outstanding and exercisable under the
Option Plan are presented below:
| |  |  | --------------------------------------------------------------------------------------------------------

|               |  |                     |       |                  |  |                 |      |  |  |  |       | 
|-------------- |  | ------------------- | ----- | ---------------- |  | --------------- | ---- |  |  |  | ----- | 
|               |  | Options Outstanding |       |                  |  |                
|               |  |                     |       |                  |  |                
|               |  |                     |       |                  |  | Weighted        |      |  |  | 
|               |  |                     |       |                  |  | Average         |      |  |  | 
|               |  |                     |       |                  |  | Remaining       |      |  |  | 
|               |  | Number of           |       | Contractual Life |  | Options Vested 
|Exercise Price |  | Shares              |       | (in Year)        |  | and Exercisable
|               |  |                     |       |                  |  |                
|$2.10          |  |                     | 322   |                  |  |                 | 8.95 |  |  |  | 102   | 
|$2.47          |  |                     | 323   |                  |  |                 | 8.83 |  |  |  | 138   | 
|$2.72          |  |                     | 160   |                  |  |                 | 9.12 |  |  |  | 32    | 
|$3.85          |  |                     | 211   |                  |  |                 | 8.24 |  |  |  | 92    | 
|$4.11          |  |                     | 3,755 |                  |  |                 | 8.00 |  |  |  | 2,829 | 
|               |  |                     |       |                  |  |                 |      |  |  |  |       | 
|               |  |                     | 4,771 |                  |  |                 |      |  |  |  | 3,193 | 
|               |  |                     |       |                  |  |                 |      |  |  |  |       | 



|12. |  | Benefit Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | A 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, 2002 and 2001,
the Company elected to match 50 percent of the first 6 percent of employee
contributions. Payments of $191 and $266 were made for calendar year 2002
and 2001, respectively. An accrual has been made for this expense for the
three months ending March 31, 2003 in the amount of $39.
|   
|13. |  | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The benefit (provision) for income taxes for the years ended March 31, 2003,
2002, and 2001 consists of the following:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data)

|          |         |   |        |        |      |   |                       |        |   |   |         |         |  
|--------- | ------- | - | ------ | ------ | ---- | - | --------------------- | ------ | - | - | ------- | ------- | -
|          |         |   |        |        |      |   | Years Ended March 31, |        |   |   |        
|          |         |   |        |        |      |   |                       |        |   |   |        
|          |         |   | 2003   |        | 2002 |   | 2001(unaudited)      
|          |         |   |        |        |      |   |                      
|Current:  |         |   |        |        |      |   |                       |        |   |   |         |        
|          | Federal |   | $      | 15,484 |      |   | $                     | 9,491  |   |   | $       | (24,062 | )
|          | State   |   |        | 3      |      |   |                       | (514   | ) |   |         | (4,315  | )
|          | Foreign |   |        | (27    | )    |   |                       | (925   | ) |   |         | (1,582  | )
|          |         |   |        |        |      |   |                       |        |   |   |         |        
|          |         |   | 15,460 |        |      |   | 8,052                 |        |   |   | (29,959 | )      
|          |         |   |        |        |      |   |                       |        |   |   |         |        
|Deferred: |         |   |        |        |      |   |                       |        |   |   |         |        
|          | Federal |   |        | (5,332 | )    |   |                       | (4,572 | ) |   |         | 10,736  |  
|          | State   |   |        | (4,104 | )    |   |                       | 1,792  |   |   |         | 2,366   |  
|          | Foreign |   |        | 154    |      |   |                       | (55    | ) |   |         | 126     |  
|          |         |   |        |        |      |   |                       |        |   |   |         |        
|          |         |   | (9,282 | )      |      |   | (2,835                | )      |   |   | 13,228  |        
|          |         |   |        |        |      |   |                       |        |   |   |         |        
|          |         | $ | 6,178  |        |      | $ | 5,217                 |        |   | $ | (16,731 | )      
|          |         |   |        |        |      |   |                       |        |   |   |         |        



| |  | The Companys income (loss) before income taxes consisted of the following
for the years ended March 31:
| |  | --------------------------------------------------------------------------------------------------------

|                                              |  |      |         |      |  |                       |         |      |  |   |        | 
|--------------------------------------------- |  | ---- | ------- | ---- |  | --------------------- | ------- | ---- |  | - | ------ | 
|                                              |  |      |         |      |  | Years Ended March 31, |         |      |  |  
|                                              |  |      |         |      |  |                       |         | 2001
|                                              |  | 2003 |         | 2002 |  | (unaudited)          
|                                              |  |      |         |      |  |                      
|United States                                 |  | $    | (28,363 | )    |  | $                     | (10,643 | )    |  | $ | 43,127 | 
|Foreign                                       |  |      | (1,002  | )    |  |                       | 2,317   |      |  |   | 12,197 | 
|                                              |  |      |         |      |  |                       |         |      |  |   |        | 
|Total income (loss) before income tax benefit |  | $    | (29,365 | )    |  | $                     | (8,326  | )    |  | $ | 55,324 | 
|                                              |  |      |         |      |  |                       |         |      |  |   |        | 



| |  | The Companys investment in its Taiwan subsidiary is essentially permanent in
duration and undistributed foreign earnings on March 31, 2003 amounted to
$11,293. 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, $203 and $0 for the years ended March 31,
2003, 2002 and 2001, 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,   |    |      |  | 
|                                             |  |      |     |      |  |             |    | 2001
|                                             |  | 2003 |     | 2002 |  | (unaudited)
|                                             |  |      |     |      |  |            
|Provision computed at federal statutory rate |  |      | 35  | %    |  |             | 35 | %    |  |  | 35 | %
|State taxes, net of federal tax benefit      |  |      | 6   |      |  |             | 6  |      |  |  | 6  |  
|Foreign taxes                                |  |      | (1  | )    |  |             | 14 |      |  |  | (5 | )
|Permanent differences                        |  |      | (1  | )    |  |             | 13 |      |  |  | 2  |  
|Valuation allowances                         |  |      | (19 | )    |  |             |   |      |  |  |   |  
|Other                                        |  |      | 1   |      |  |             | (5 | )    |  |  | (8 | )
|                                             |  |      |     |      |  |             |    |      |  |  |    |  
|Effective income tax rate                    |  |      | 21  | %    |  |             | 63 | %    |  |  | 30 | %
|                                             |  |      |     |      |  |             |    |      |  |  |    |  

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##### Table of Contents



DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data)



| |  | 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, 2003 and 2002 are as follows:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                             |                                  |               |        |        |   |       |     |      |   |   |        |        |  
|-------------------------------------------- | -------------------------------- | ------------- | ------ | ------ | - | ----- | --- | ---- | - | - | ------ | ------ | -
|March 31, 2003:                              |                                  | United States |        | Taiwan |   | Total
|                                             |                                  |               |        |        |   |       |    
|Deferred tax assets (liabilities):           |                                  |               |        |        |   |       |     |      |   |   |        |       
|                                             | Deferred compensation            |               | $      | 30     |   |       | $   |     |   |   | $      | 30     |  
|                                             | Net operating loss carryforwards |               |        | 3,356  |   |       |     | 337  |   |   |        | 3,693  |  
|                                             | Tax credits carryforwards        |               |        | 2,552  |   |       |     | 138  |   |   |        | 2,690  |  
|                                             | Other                            |               |        | 480    |   |       |     | 119  |   |   |        | 599    |  
|                                             |                                  |               |        |        |   |       |     |      |   |   |        |       
|                                             | Gross deferred assets            |               |        | 6,418  |   |       |     | 594  |   |   |        | 7,012  |  
|                                             | Valuation allowance              |               |        | (5,708 | ) |       |     | (297 | ) |   |        | (6,005 | )
|                                             |                                  |               |        |        |   |       |     |      |   |   |        |       
|                                             | Deferred tax assets              |               |        | 710    |   |       |     | 297  |   |   |        | 1,007  |  
|                                             |                                  |               |        |        |   |       |     |      |   |   |        |       
|                                             | Property and equipment           |               |        | (2,997 | ) |       |     |     |   |   |        | (2,997 | )
|                                             |                                  |               |        |        |   |       |     |      |   |   |        |       
|                                             | Deferred tax liabilities         |               |        | (2,997 | ) |       |     |     |   |   |        | (2,997 | )
|                                             |                                  |               |        |        |   |       |     |      |   |   |        |       
|Net deferred income tax assets (liabilities) |                                  | $             | (2,287 | )      |   | $     | 297 |      |   | $ | (1,990 | )     
|                                             |                                  |               |        |        |   |       |     |      |   |   |        |       

|                                             |                           |               |       |        |   |       |     |     |  |   |       |        |  
|-------------------------------------------- | ------------------------- | ------------- | ----- | ------ | - | ----- | --- | --- |  | - | ----- | ------ | -
|March 31, 2002:                              |                           | United States |       | Taiwan |   | Total
|                                             |                           |               |       |        |   |       |    
|Deferred tax assets (liabilities):           |                           |               |       |        |   |       |     |     |  |   |       |       
|                                             | Deferred compensation     |               | $     | 7,505  |   |       | $   |    |  |   | $     | 7,505  |  
|                                             | State income taxes        |               |       | (165   | ) |       |     |    |  |   |       | (165   | )
|                                             | Tax credits carryforwards |               |       | 781    |   |       |     |    |  |   |       | 781    |  
|                                             | Other                     |               |       | 1,184  |   |       |     | 143 |  |   |       | 1,327  |  
|                                             |                           |               |       |        |   |       |     |     |  |   |       |       
|                                             | Deferred tax assets       |               |       | 9,305  |   |       |     | 143 |  |   |       | 9,448  |  
|                                             |                           |               |       |        |   |       |     |     |  |   |       |       
|                                             | Property and equipment    |               |       | (2,156 | ) |       |     |    |  |   |       | (2,156 | )
|                                             |                           |               |       |        |   |       |     |     |  |   |       |       
|                                             | Deferred tax liabilities  |               |       | (2,156 | ) |       |     |    |  |   |       | (2,156 | )
|                                             |                           |               |       |        |   |       |     |     |  |   |       |       
|Net deferred income tax assets (liabilities) |                           | $             | 7,149 |        |   | $     | 143 |     |  | $ | 7,292 |       
|                                             |                           |               |       |        |   |       |     |     |  |   |       |       



| |  | The Company had cummulative net operating loss carryforwards and tax credit
carryforwards of approximately $38,826 as of March 31, 2003, which consists
of $605 federal tax credit and $38,221 state tax credit carryforwards. The
state 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, 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.
|

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##### Table of Contents

\

DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data)



|14. |  | LD Fiberoptics Joint Venture (information prior to April 1, 2001 is
unaudited)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | LD Fiberoptics, LLC (LD Fiberoptics) was a joint venture created in
February 2000 between Lucent Technologies Inc. (Lucent) and the Company.
Lucent and the Company formed LD Fiberoptics as a limited liability company
under and pursuant to the provisions of the Delaware Act. The joint venture
was formed with capital contributions by both parties to develop and
subsequently manufacture fiberoptic products. Lucent maintained a 51 percent
controlling interest in the joint venture, and the Company maintained a 49
percent ownership interest in the joint venture. On December 11, 2000, the
Company and Lucent mutually agreed to the dissolution of the joint venture
through the distribution of assets and satisfaction of liabilities. As a
result, the Company recognized an estimated loss of $2,101 for the year ended
March 31, 2001. At March 31, 2002 the joint venture had completed the final
accounting and planned to file the necessary dissolution documentation. Upon
completion of the final accounting, the Companys estimated portion of the
loss was not as great as originally estimated. Thus, the Company recognized
a gain of $544 during the year ended March 31, 2002 to properly reflect the
loss on dissolution which was originally recorded in the year ended March 31,
2001. The joint venture was dissolved in fiscal 2003.
|   
|15. |  | Geographic and Product Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The breakdown of sales by geographic customer destination is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

|              |  |      |        |      |  |                       |        |  |  |      |         | 
|------------- |  | ---- | ------ | ---- |  | --------------------- | ------ |  |  | ---- | ------- | 
|              |  |      |        |      |  | Years Ended March 31, |        |  |  |     
|              |  |      |        |      |  |                       |        |  |  | 2001
|              |  | 2003 |        | 2002 |  | (unaudited)          
|              |  |      |        |      |  |                      
|United States |  | $    | 13,671 |      |  | $                     | 46,313 |  |  | $    | 117,894 | 
|International |  |      | 7,064  |      |  |                       | 24,300 |  |  |      | 45,900  | 
|              |  |      |        |      |  |                       |        |  |  |      |         | 
|Total         |  | $    | 20,735 |      |  | $                     | 70,613 |  |  | $    | 163,794 | 
|              |  |      |        |      |  |                       |        |  |  |      |         | 



| |  | 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,
|              |  | 2003      |        | 2002
|              |  |           |        |     
|United States |  | $         | 56,532 |      |  | $ | 65,174 | 
|Taiwan        |  |           | 12,278 |      |  |   | 13,322 | 
|              |  |           |        |      |  |   |        | 
|Total         |  | $         | 68,810 |      |  | $ | 78,496 | 
|              |  |           |        |      |  |   |        | 



| |  | DiCons revenue breakdown over the last three fiscal years by product line
has been as follows:
| |  | -----------------------------------------------------------------------------------------------

|       |  |                       |    |      |  |      |    |   |  |  |    |  
|------ |  | --------------------- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|       |  | Years Ended March 31,
|       |  | 2003                  |    | 2002 |  | 2001
|       |  |                       |    |      |  |     
|WDM    |  |                       | 50 | %    |  |      | 60 | % |  |  | 68 | %
|Switch |  |                       | 50 | %    |  |      | 40 | % |  |  | 32 | %



|16. |  | Commitments and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The 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.

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DiCon Fiberoptics, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
(in thousands, except per share data)



| |  | 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:                                                                                                                          

|                                           |  |                       |      |      |  |   |      |  
|------------------------------------------ |  | --------------------- | ---- | ---- |  | - | ---- | -
|                                           |  | Years Ended March 31,
|                                           |  | 2003                  |      | 2002
|                                           |  |                       |      |     
|Balance at April 1, 2002                   |  | $                     | 247  |      |  | $ | 247  |  
|Accruals for warranties during the period  |  |                       | 22   |      |  |   | 622  |  
|Settlements made (in cash) during the year |  |                       | (213 | )    |  |   | (622 | )
|                                           |  |                       |      |      |  |   |      |  
|Balance at March 31, 2003                  |  | $                     | 56   |      |  | $ | 247  |  
|                                           |  |                       |      |      |  |   |      |  



| |  | 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,
2003, 2002 and 2001, was $587, $2,386, and $1,790 (unaudited), respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Prior to the expiration of certain of the Companys operating leases, the
Company moved to its new facilities in Richmond, California. Accordingly,
certain of the leased properties were no longer used for operating purposes
and are available for sublease. During the years ended March 31, 2002 and
2001, the Company accrued an estimated liability for remaining costs, net of
estimated sublease income, in the amount of $1,457 and $449.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | In the fourth quarter of fiscal 2003, the Company vacated an additional
50,000 square feet of leased space in Richmond, California. As a result, an
additional charge of $512 for the abandonment of this facility was accrued in
the year ended March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | 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. Prior to the end of the current fiscal year, the Company
terminated four of the leases for leased facilities that were previously
abandoned. The termination of these leases resulted in the reversal of $432
of the liability for excess facilities accrued in the years ended March 31,
2002 and 2001. The net impact to the Consolidated Statement of Operations
and Comprehensive Income (Loss) for the year ended March 31, 2003 due to the
new accrual and the reversal was a reversal of the liability for excess
facilities of $80. As of March 31, 2003 the reserve for future lease
expenses, net of expected sublease income, is $519 and is included in
accounts payable and accrued liabilities in the Consolidated Balance Sheets.
|
| |  | As of March 31, 2003 the Companys future (gross) commitments under all
leases are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                      |  |   |       | 
|--------------------- |  | - | ----- | 
|Year Ending March 31, |  |   |       | 
|2004                  |  | $ | 502   | 
|2005                  |  |   | 409   | 
|2006                  |  |   | 199   | 
|2007                  |  |   | 21    | 
|2008                  |  |   | 21    | 
|Thereafter            |  |   | 57    | 
|                      |  |   |       | 
|                      |  | $ | 1,209 | 
|                      |  |   |       | 

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(b)  Financial Statement Schedule.

|                                                         |                           |           |            |           |            |          |            |           |             |        |        |           |            |  |   |            |   |  |   |           | 
|-------------------------------------------------------- | ------------------------- | --------- | ---------- | --------- | ---------- | -------- | ---------- | --------- | ----------- | ------ | ------ | --------- | ---------- |  | - | ---------- | - |  | - | --------- | 
|Valuation and Qualifying Accounts                       
|                                                         |                           |           |           
|                                                         |                           |           | Balance at |           | Charged to |          | Charged to |           |             |        |        |           | Balance at
|                                                         |                           |           | Beginning  |           | Costs and  |          | Other      |           | Deductions/ |        | End of
|Description                                              |                           | of Period |            | Expenses  |            | Accounts |            | Writeoffs |             | Period
|                                                         |                           |           |            |           |            |          |            |           |             |       
|Allowances for doubtful accounts                         |                           |           |            |           |            |          |            |           |             |        |        |           |            |  |   |            |   |  |   |          
|                                                         | Year ended March 31, 2001 |           | $          |          |            |          | $          | 508,345   |             |        | $      |          |            |  | $ | (60,692    | ) |  | $ | 447,653   | 
|                                                         | Year ended March 31, 2002 |           | $          | 447,653   |            |          | $          | 721,209   |             |        |        |           |            |  | $ | (534,848   | ) |  | $ | 634,014   | 
|                                                         | Year ended March 31, 2003 |           | $          | 634,014   |            |          | $          | 37,390    |             |        |        |           |            |  | $ | (594,374   | ) |  | $ | 77,030    | 
|Allowances for deferred tax assets                       |                           |           |            |           |            |          |            |           |             |        |        |           |            |  |   |            |   |  |   |          
|                                                         | Year ended March 31, 2001 |           | $          |          |            |          | $          |          |             |        | $      |          |            |  | $ |           |   |  | $ |          | 
|                                                         | Year ended March 31, 2002 |           | $          |          |            |          | $          |          |             |        | $      |          |            |  | $ |           |   |  | $ |          | 
|                                                         | Year ended March 31, 2003 |           | $          |          |            |          | $          |          |             |        | $      | 6,005,000 |            |  | $ |           |   |  | $ | 6,005,000 | 
|Provision for estimated losses
due to vacated properties |                           |           |            |           |            |          |            |           |             |        |        |           |            |  |   |            |   |  |   |          
|                                                         | Year ended March 31, 2001 |           | $          |          |            |          | $          | 449,455   |             |        | $      |          |            |  | $ |           |   |  | $ | 449,455   | 
|                                                         | Year ended March 31, 2002 |           | $          | 449,455   |            |          | $          | 1,363,334 |             |        | $      |          |            |  | $ |           |   |  | $ | 1,812,789 | 
|                                                         | Year ended March 31, 2003 |           | $          | 1,812,789 |            |          | $          | 511,896   |             |        | $      |          |            |  | $ | (1,805,749 | ) |  | $ | 518,936   | 
|Liabilities assumed in
dissolution of joint venture      |                           |           |            |           |            |          |            |           |             |        |        |           |            |  |   |            |   |  |   |          
|                                                         | Year ended March 31, 2001 |           | $          |          |            |          | $          | 845,000   |             |        | $      |          |            |  | $ |           |   |  | $ | 845,000   | 
|                                                         | Year ended March 31, 2002 |           | $          | 845,000   |            |          | $          |          |             |        | $      |          |            |  | $ | (543,971   | ) |  | $ | 301,029   | 
|                                                         | Year ended March 31, 2003 |           | $          | 301,029   |            |          | $          |          |             |        | $      |          |            |  | $ | (301,029   | ) |  | $ |          | 




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

In March 2002, DiCon dismissed Arthur Andersen LLP (Andersen) as its
independent public accountants. DiCon engaged PricewaterhouseCoopers LLP
(PwC) as its independent accountants, effective as of March 31, 2002.

The reports of Andersen on the financial statements for the fiscal year
2001 contained no adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope or accounting principles.

In connection with its audit for the 2001 fiscal year and through Date of
dismissal.June 30, 2002, there were no:



|(1) |  | disagreements between DiCon and Andersen on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure which disagreements, if not resolved to the
satisfaction of Andersen, would have caused them to make reference to
the subject matter of the disagreement or disagreements in their reports
on the financial statements for such years; or
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | reportable events involving Andersen that would have required
disclosure under Item 304(a)(1)(v) of Regulation S-K.                                                                                                                                                                                                                                                                                   

DiCon has requested that Andersen furnish DiCon with a letter addressed to
the SEC stating whether or not it agrees with the above statements. A copy of
an email dated July 10, 2002, from Andersen indicating that it is no longer
able to respond to such requests is filed as Exhibit 16.1 to the Form 10
Registration Statement filed by DiCon on July 23, 2002.

During the fiscal years ended March 31, 2001, 2002, and 2003, and through
June 27, 2003, DiCon did not consult PwC with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion

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that might be rendered on DiCons consolidated financial statements, or
any other matters or reportable events listed in Items 304(a)(2)(i) and (ii) of
Regulation S-K.




PART III




Item 10. Directors and Executive Officers of the Registrant.

DiCons executive officers, significant employees and directors as of June
27, 2003, are as follows:

|                        |  |     |    |          |  |                                                  
|----------------------- |  | --- | -- | -------- |  | -------------------------------------------------
|Name                    |  | Age |    | Position
|                        |  |     |    |         
|Ho-Shang Lee, Ph.D.     |  |     | 44 |          |  | President, Chief Executive Officer and Director  
|Gilles M. Corcos,
Ph.D. |  |     | 76 |          |  | Chairman of the Board and Director               
|Paul Ming-Ching Lo      |  |     | 45 |          |  | Vice President of Manufacturing and Operations   
|Jannett Wang            |  |     | 50 |          |  | Vice President of Administration                 
|Chun-Lung Lin           |  |     | 44 |          |  | President of Global Fiberoptics Inc. and
Director
|Anthony T. Miller       |  |     | 61 |          |  | General Counsel and Secretary                    
|Andrew F. Mathieson     |  |     | 46 |          |  | Director                                         
|Dunson Cheng, Ph.D.     |  |     | 58 |          |  | Director                                         

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.

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 1981 from Columbia University. Ms. Wang did graduate work in
economics and city and regional planning at the University of Pennsylvania.

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 Fiberoptics Inc. in January 2000, Mr. Lin
owned and managed a construction company 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.

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.

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, a registered investment advisor located in Larkspur,
California. Fairview, which was founded by Mr. Mathieson in 1995, manages
separate portfolios and is the General Partner of two private investment
partnerships. Mr. Mathieson earned a B.A. from Yale University in 1978, and an
M.B.A. from Stanford University in 1984.

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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. 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 and Chairman in
1994.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

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 fiscal year 2002, all Section 16(a) filing requirements
were satisfied on a timely basis.




Item 11. Executive Compensation.

Summary Compensation Table:

The following table sets forth all compensation for the chief executive
officer, 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, 2003 (fiscal year 2002), and two executive officers for whom
disclosures would have been provided but for the fact they were not serving as
an executive officer at the end of the last completed fiscal year. This table
shows the compensation earned by these individuals for the last three fiscal
years ended March 31, 2003.

|                         |                              |                     |      |            |      |               |         |                     |         |                        |   |                      |   |            |   |           |         |   |           |           |   |   |       |           |       | 
|------------------------ | ---------------------------- | ------------------- | ---- | ---------- | ---- | ------------- | ------- | ------------------- | ------- | ---------------------- | - | -------------------- | - | ---------- | - | --------- | ------- | - | --------- | --------- | - | - | ----- | --------- | ----- | 
|                         |                              |                     |      |            |      |               |         | Annual Compensation |         | Long-term Compensation |   |                      |   |           
|                         |                              |                     |      |            |      |               |         |                     |         |                        |   |                      |   |           
|                         |                              |                     |      | Fiscal     |      |               |         |                     |         |                        |   |                      |   | Securities |   |           |         |   |           |           |   |  
|Name And Principal       |                              | Year Ended          |      |            |      |               |         |                     |         |                        |   | Underlying           |   | LTIP       |   | All Other
|Position                 |                              | March 31            |      | Salary ($) |      | Bonus ($) (1) |         | Options (#) (2)     |         | Payouts ($) (3)        |   | Compensation ($) (4)
|                         |                              |                     |      |            |      |               |         |                     |         |                        |   |                     
|Ho-Shang Lee, Ph.D.      |                              |                     | 2003 |            |      | $             | 60,328  |                     |         |                        |  |                      |   |            |  |           |         |   |          |           |   | $ | 1,760 |          
|                         | President and Chief          |                     |      | 2002       |      |               | $       | 65,700              |         |                        |   |                     |   |            |   |          |         |   |           |          |   |   | $     | 4,800     |      
|                         | Executive Officer            |                     |      | 2001       |      |               | $       | 72,000              |         |                        | $ | 2,691,000            |   |            |   |          |         |   |           |          |   |   | $     | 4,600     |      
|Paul Ming-Ching Lo       |                              |                     | 2003 |            |      | $             | 142,954 |                     |         |                        |  |                      |   |            |  |           |         | $ | 451,933   | (5)       |   | $ | 3,260 |          
|                         | Vice President of            |                     |      | 2002       |      |               | $       | 144,480             |         |                        |   |                     |   |            |   |          |         |   | $         | 251,074   |   |   | $     | 3,611     |      
|                         | Manufacturing and
Operations |                     |      | 2001       |      |               | $       | 133,083             |         |                        | $ | 21,752               |   |            |   | 676,354   |         |   |           |          |   |   | $     | 1,007,560 | (6)  
|Jannett Wang             |                              |                     | 2003 |            |      | $             | 80,084  |                     |         |                        |  |                      |   |            |  |           |         |   |          |           |   |   |      |          
|                         | Vice President of            |                     |      | 2002       |      |               | $       | 88,575              |         |                        |   |                     |   |            |   | 20,368    |         |   |           |          |   |   |       |          |      
|                         | Administration               |                     |      | 2001       |      |               | $       | 61,283              |         |                        |   |                     |   |            |   | 122,208   |         |   |           |          |   |   |       |          |      
|Anthony T. Miller        |                              |                     | 2003 |            |      | $             | 243,515 |                     |         |                        |  |                      |   |            |  |           |         |   |          |           |   |   |      |          
|                         | General Counsel and          |                     |      | 2002       |      |               | $       | 251,599             |         |                        |   |                     |   |            |   | 22,400    |         |   |           |          |   |   |       |          |      
|                         | Secretary                    |                     |      | 2001       |      |               | $       | 195,353             |         |                        | $ | 21,752               |   |            |   | 134,400   |         |   |           |          |   |   |       |          |      
|David I. Polinsky, Ph.D. |                              |                     | 2003 |            |      | $             | 134,306 | (7)                 |         |                        |  |                      |   |            |  |           |         | $ | 7,213,050 | (8)       |   |   |      |          
|                         | Senior Vice President,       |                     |      | 2002       |      |               | $       | 299,875             |         |                        |   |                     |   |            |   |          |         |   | $         | 2,404,350 |   |   | $     | 4,613     |      
|                         | Business Development         |                     |      | 2001       |      |               | $       | 300,000             |         |                        |   |                     |   |            |   | 4,212,000 |         |   |           |          |   |   | $     | 9,621,900 | (9)  
|Frank W. Tilley          |                              |                     | 2003 |            |      | $             | 163,713 | (10)                |         |                        |   |                      |   |            |  |           |         |   |          |           |   | $ | 5,500 |          
|                         |                              | Director of Finance |      |            | 2002 |               |         | $                   | 184,615 |                        |   |                      |  |            |   |           | 100,000 |   |           |           |  |   |       | $         | 5,100 | 
|                         |                              |                     | 2001 |            |      | $             | 98,718  | (11)                |         |                        |  |                      |   |            |  |           |         |   |          |           |   |   |      |          

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|(1)  |  | Prior to April 2001, DiCon maintained a discretionary profit sharing
bonus plan for eligible employees. Profit sharing payments were
determined and paid on an annual basis. The profit sharing bonus shown
for the fiscal year ended March 31, 2001, was paid to the named
executives (as well as to other eligible employees) on April 16, 2001.
This plan was discontinued in April 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(2)  |  | 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 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.
|    
|(3)  |  | The amounts in this column 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
footnotes (5) and (8) below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(4)  |  | The amounts in this column include DiCons contributions to the
401(k) plan which covers all eligible employees who meet certain service
requirements and the future cash payments resulting from the conversion
of the Phantom Stock Plan to the Employee Stock Option Plan. The actual
amounts paid on the future cash payments are shown in column (3) in the
fiscal year ended March 31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|     |  | 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, 2003, 2002, and 2001, 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(5)  |  | 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 amount of future cash
payments to which the named employee was originally entitled is stated
in footnote (6) below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    
|(6)  |  | The amount includes DiCons 401(K) contribution of $3,265 and the
future promised cash payments of $1,004,295 from conversion (see
footnotes (3) and (4) above). 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. See footnote
(5) above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(7)  |  | Dr. Polinsky voluntarily resigned his position with DiCon on August
30, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(8)  |  | The amount is the cash payment received by the employee upon his
resignation under the terms of the conversion of the Phantom Stock Plan
to the Employee Stock Option Plan. The amount of future cash payments
to which the named employee was originally entitled is stated in
footnote (9) below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    
|(9)  |  | The amount includes DiCons 401(K) contribution of $4,500 and the
future promised cash payout of $9,617,400 from conversion (see footnotes
(3) and (4) above).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(10) |  | Mr. Tilley voluntarily resigned his position with DiCon on January
31, 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|(11) |  | Mr. Tilley was hired on July 25, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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, 2003.

- 54 -



---



##### Table of Contents



Aggregated Options Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

The following table sets forth for executive listed in the Summary
Compensation Table the number of options exercised in the fiscal year ended
March 31, 2003, and the number of shares subject to both exercisable and
unexercisable stock options as of March 31, 2003. In addition, the table sets
forth the value of unexercised options as of March 31, 2003.

|                                                                     |  |          |   |          |  |               |   |                            |  |                              |         |                              |  |  |         |  |  |  |   |  |  |  |   | 
|-------------------------------------------------------------------- |  | -------- | - | -------- |  | ------------- | - | -------------------------- |  | ---------------------------- | ------- | ---------------------------- |  |  | ------- |  |  |  | - |  |  |  | - | 
|                                                                     |  |          |   |          |  |               |   |                            |  | Number Of Shares             |         |                              |  |  |         |  |  | 
|                                                                     |  |          |   |          |  |               |   |                            |  | Underlying Unexercised       |         | Value of Unexercised in-the-
|                                                                     |  | Shares   |   |          |  |               |   | Options at Fiscal Year-End |  | money Options at Fiscal Year
|                                                                     |  | Acquired |   | Value    |  | (# of shares) |   | End (1)                   
|                                                                     |  | On       |   | Realized |  |               |   |                           
|Name                                                                 |  | Exercise |   | ($)      |  | Exercisable   |   | Unexercisable              |  | Exercisable                  |         | Unexercisable               
|                                                                     |  |          |   |          |  |               |   |                            |  |                              |         |                             
|Paul Ming-Ching Lo
Vice President of
Manufacturing and
Operations    |  |          |  |          |  |               |  |                            |  |                              | 532,354 |                              |  |  | 144,000 |  |  |  |  |  |  |  |  | 
|Jannett
Wang
Vice President of
Administration                        |  |          |  |          |  |               |  |                            |  |                              | 71,557  |                              |  |  | 71,019  |  |  |  |  |  |  |  |  | 
|Anthony T. Miller
General Counsel and
Secretary                      |  |          |  |          |  |               |  |                            |  |                              | 66,560  |                              |  |  | 90,240  |  |  |  |  |  |  |  |  | 
|David I. Polinsky,
Ph.D.
Senior Vice
President, Business
Development |  |          |  |          |  |               |  |                            |  |                              |        |                              |  |  |        |  |  |  |  |  |  |  |  | 
|Frank W. Tilley
Director of Finance                                  |  |          |  |          |  |               |  |                            |  |                              |        |                              |  |  |        |  |  |  |  |  |  |  |  | 



|(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.

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 five years from the date of the grant.

Board Report on Executive Compensation

Compensation for the President and Chief Executive Officer is determined
by the Board based on competitive factors and the contribution of the President
and Chief Executive Officer.

Compensation for executive officers and significant employees is
determined by the President and Chief Executive Officer based on competitive
factors and the contribution of the individual employee.

- 55 -



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##### Table of Contents






Item 12. 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, 2003:

|               |  |                                                                                                                    |  |                      |            |                  |  |  |       |  
|-------------- |  | ------------------------------------------------------------------------------------------------------------------ |  | -------------------- | ---------- | ---------------- |  |  | ----- | -
|               |  | Name                                                                                                               |  | Amount               |            |                  |  | 
|               |  | And Address                                                                                                        |  | And Nature Of        |            |                  |  | 
|Title Of Class |  | Of Beneficial Owner                                                                                                |  | Beneficial Ownership |            | Percent Of Class
|               |  |                                                                                                                    |  |                      |            |                 
|Common         |  | Ho-Shang Lee, Ph.D.
1689 Regatta Blvd.
Richmond, CA 94804                                                          |  |                      | 28,003,618 | (1)              |  |  | 24.78 | %
|Common         |  | Gilles M. Corcos,
Ph.D., as Trustee
for The Gilles M.
Corcos Trust
1689 Regatta Blvd.
Richmond, CA 94804           |  |                      | 14,626,410 |                  |  |  | 12.94 | %
|Common         |  | Anne Bleecker
Corcos, as Trustee
for The Anne
Bleecker Corcos
Revocable Trust
88 Codornies Road
Berkeley, CA 94708 |  |                      | 11,786,000 |                  |  |  | 10.43 | %
|Common         |  | Mei-Li Lee
1689 Regatta Blvd.
Richmond, CA 94804                                                                   |  |                      | 21,271,106 | (2)              |  |  | 18.82 | %
|Common         |  | Samuel L. Taylor
506 Arlington Ave.
Berkeley, CA 94707                                                             |  |                      | 14,522,920 | (3)              |  |  | 12.85 | %



|(1) |  | Includes 1,003,618 shares issued to employees under the ESOP and the
Employee Stock Purchase Plan which are subject to voting right
agreements pursuant to which Dr. Lee has sole voting rights.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 261,357 shares subject to stock options under the Employee
Stock Option Plan (ESOP) which are exercisable or exercisable within
60 days.                                             
|   
|(3) |  | 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,
2003:

|            |  |                                                                         |  |                      |            |            |  |  |       |  
|----------- |  | ----------------------------------------------------------------------- |  | -------------------- | ---------- | ---------- |  |  | ----- | -
|            |  |                                                                         |  | Amount               |            |            |  | 
|            |  | Name                                                                    |  | And Nature Of        |            | Percent Of
|Title Class |  | Of Beneficial Owner                                                     |  | Beneficial Ownership |            | Class     
|            |  |                                                                         |  |                      |            |           
|Common      |  | Ho-Shang Lee, Ph.D.                                                     |  |                      | 28,003,618 | (1)        |  |  | 24.78 | %
|Common      |  | Gilles M. Corcos,
Ph.D., as Trustee
for The Gilles M.
Corcos Trust      |  |                      | 14,626,410 |            |  |  | 12.94 | %
|Common      |  | Paul Ming-Ching Lo                                                      |  |                      | 600,165    | (2)        |  |  | 0.53  | %
|Common      |  | Jannett Wang                                                            |  |                      | 93,647     | (3)        |  |  | 0.08  | %
|Common      |  | Chung-Lung Lin                                                          |  |                      | 3,675,885  | (4)        |  |  | 3.25  | %
|Common      |  | Anthony T. Miller                                                       |  |                      | 106,744    | (5)        |  |  | 0.09  | %
|Common      |  | Andrew F.
Mathieson, as
co-Trustee for the
Charlotte Bliss
Taylor Trust |  |                      | 7,092,666  | (6)        |  |  | 6.28  | %

- 56 -



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##### Table of Contents



|            |  |                                                                   |  |                      |            |            |  |  |       |  
|----------- |  | ----------------------------------------------------------------- |  | -------------------- | ---------- | ---------- |  |  | ----- | -
|            |  |                                                                   |  | Amount               |            |            |  | 
|            |  | Name                                                              |  | And Nature Of        |            | Percent Of
|Title Class |  | Of Beneficial Owner                                               |  | Beneficial Ownership |            | Class     
|            |  |                                                                   |  |                      |            |           
|Common      |  | Dunson Cheng                                                      |  |                      | 16,666     | (7)        |  |  | 0.01  | %
|            |  |                                                                   |  |                      |            |            |  |  |       |  
|            |  | Total for
directors,
executive officers
and significant
employees |  |                      | 54,215,801 |            |  |  | 47.96 | %



|(1) |  | Includes 1,003,618 shares issued to employees under the ESOP and the
Employee Stock Purchase Plan which are subject to voting right
agreements pursuant to which Dr. Lee has sole voting rights.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 532,354 shares subject to stock options under the ESOP which
are exercisable or exercisable within 60 days.                                                                            
|   
|(3) |  | Includes 90,757 shares subject to stock options under the ESOP which
are exercisable or exercisable within 60 days.                                                                             
|   
|(4) |  | Includes 16,000 shares subject to stock options under the ESOP which
are exercisable or exercisable within 60 days and 1,180,000 shares held
by a company owned by Mr. Lin.                     
|   
|(5) |  | Includes 95,360 shares subject to stock options under the ESOP which
are exercisable or exercisable within 60 days.                                                                             
|   
|(6) |  | Includes 16,666 shares subject to stock options under the ESOP which
are exercisable or exercisable within 60 days.                                                                             
|   
|(7) |  | These are shares subject to stock options under the ESOP which are
exercisable or exercisable within 60 days.                                                                                   

(c)  Changes in Control.

There are no arrangements, known to the registrant, the operation of which
may at a subsequent date result in a change in control of the registrant.




Item 13. 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 mortgage loan which refinanced the construction loan.
(See Note 9 to financial statements appearing herein.). Dunson Cheng became a
Director of DiCon in February 2002.

During the fiscal year ended March 31, 2003, DiCon paid Cathay Bank
$1,985,962 in principal and interest on the mortgage loan. The loan balance at
March 31, 2003, was $26,193,176. The mortgage loan has a balloon payment due
on November 20, 2004. At present interest rates, the balloon payment is
estimated to be approximately $25,154,168. 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.

The bank line of credit to Global from a Taiwan bank is personally
guaranteed by Ho-Shang Lee, President and Chief Executive Officer of DiCon, 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 14. Controls and Procedures.

(a)Evaluation of Disclosure Controls and Procedures. The undersigned
principal executive officer and principal financial officer of DiCon concluded
that DiCons disclosure controls and procedures are effective based on their
evaluation of these controls and procedures as of a date within 90 days of the
filing date of this report.

(b)Changes in Internal Controls. There have been no significant changes
in DiCons internal controls or in other factors that could significantly
affect these controls subsequent to the date of the evaluation of these
controls by the undersigned principal executive officer and principal financial
officer of DiCon.

- 57 -



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Item 15. Exhibits and Reports on Form 8-K.



|(a) |  | Exhibits.
|--- |  | ---------

|            |  |                                                                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                           
|            |  |                                                                                                                                                                       
|3.1         |  | 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)                                                                                                                                       
|            |  |                                                                                                                                                                       
|99.1        |  | Certificate of President and Chief Executive Officer pursuant to Section 906 of
the Sarbanes  Oxley Act of 2002.                                                     

-58-



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##### Table of Contents



|            |  |                                                                                                             
|----------- |  | ------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                 
|            |  |                                                                                                             
|99.2        |  | 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.

-59-



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                    |  |                                                   |  |                                                                                                    
|------------------- |  | ------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------
|                    |  | DICON FIBEROPTICS, INC.
             (Registrant)
|                    |  |                                                   |  |                                                                                                    
|Date: June 27, 2003 |  | By:                                               |  | /s/ Ho-Shang Lee                                                                                   
|                    |  |                                                   |  |                                                                                                    
|                    |  | Name:
Title:                                      |  | (Signature)
Ho-Shang Lee, Ph.D.
President and Chief Executive Officer
(principal executive officer)
|                    |  |                                                   |  |                                                                                                    
|Date: June 27, 2003 |  | By:                                               |  | /s/ Jannett Wang                                                                                   
|                    |  |                                                   |  |                                                                                                    
|                    |  |                                                   |  | (Signature)                                                                                        
|                    |  | Name:
Title:                                      |  | Jannett Wang
Vice President of Administration
(principal financial officer)                        

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

|                    |  |                                                   |  |                                                                                         
|------------------- |  | ------------------------------------------------- |  | ----------------------------------------------------------------------------------------
|                    |  | DICON FIBEROPTICS, INC.
             (Registrant)
|                    |  |                                                   |  |                                                                                         
|Date: June 27, 2003 |  | By:                                               |  | /s/ Jannett Wang                                                                        
|                    |  |                                                   |  |                                                                                         
|                    |  | Name:
Title:                                      |  | (Signature)
Jannett Wang
Vice President of Administration
(principal accounting officer)
|                    |  |                                                   |  |                                                                                         
|Date: June 27, 2003 |  | By:                                               |  | /s/ Gilles M. Corcos                                                                    
|                    |  |                                                   |  |                                                                                         
|                    |  | Name:
Title:                                      |  | (Signature)
Gilles M. Corcos
Chairman of the Board of Directors                         
|                    |  |                                                   |  |                                                                                         
|Date: June 27, 2003 |  | By:                                               |  | /s/ Ho-Shang Lee                                                                        
|                    |  |                                                   |  |                                                                                         
|                    |  | Name:
Title:                                      |  | (Signature)
Ho-Shang Lee
Member of the Board of Directors                               
|                    |  |                                                   |  |                                                                                         
|Date: June 27, 2003 |  | By:                                               |  | /s/ Andrew F. Mathieson                                                                 
|                    |  |                                                   |  |                                                                                         
|                    |  | Name:
Title:                                      |  | (Signature)
Andrew F. Mathieson
Member of the Board of Directors                        
|                    |  |                                                   |  |                                                                                         
|Date: June 27, 2003 |  | By:                                               |  | /s/ Chun-Lung Lin                                                                       
|                    |  |                                                   |  |                                                                                         
|                    |  | Name:
Title:                                      |  | (Signature)
Chun-Lung Lin
Member of the Board of Directors                              
|                    |  |                                                   |  |                                                                                         
|Date: June 27, 2003 |  | By:                                               |  | /s/ Dunson Cheng                                                                        
|                    |  |                                                   |  |                                                                                         
|                    |  | Name:                                             |  | (Signature)
Dunson Cheng                                                                
|                    |  | Title:                                            |  | Member of the Board of Directors                                                        

-60-



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##### Table of Contents






CERTIFICATION

I, Ho-Shang Lee, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of DiCon Fiberoptics,
Inc.;                                                                                                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;                                                       
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                                                                          
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                                                                         
|  
|a) |  | Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;                                                                                   
|  
|b) |  | Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                                                                                                     
|  
|c) |  | Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                                                                                                           
|  
|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):                                                                                                                                
|  
|a) |  | All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                                                                 
|  
|b) |  | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                         
|  
|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|             |  |                                                                                        
|------------ |  | ---------------------------------------------------------------------------------------
|Date:        |  | June 27, 2003                                                                          
|             |  |                                                                                        
|By:          |  | /s/ Ho-Shang Lee, Ph.D.                                                                
|             |  |                                                                                        
|             |  | (Signature)                                                                            
|             |  |                                                                                        
|Name:
Title: |  | Ho-Shang Lee, Ph.D.
President and Chief Executive Officer
(principal executive officer)

-61-



---



##### Table of Contents



CERTIFICATION

I, Jannett Wang, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of DiCon Fiberoptics,
Inc.;                                                                                                                                                                                                                                                                                                    
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;                                                       
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                                                                          
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                                                                         
|  
|a. |  | Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;                                                                                   
|  
|b. |  | Evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the Evaluation Date); and                                                                                                                                                                                     
|  
|c. |  | Presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;                                                                                                                                                                                                           
|  
|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):                                                                                                                                
|  
|a. |  | All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and                                                                                 
|  
|b. |  | Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                                                                                                         
|  
|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

|             |  |                                                                            
|------------ |  | ---------------------------------------------------------------------------
|Date:        |  | June 27, 2003                                                              
|             |  |                                                                            
|By:          |  | /s/ Jannett Wang                                                           
|             |  |                                                                            
|             |  | (Signature)                                                                
|             |  |                                                                            
|Name:
Title: |  | Jannett Wang
Vice President of Administration
(principal financial officer)

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##### Table of Contents






Exhibit Index

|            |  |                                                                                                                                                                       
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                           
|            |  |                                                                                                                                                                       
|3.1         |  | 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)                                                                                                                                       
|            |  |                                                                                                                                                                       
|99.1        |  | Certificate of President and Chief Executive Officer pursuant to Section 906 of the Sarbanes  Oxley Act of
2002.                                                     
|            |  |                                                                                                                                                                       
|99.2        |  | Certificate of Vice President of Administration pursuant to Section 906 of the Sarbanes  Oxley Act of 2002.                                                          

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| | (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.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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