**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISISSION**


**WASHINGTON,
      DC 20549**





**FORM
      10-KSB/A-1**


_________________________





(Mark
      One)





x
            Annual
                report under Section 13 or 15(d) of the Securities Exchange Act of
                1934For
                the fiscal year ended March 31, 2005, oro
            Transition
                report pursuant to Section 13 or 15(d) of the Securities Exchange
                Act of
                1934For
                the transition period from ____________ to
                _____________Commission
                file number 0-49939





_________________________





**DICON
      FIBEROPTICS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)








**California**
            
            **94-3006185**(State
                or Other Jurisdiction of
            
            (IRS
                EmployerIncorporation
                or Organization)
            
            Identification
                No.)**1689
                Regatta Blvd.****Richmond,
                California**
            
            **94804**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





**(510)
      620-5000**


(Issuer’s
      Telephone Number, Including Area Code)


_________________________





Securities
      registered under Section 12(b) of the Exchange Act: None





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





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





Yes  x  No  o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x


1
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          of Contents




Issuer’s
      revenue for its most recent fiscal year ended March 31, 2005, was
      $24,182,570.





The
      issuer’s common stock is not traded on any market and accordingly no aggregate
      market value for the stock held by non-affiliates can be computed.





The
      number of shares of the issuer’s common stock outstanding as of March 31, 2005,
      was 111,949,737.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





None





____________________________________________________________________________________________________________





**EXPLANATORY
      NOTE**





This
      Form
      10-KSB/A-1 is being filed to correct typographical errors in Part I Item 1
      and
      formatting errors in Part III Item 10 of the Form 10-KSB filed on June 28,
      2005.








___________________________________________________________________________________________________________





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          of Contents




**DICON
      FIBEROPTICS, INC.**





**Table
      of Contents**





**PART
                I****Item
                1.**
            **Description
                of Business.****Item
                2.**
            **Description
                of Property.****Item
                3.**
            **Legal
                Proceedings.****Item
                4.**
            **Submission
                of Matters to a Vote of Security
                Holders.****PART
                II****Item
                5.**
            **Market
                for Common Equity, Related Stockholder Matters and
                Small Business Issuer Purchases of Equity
                Securities.****Item
                6.**
            **Management’s
                Discussion and Analysis or Plan of
                Operation.****Item
                7.**
            **Financial
                Statements.****Item
                8.**
            **Changes
                in and Disagreements with Accountants on Accounting
                and Financial Disclosure.****Item
                8A.**
            **Controls
                and Procedures.****Item
                8B.**
            **Other
                Information.****PART
                III****Item
                9.**
            **Directors,
                Executive Officers, Promoters and Control
                Persons; Compliance With Section 16(a) of the Exchange
                Act.****Item
                10.**
            **Executive
                Compensation.****Item
                11.**
            **Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters.****Item
                12.**
            **Certain
                Relationships and Related
                Transactions.****Item
                13.**
            **Exhibits.****Item
                14.**
            **Principal
                Accountant Fees and
                Services.****Signatures.****Exhibit
                Index.**




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**PART
      I**





**Item
      1. Description of Business.**





*This
      annual report contains forward-looking statements, within the meaning of the
      Securities Exchange Act of 1934 and the Securities Act of 1933 that involve
      risks and uncertainties. In some cases, forward-looking statements are
      identified by words such as
“believe,”“anticipate,”“expect,”“intend,”“plan,”“will,”“may” and similar
      expressions. You should not place undue reliance on these forward-looking
      statements, which speak only as of the date of this report. All of these
      forward-looking statements are based on information available to DiCon
      Fiberoptics, Inc. and subsidiary ( the “Company”) at this time, and the Company
      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 sections titled “Risk Factors”,
“Management’s Discussion and Analysis or Plan of Operation” and elsewhere.
      Please review and consider the various disclosures made by the Company in this
      report, and those detailed from time to time in the Company’s filings with the
      Securities and Exchange Commission, that attempt to advise you of the risks
      and
      factors that may affect the Company’s future results.*





(a)
            Introduction.





DiCon
      Fiberoptics, Inc. (“DiCon”) was incorporated in California in 1986. The Company
      designs and manufactures passive components, modules, Micro Electro-Mechanical
      Systems (“MEMS”) products, and test instruments for the fiberoptic
      communications industry. The Company conducts research, development,
      manufacturing, and marketing at its headquarters in Richmond, California. The
      Company, through Global Fiberoptics Inc. (“Global”), its wholly owned Taiwanese
      subsidiary formed in 1999, also operates a manufacturing and sales facility
      in
      Kaohsiung, Taiwan. The Company’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.




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,
      and





Extent
      of
      penetration of competing technologies such as wireless
      communication.





4.
            The
                Company and its Business.





Optical
      components are broadly divided into two categories: *active* and *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. The Company 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. The
      Company’s business has no distinct seasonality.





Upon
      its
      formation in 1986, the Company 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, the Company 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-multiplexers* to
      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 *isolators* used to
      ensure unidirectional flow of optical signals. The Company also leveraged its
      success in the application of the new thin-film technology to manufacture a
      series of advanced measurement and testing devices.


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In
      2000,
      the Company 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 the Company’s value-added modular products
      that have gained wide acceptance by major NEMs.





The
      Company’s modular products also include its highly sophisticated
      MEMS ** switch,
      which the Company developed internally and began marketing in 2001. The
      Company’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.





The
      Company will continue to invest a significant portion of its research and
      development (“R&D”) spending in expanding MEMS technology. The Company is
      also investing in non-communications technology with substantial commercial
      application potential.





5.
            Products.





The
      Company’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.





The
      Company’s revenue breakdown over the last three fiscal years (“FY”) has been as
      follows:





Product
                Line
            FY
                Ended
              March
                31, 2005
            FY
                Ended
              March
                31, 2004
            FY
                Ended
              March
                31, 2003WDM
            54%
            56%
            50%Switch
            46%
            44%
            50%





7.
            Marketing
                and Distribution.





The
      Company’s marketing activities are conducted primarily by its sales force
      located at the corporate headquarters in Richmond, California. The Company
      focuses its direct sales efforts on major optical systems manufacturers
      worldwide. The Company 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. The Company markets its
      products in Asia through Global, located in Kaohsiung, Taiwan. The Company’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, 2005, the Company had a broad customer base consisting
      of
      over 200 accounts, including major NEMs such as ALCATEL, Cisco Systems, Bookham
      Technology, **** Marconi,
      Nortel Networks and Tellabs. Despite the number of customers that the Company
      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 44.1% of revenue during the fiscal year
      ended March 31, 2005 compared to 45.7% of revenue during the fiscal year ended
      March 31, 2004.


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9.
            Back
                Orders and Payments Terms.





The
      Company’s back orders, which represent the aggregate of the sales price of
      orders received from customers but not yet recognized as revenue, were
      approximately $2.1 million and $2.3 million as of March 31, 2005 and 2004,
      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 the Company believes that its back
      orders are firm, there are certain circumstances under which orders may be
      cancelled by the customer. The Company 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 the Company’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.





The
      Company does not provide extended payment terms to its customers and does not
      carry significant amounts of finished goods for its customers.





10.
            Inventory.





The
      Company’s inventory consists mainly of raw material and work in
      process.





The
      Company assesses its inventory position on a monthly and quarterly basis based
      on its then current forecasts. The Company 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.
      For the year ended March 31, 2005, the Company wrote off approximately $1.3
      million of excess and obsolete inventory. For the year ended March 31, 2004,
      the
      Company wrote off approximately $1.1 million of obsolete inventory and wrote
      down to fair value an additional $1.1 million of inventory.





11.
            Sources
                and Availability of Raw Materials.





The
      Company has no critical raw materials available only from a single supplier.





12.
            Research
                and Development.





Since
      its
      formation, the Company has been active in the development of new, commercially
      viable technologies. As of March 31, 2005, the Company had 28 patents
      granted  in
      the
      United States. In order to achieve its position in the marketplace, the Company
      spends a substantial proportion of its financial resources on R&D. These
      expenditures are expensed as incurred. During the last three fiscal years,
      the
      Company’s R&D expenses were as follows:





FY
                Ended
              March
                31, 2005
            
            
            FY
                Ended
              March
                31, 2004
            
            
            FY
                Ended
              March
                31, 2003Total
                Amount (000’s)
            
            $
            5,658
            
            $
            6,516
            
            $
            13,178Percentage
                of Net Sales
            
            
            23.4
            %
            
            34.9
            %
            
            63.6
            %





Approximate
      70% of the R&D expenses incurred were communication related
      projects.




13.
            Competition.





The
      markets in which the Company 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,


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Delivery
      times and manufacturing capacity,





Selling
      price, and





Timing
      of
      new product introduction.





The
      Company believes that its principal competitors are passive optical component
      manufacturers such as JDS Uniphase, Avanex (including the optical components
      business formerly owned by Corning) and Finisar, as well as the internal
      manufacturing divisions of some of its large customers.





14.
            Employment.





As
      of
      March 31, 2005, DiCon had 165 employees in the US and Global had 170 employees
      in Taiwan.





15.
            Financial
                Information by Geographic Areas.




The
      Company sold its products to customers within and outside the United States
      as
      indicated below:





Revenues
                (in 000’s)
            
            FY
                Ended
              March
                31, 2005
            
            FY
                Ended
              March
                31, 2004
            
            FY
                Ended
              March
                31, 2003Within
                the US
            
            $
            11,240
            
            $
            7,583
            
            $
            13,671Outside
                the US
            
            
            12,943
            
            
            11,075
            
            
            7,064Total
            
            $
            24,183
            
            $
            18,658
            
            $
            20,735





The
      majority of the Company’s long-lived assets are located in the United States.
      Long-lived assets consist primarily of long-term investment property, plant,
      and
      equipment, net of accumulated depreciation and deposits. The following
      represents the geographic location of long-lived assets:





Amounts
                (in 000’s)
            
            March
                31, 2005
            
            March
                31, 2004
            
            March
                31, 2003Within
                the US
            
            $
            40,525
            
            $
            47,865
            
            $
            56,532Outside
                the US
            
            
            7,981
            
            
            10,949
            
            
            12,278Total
            
            $
            48,506
            
            $
            58,814
            
            $
            68,810





16.
            Protection
                of the Environment.





The
      Company’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 the Company’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. The
      Company’s business condition, operations and prospects could be materially
      harmed by any of the following risks.*


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**Risks
      Related to Fiberoptics Industry**





**The
      Company is currently** **experiencing
      operating losses** **,
      and the Company’s future return to profitability requires growth in the demand
      for fiberoptic networks and additional capital spending by the service
      providers.**





The
      Company’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 the Company
      and its competitors. The Company has incurred net losses over the past three
      years due to these market conditions. Limits to the continued growth of traffic
      on the networks or to the carriers’ ability to restore their financial strength
      may restrict the market for the Company’s components and for those of the
      Company’s competitors. Furthermore, the Company 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, the Company may not be
      able
      to return to profitability and may suffer material adverse effects on its
      business condition, operations and prospects.





**The
      Company 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 the Company’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 the Company’s for their internal needs or compete
      with the Company for sales to other customers.





In
      the
      past decade, strong demand for fiberoptics components by equipment manufacturers
      has encouraged a large number of new companies to compete with established
      components providers such as the Company. 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. Also,
      as
      the Company continues to expand sales globally, it may see new competitors
      in
      different geographic regions, especially Asia. 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 the Company’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. The Company anticipates that average
      selling prices will continue to decrease in the future due
      to a
      number of factors, including competitive pricing pressures and rapid
      technological change .
      Unless
      the Company is able to reduce its costs, these decreases will contribute to
      a
      decline in the Company’s total revenues and gross margins, which would adversely
      affect its results of operations.





**Risks
      Related to the Company’s Business**





**The
      Company faces challenges in remaining technologically competitive, hiring and
      managing qualified personnel, and planning for the future.**





The
      continued competitiveness of the Company requires the successful design and
      manufacture of an ever increasing number of different components, either because
      new functions are sought or because the evolving specifications of existing
      components require changes in product design and manufacturing methods. Often
      these new products require the mastery of entirely new materials and processes
      as well as the integration of different types of technologies. While the Company
      remains a privately held corporation, many of its larger competitors are
      publicly traded and therefore may have greater access to capital to acquire
      new
      technologies and equipment. This may weaken the Company’s competitive position.


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The
      Company’s need to develop innovative new products requires that the Company be
      able to attract and retain a sufficient number of specially qualified engineers
      and hire, train, and retain workers who are adept in various optical component
      manufacturing processes.





The
      Company faces other challenges in managing its business. These challenges
      include the effective management of manufacturing facilities both in the U.S.
      and Taiwan, successful design and timely introduction of new products to the
      market, strategic investments in research and development including material
      processing and engineering core technologies, expansion of sales to different
      geographical areas and acquiring new customers, and aggressively pursuing new
      “design-in” opportunities. Failure to meet these challenges in any single area
      may impact the Company’s future operating results.




**The
      Company 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 The Company’s success in securing
      significant sales to them imply that an important fraction of the Company’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 the Company’s revenues and cash flow.





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





The
      telecommunications industry continues to undergo downsizing. These changes
      may
      result in a lack of liquidity or bankruptcy of some of the Company’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.





**The
      Company 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.**





The
      Company’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, the Company
      does not maintain “key person” life insurance on any of its employees. Any loss
      of key personnel may adversely affect the Company’s operations.




**Adverse
      resolution of litigation may harm the Company’s operating results or financial
      condition**




The
      Company is a party to lawsuits in the normal course of its business. Litigation
      can be expensive, lengthy, and disruptive to normal business operations.
      Moreover, the results of complex legal proceedings are difficult to predict.
      An
      unfavorable resolution of a particular lawsuit could have a material adverse
      effect on the Company’s business, operating results, or financial condition.





**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. The Company 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


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lack
      of
      sufficient funding.





If
      the
      Company 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 the Company’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.





**The
      Company may have difficulty securing additional or adequate funds and loans
      for
      operating and capital needs.**





The
      Company 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. The Company is currently
      unprofitable. Therefore, the Company 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, the Company 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
      the
      Company and its shareholders.





Furthermore,
      incremental borrowings will subject the Company 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 the Company. 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, was financed with a mortgage
      loan with a balloon payment due on October 20, 2007. The Company expects to
      refinance the mortgage loan at that time. It may not be possible to do so,
      especially if the Company continues to be unprofitable. If the Company cannot
      refinance the mortgage loan, it may suffer substantial economic loss or be
      forced to take dramatic measures to pay off the mortgage loan.





**If
      the Company does not maintain acceptable manufacturing yields, product delivery
      schedules and product reliability, its operating results could suffer.**





The
      manufacture of the Company’s products involves highly complex and precise
      processes, requiring production in highly controlled and clean environments.
      Changes in the Company’s manufacturing processes or those of its suppliers could
      significantly reduce the Company’s manufacturing yields and increase product
      liability exposure. Because the majority of the Company’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.





The
      Company’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.


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**The
      Company’s operations could be disrupted by natural disasters that would
      seriously harm its operations.**





The
      Company’s facilities are susceptible to damage from natural disasters such as
      earthquakes and typhoons as well as from fire, floods, loss of power or water
      supply, telecommunications failures and similar events. Its research and
      development activities, manufacturing facilities, corporate headquarters and
      other critical business operations are located in California and Taiwan. Any
      loss of its facilities could disrupt its operations, delay production and
      shipments and result in significant expense to repair or rebuild its
      facilities.





**The
      Company 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 the Company 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**





**The
      Company 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.**





The
      Company 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 the Company 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 the Company’s operating results, financial
      condition or reputation.





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 the Company’s products. If such patents were to be issued,
      the patent holders or licensees may assert infringement claims against the
      Company or claim that the Company has violated other intellectual property
      rights. In addition, the Company 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 the Company 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.


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**The
      Company may not be able to protect its proprietary technology, which could
      adversely affect its ability to generate revenues.**





The
      Company 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 the Company.
      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 the Company’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 the Company’s Common Stock**





**The
      Company may remain a private company, which could adversely affect the value
      of
      its common stock.**





There
      is
      no public market for the Company’s common stock. Accordingly, shareholders
      should be prepared to hold their investment in a private company with no
      liquidity. Unless the Company becomes a publicly traded company at some future
      date, the marketability of its common stock is extremely limited and governed
      by
      the terms of the Buy-Sell Agreement.





**There
      will be state and federal securities law restrictions on transfer of the common
      stock.**





The
      Company’s common stock has not been registered under the Securities Act of 1933
      or any state securities laws and, unless so registered, may not be offered
      or
      sold except pursuant to an exemption from, or in a transaction not subject
      to,
      the registration requirements of the Securities Act of 1933 and applicable
      state
      securities laws.





**The
      preparation of the Company’s consolidated financial statements requires
      estimates and judgments by management of the Company. Actual results may differ
      from these estimates which could impact operating results.**





The
      consolidated financial statements of the Company contain estimates associated
      with reserves and allowances that are based on management’s judgment at the time
      of preparation of the consolidated financial statements. These reserves and
      allowances could differ from those estimated by management based on actual
      results that could negatively impact the Company’s operating results in future
      periods. Accounts affected by these estimates include estimates for warranty
      reserves and allowances for bad debt.





**The
      Company 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.


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**Item
      2. Description of Property.**





The
      Company purchased a vacant lot in Richmond, California, and built an approximately
      200,000 square feet new
      corporate campus. The Company consolidated its US operations on this new campus
      during the 2001 fiscal year. Accordingly, certain of the leased properties
      were
      no longer used for operating purposes and were available for sublease. The
      last
      non-cancelable operating lease was terminated on November 23, 2004, and the
      amount in excess of the estimate of the remaining costs of the lease, net of
      expected sublease income of $0.1 million was adjusted.





Global
      owns a condominium interest in a building in Kaohsiung, Taiwan. This facility
      consists of two floors in a seven-story building. The facility is located in
      an
      industrial park on land leased from the Government of Taiwan. The existing
      10-year land lease expires in 2011, and is renewable. The annual rental is
      5% of
      the prorata share of the value of the land.




As
      of
      March 31, 2005, the Company’s future gross commitments under all leases were
      $0.1 million.




**Item
      3. Legal Proceedings.**





In
      May
      2005, Lucent Technologies Inc. (“Lucent”) filed an action against the Company in
      the United States District Court for the District of New Jersey. Lucent alleges
      that certain switches purchased by it under a contract with the Company entered
      into in 2000 were defective. The complaint asserts breach of contract and the
      implied duty of good faith and fair dealing by the Company and seeks damages,
      costs, expenses and other sums totaling in excess of $10 million. The Company
      intends to contest the case vigorously.




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





No
      matters were submitted to a vote of the Company’s security holders during the
      fourth quarter of the fiscal year ended March 31, 2005.





**PART
      II**





**Item
      5. Market for Common Equity, Related Stockholder Matters and
      Small Business Issuer Purchases of Equity Securities.**





(a)
            Market
                Information.





There
      is
      no established public trading market for the Company’s common stock. In the
      absence of a public market, the fair value of the Company’s common stock is
      determined by the Company’s Board of Directors.





(b)
            Holders.





There
      are
      approximately 348 holders of the Company’s common stock as of March 31,
      2005.


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(c)
            Dividends.





The
      Company did not declare a dividend on its common stock during the fiscal years
      ended March 31, 2005, or 2004, or in any subsequent period for which financial
      information is required.





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





**Equity
      Compensation Plan Information**





Plan
                category
              Equity
                Compensation Plans Approved by Shareholders
              (1)
            
            (a)
              Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights
              (shares)
            
            
            (b)
              Weighted-average
                exercise price of outstanding options, warrants and rights
              ($)
            
            (c)
              Number
                of Securities remaining available for future issuance under equity
                compensation plans
              (excluding
                securities reflected in column (a))
              (shares)**Employee
                Stock Option Plan**
            
            4,332,088
            (2)
            
            $3.43
            
            7,507,112
            (2)**Employee
                Stock Purchase Plan**
            
            912,724
            (3)
            
            $2.73
            
            1,987,421
            (3)





(1)
            The
                Company has no equity compensation plans that are not approved by
                shareholders.





(2)
            The
                maximum number of shares that may be issued pursuant to options granted
                under the Employee Stock Option Plan is 11,840,000. As of March 31,
                2005,
                12,247,306 options were granted, 800 options were exercised and 7,914,418
                options terminated under the Employee Stock Option
                Plan.





(3)
            The
                maximum number of shares that may be issued under the Employee Stock
                Purchase Plan is 3,230,000 which includes shares issued pursuant
                to the
                Global Profit Distribution Sharing Plan Alternative. As of March
                31, 2005,
                1,242,579 shares were issued under the Employee Stock Purchase Plan
                and
                DiCon exercised the option to repurchase 329,855 shares upon employment
                termination.





(e)  Purchases
      of Equity Securities by Small Business Issuer.





**Small
      Business Issuer Purchases of Equity Securities**





Period
            
            Total
                Number of Shares Purchased
              (1)
            
            Average
                Price Paid per Share
            
            Total
                Number of Shares Purchased as Part of Publicly Announced Plans or
                Programs
              (2)
            
            Maximum
                Number of Shares that May yet be Purchased Under the Plans or
                Programs
              (2)January
                1, 2005 through January 31, 2005
            
            --
            
            --February
                1, 2005 through February 28, 2005
            
            2,097
            
            $0.96
            
            --
            
            --March
                1, 2005 through March 31, 2005
            
            9,365
            
            $0.96
            
            --
            
            --Total
            
            11,462
            
            
            
            --
            
            --




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(1)  All
      of
      the shares purchased were issued under the Employee Stock Purchase
      Program.





(2)  DiCon
      does not have any publicly announced plans or programs for the purchase of
      shares.





**Item
      6. Management’s Discussion and Analysis or Plan of
      Operation.**





**Overview**





The
      Company designs and manufactures passive optical components, modules and test
      instruments for current and next-generation optical communications markets.
      The
      Company designs and manufactures a broad portfolio of technically advanced
      products that filter, split, combine, attenuate, and route light in optical
      networks. The Company also sells products used for testing optical devices
      and
      systems. The Company’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. The Company was founded in 1986 and first became profitable in
      1988.
      It remained profitable each fiscal year until the fiscal year ended March 31,
      2002.





The
      Company operates from its owned 200,000 square feet facility in Richmond,
      California, which contains all of the Company’s domestic manufacturing, R&D,
      sales and administration operations. The Company has overseas manufacturing
      operations at its 88,000 square foot facility in Kaohsiung, Taiwan. Although
      the
      Company 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.





The
      Company’s communications products include Wavelength Division Multiplexers
      (“WDMs”), amplifier components, switches and attenuators, MEMS devices and
      modules. Its measurement products include variable attenuators, tunable filters,
      and test instruments for telecommunication applications. The Company markets
      and
      sells its products worldwide through its direct sales force, its subsidiary
      Global and through selected distributors.





The
      optical networking industry is rapidly changing and the volume and timing of
      orders are difficult to predict. Since the fourth quarter of 2000, the
      fiberoptics industry has gone through a significant period of consolidation
      following a dramatic curtailment of capital spending by most carriers faced
      with
      substantial excess bandwidth capacity and very high levels of corporate debt.
      The Company’s customers are manufacturers of telecommunications equipment. The
      Company believes its customers generally view the purchase of the Company’s
      products as a significant and strategic decision. As a result, customers
      typically commit substantial effort in evaluating the Company’s technology, and
      testing and qualifying its products and manufacturing processes. This customer
      evaluation and qualification process frequently results in a lengthy initial
      sales cycle of nine months or longer.





The
      Company’s cost of goods sold consists primarily of the cost of direct materials,
      labor and manufacturing overhead, scrap and rework associated with products
      sold, as well as production start up costs. As demand changes, the Company
      attempts to manage its manufacturing capacity to meet demand for existing and
      new products; however, certain portions of its costs are fixed and as volumes
      decrease, these expenses are difficult to reduce proportionately, if at all.
      The
      Company assesses its inventory position on a monthly and quarterly basis with
      its then current forecasts. During the fiscal year ended March 31, 2005, the
      Company wrote off approximately $1.3 million of obsolete inventory. During
      the
      fiscal year ended March 31, 2004, the Company wrote off approximately $1.1
      million of obsolete inventory and wrote down to fair value an additional $1.1
      million of inventory.





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 the Company’s products. The Company expenses all of its
      research and development costs as incurred and does not capitalize any research
      and development expenditures except for equipment with a useful life longer
      than
      one year and useful for purposes other than the current research and development
      project. The Company believes that research and development is critical to
      strategic product development and expects to continue to devote significant
      resources to product research and development. The Company 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.


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Selling,
      general and administrative expenses include salaries, benefits, commissions,
      product promotion and administrative expenses. The Company expects these
      expenses to continue to be substantial as the Company strives to sustain its
      market share in the fiberoptic component manufacturing business.





During
      the fiscal year 2005, the Company consolidated its R&D projects to better
      align its business needs with existing operations and to provide a more
      efficient use of its facilities. As a result, certain R&D projects were
      discontinued and it was determined that related support equipment had
      no
      alternative use within the Company. Accordingly the equipment was either
      abandoned or scrapped, and a loss on the disposal of fixed assets of $1.9
      million was recorded in the year ended March 31, 2005 in the consolidated
      statements of operations and comprehensive loss. The Company incurred a $0.7
      million loss on disposal of fixed assets for the year ended March 31,
      2004.





Excess
      and idle equipment with a net book value of $796,000 had been written off in
      the
      year ended March 31, 2005.





Other
      income (expenses) consists primarily of interest income, offset by interest
      expense.





The
      Company has invested $0.5 million for a 5.45% minority interest in a private
      company in Taiwan engaged in the optical coating business. This investment
      is
      held for investment purposes and is accounted for on the cost basis of
      accounting. The investment value has been fully impaired as of March 31,
      2004.





The
      Company maintains an Employee Stock Option Plan and an Employee Stock Purchase
      Plan as a means of motivating its employees to make a tangible contribution
      towards achieving its corporate objectives. In September 2002, DiCon suspended
      the sale of DiCon shares to employees under the Employee Stock Purchase
      Plan.





**Recent
      Accounting Pronouncements**




In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards No. 154 ("SFAS No. 154)") ,
      “Accounting Changes and Error Corrections.” This statement replaces APB 20
      and SFAS 3 and changes the requirements for the accounting for and
      reporting of a change in accounting principle. APB 20 previously required
      that most voluntary changes in accounting principle be recognized by including
      in net income of the period of the change the cumulative effect of changing
      to
      the new accounting principle. SFAS No.154 requires retrospective
      application to prior periods’ financial statements of changes in accounting
      principle. Adoption of this statement is not expected to have a material impact on
      its
      financial position and results of operations.





In
      December 2004, the FASB issued SFAS No. 123(R), "Accounting for Stock-Based
      Compensation". SFAS No. 123(R) establishes standards for the accounting for
      transactions in which an entity exchanges its equity instruments for goods
      or
      services. SFAS No. 123(R) focuses primarily on accounting for transactions
      in
      which an entity obtains employee services in share-based payment transactions.
      SFAS No. 123(R) requires that the fair value of such equity instruments be
      recognized as expense in the historical financial statements as services are
      performed. Prior to SFAS No. 123(R), only certain pro-forma disclosures of
      fair
      value were required. SFAS No. 123(R) shall be effective for nonpublic companies
      and small business issuers as
      of the
      beginning of the first annual reporting period that begins after December 15,
      2005 . The
      Company has historically provided pro forma disclosures reflecting the effects
      of such compensation costs on its results of operations and financial condition.
      See Note 3, Stock-Based Compensation. The Company is still evaluating the impact
      of the adoption of this standard.





In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      151 ("SFAS No. 151"), Inventory Costs, an amendment of ARB No. 43, Chapter
      4.
      The amendments made by SFAS No. 151 will improve financial reporting by
      clarifying those abnormal amounts of idle facility expense, freight, handling
      costs, and wasted materials (spoilage) that should be recognized as
      current-period charges and by requiring the allocation of fixed production
      overheads to inventory based on the normal capacity of the production
      facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal
      years beginning after June 15, 2005. Earlier application is permitted for
      inventory costs incurred during fiscal years beginning after November 24, 2004.
      The Company is currently evaluating the impact of adoption of SFAS No. 151
      on
      its financial position and results of operations.




17
 Table
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**Results
      of Operations**





**Years
                Ended March 31,****2005**
            
            **2004****Consolidated
                Statement of Operations:**
              **(in
                thousands and as a percentage of net sales)**
            
            $
                (000’s)
            
            %
            
            $
                (000’s)
            
            %Net
                sales
            
            $
            24,183
            
            
            100.0
            %
            $
            18,658
            
            
            100.0
            %Cost
                of goods sold
            
            
            17,658
            
            
            73.0
            %
            
            18,710
            
            
            100.3
            %Gross
                profit (loss)
            
            
            6,525
            
            
            27.0
            %
            
            (52
            )
            
            (0.3
            %)Selling,
                general and administrative expenses
            
            
            6,333
            
            
            26.2
            %
            
            5,438
            
            
            29.1
            %Research
                and development expenses
            
            
            5,658
            
            
            23.4
            %
            
            6,516
            
            
            34.9
            %Loss
                on disposal of fixed assets
            
            
            1.935
            
            
            8.0
            %
            
            670
            
            
            3.6
            %Loss
                on write down of idle fixed assets
            
            
            796
            
            
            3.3
            %
            
            -
            
            
            0.0
            %14,722
            
            
            60.9
            %
            
            12,624
            
            
            67.6
            %Loss
                from operations
            
            
            (8,197
            )
            
            (33.9
            %)
            
            (12,676
            )
            
            (67.9
            %)Other
                expense
            
            
            (791
            )
            
            (3.2
            %)
            
            (1,333
            )
            
            (7.2
            %)Loss
                before income taxes
            
            
            (8,988
            )
            
            (37.1
            %)
            
            (14,009
            )
            
            (75.1
            %)Income
                tax (expense) benefit
            
            
            (287
            )
            
            (1.2
            %)
            
            1,983
            
            
            10.6
            %Net
                loss
            
            $
            (9,275
            )
            
            (38.3
            %)
            $
            (12,026
            )
            
            (64.5
            %)





*
      Loss on
      disposal of fixed assets previously grouped under other expenses has been
      reclassified to conform to current year presentation.





**Financial
      Results**





*Net
      Sales*





Net
      sales
      increased by 29.6% to $24.2 million for the fiscal year ended March 31, 2005
      from $18.7 million for the fiscal year ended March 31, 2004. The increase was
      primarily due to an increase in the demand for fiberoptic components and test
      equipment by telecommunications equipment vendors.





For
      the
      fiscal year ended March 31, 2005, the Company recorded $0.3 million revenue
      from
      cancellations of prior purchase agreements with customers. For the fiscal year
      ended March 31, 2004, the Company recorded no revenue from cancellations of
      prior purchase agreements with customers.





The
      fiberoptic communications industry is characterized by dynamic technological
      changes. Specific products may have a relatively short product life, even though
      basic product designs may have a substantial life. Generally, customers expect
      prices to decline steadily. During the current period of significant excess
      capacity, the pressure to reduce average selling prices may be even greater.
      The
      Company seeks to offset this trend through aggressive programs to improve
      manufacturing yields and cost reductions. There is no certainty that these
      programs will be successful to offset the pricing pressure from customers in
      the
      future.





Sales
      to
      different geographic areas may fluctuate from period to period depending on
      various factors such as new system development, purchase cycle and price. Net
      sales to customers in the United States accounted for $11.2 million
      and
      $7.6 million of total net sales, or 46% and 41%, for the years ended
      March
      31, 2005 and 2004, respectively.




18
 Table
          of Contents




Despite
      the fact that the Company had over 200 customers in the year ended March 31,
      2005, there are a limited number of very large customers that account for the
      majority of purchases in the industry worldwide. As of and for the years ended
      March 31, the Company experienced the following concentrations with sales and
      accounts receivables.





**Years
                Ended March 31,****2005**
            
            **2004**Percentage
                of revenue for 3 largest customers
            44.1%
            
            45.7%No.
                of customers accounting for over 10% of net sales
            3
            
            2No.
                of customers accounting for more than 10% of accounts receivable
                balance
            4
            
            3





Sales
      to
      the Company’s leading customers vary significantly from year to year and the
      Company does not have the ability to predict future sales to these customers.





*Cost
      of Goods Sold and Gross Margin*





Costs
      of
      goods sold declined 5.6% to $17.7 million in the year ended March 31, 2005
      from
      $18.7 million in the year ended March 31, 2004. Gross margin as a percentage
      of
      net sales was 27.0% in year ended March 31, 2005, compared to a negative 0.3%
      in
      the year ended March 31, 2004.





The
      improvement in gross margin in the year ended March 31, 2005 is mainly due
      to
      expense and cost reductions. For the year ended March 31, 2005, the Company
      wrote off approximately $1.3 million, or 5.4% of total net sales, of excess
      and
      obsolete inventory as compared to approximately $2.2 million in total, or 11.8%
      of total net sales, in the prior year. The gross loss in fiscal year ended
      March
      31, 2004 was primarily attributable to a reduction in sales volume coupled
      with
      a continued decline in average selling price, a lower margin product mix due
      to
      lower sales of high margin components.





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 the Company will achieve or maintain
      gross margin percentages at historical levels in future periods.





Compensation
      expense, including the Company’s stock compensation plans has been reflected in
      the below referenced line items of the consolidated statement of operations
      and
      comprehensive loss for the years ended March 31, 2005 and 2004 as
      follows:





**Years
                Ended March 31,****(in
                thousands)**
            
            **2005**
            
            **2004**Cost
                of goods sold
            
            $
            44
            
            $
            79Selling,
                general and administrative expenses
            
            
            152
            
            
            275Research
                and development expenses
            
            
            323
            
            
            577$
            519
            
            $
            931





Included
      in the amounts noted above is non-cash compensation expense totaling $442,000
      and $481,000 for the years ended March 31, 2005 and 2004,
      respectively.




19
 Table
          of Contents


*Operating
      Expenses*





*Selling,
      general and administrative.*





Selling,
      general and administrative (“SG&A”) expense was $6.3 million in the fiscal
      year ended March 31, 2005, compared to $5.4 million in the fiscal year
      ended March 31, 2004. The increase in SG&A expenses primarily reflects
      unutilized Company surplus facility resources in Richmond due to increase in
      production volume in Global in Taiwan.





*Research
      and development.*





Research
      and development (“R&D”) expense was $5.7 million in the fiscal year
      ended March 31, 2005, compared to $6.5 million in fiscal year ended
      March
      31, 2004. The decrease in R&D spending reflects the cost reductions
      resulting from the elimination of certain product development programs and
      workforce reductions. Future expenditures are expected to fluctuate both in
      absolute dollars and as a percentage of revenue based on the need to invest
      in
      new research and development in order to remain competitive in this rapidly
      changing industry.





*Loss
      on disposal of fixed assets*





During
      the fiscal year 2005, the Company consolidated its R&D projects to better
      align its business needs with existing operations and to provide more efficient
      use of its facilities. As a result, certain R&D projects were discontinued
      and it was determined that related support equipment had no alternative
      use
      within the Company. Accordingly the equipment was either abandoned or scrapped,
      and a loss on the disposal of fixed assets of $1.9 million was recorded in
      the
      year ended March 31, 2005 in the consolidated statements of operations and
      comprehensive loss. The Company incurred $0.7 million loss on disposal of fixed
      assets for the year ended March 31, 2004.




*Loss
      on write down of idle fixed assets*





Excess
      and idle equipment with a net book value of $796,000 had been written off in
      the
      year ended March 31, 2005.




*Other
      (Expense) Income*





Other
      (expense) ** income
      was expense of $0.8 million in the fiscal year ended March 31, 2005 and expense
      of $1.3 million in the fiscal year ended March 31, 2004 as follows:





**Years
                Ended March 31,****(in
                thousands)**
            
            **2005**
            
            **2004**Other
                (expense) income:Realized
                gain (losses) on sales of marketable securities
            
            $
            22
            
            $
            114Impairment
                of other long-term investments
            
            
            -
            
            
            (512
            )Interest
                expense
            
            
            (1,229
            )
            
            (1,366
            )Interest
                income
            
            
            363
            
            
            402Other
                income (expense), net
            
            
            53
            
            
            29$
            (791
            )
            $
            (1,333
            )





Interest
      expense primarily represents the costs of borrowing by the Company for its
      mortgage loan on the Richmond, California, facility and its equipment loan.
      In
      the fiscal year ended March 31, 2005, the Company has accrued an interest
      payment of $45,000 for additional tax that may result from the examination
      of
      the Company’s federal income tax returns for fiscal years ended in 2000 to 2003.





In
      the
      fiscal year ended March 31, 2005, the Company sold certain marketable equity
      securities for total proceeds of $0.9 million, resulting in a realized gain
      of
      $22,000. In the fiscal year ended March 31, 2004, the Company sold certain
      marketable equity securities for total proceeds of $2.3 million, resulting
      in a
      realized gain of $114,000.


20
 Table
          of Contents




In
      the
      fiscal year ended March 31, 2004, the Company recorded $0.5 million
      impairment of other long-term investments. When the decline in fair value is
      deemed to be other-than-temporary, the Company writes down the value of the
      investment to its fair value. The write-down in the fiscal year ended March
      31,
      2004 is related to the decline in fair value of the Company’s investment in a
      private company in Taiwan engaged in the optical coating business.





Loss
      on
      disposal of fixed assets has been reclassified to conform to current year
      presentation.





*Income
      Tax (Expense) Benefit:*





The
      Company recorded $0.3 million of income tax expense and $2.0 million
      of income tax benefit in the fiscal years ended March 31, 2005 and 2004,
      respectively.





During
      the fiscal year ended March 31, 2005, the Company’s federal income tax returns
      for fiscal years ended in 2000 to 2003 were being examined by the Internal
      Revenue Service. As a result of this review, certain tax credits previously
      claimed were considered to be excessive and therefore an additional tax
      assessment was required. In the fiscal year ended March 31, 2005, the Company
      paid $281,000 for the tax assessments that may result.





Due
      to
      uncertainty surrounding the realization of the favorable tax attributes in
      future tax returns, the Company has recorded a valuation allowance against
      certain deferred tax assets as of March 31, 2005 and 2004. Management regularly
      evaluates the recoverability of the deferred tax asset and the level of the
      valuation allowance. At such time as it is determined that it is more likely
      than not that the deferred tax asset will be realizable, the valuation allowance
      will be reduced.





**Liquidity
      and Capital Resources**





As
      of
      March 31, 2005, the Company had cash and cash equivalents of $1.8 million.
      In
      addition, the Company has $14.7 million invested in certificates of deposit
      and
      other marketable securities that in conformity with the requirements of
      generally accepted accounting principles were classified as marketable
      securities.




The
      net
      cash provided by operating activities of $2.3 million for the year ended March
      31, 2005 resulted from non-cash adjustments of $12.5 million to the net loss
      of
      $9.3 million for the year ended March 31, 2005, a reduction of prepaid expenses
      and other current assets of $0.3 million, and an increase in accounts payable
      and accrued liabilities of $0.5 million. This cash inflow is partially offset
      by
      an increase of inventories of $0.7 million and accounts receivables of $1.1
      million due to an increase in sales.





Net
      cash
      provided by operations for the year ended March 31, 2004 was $10.0 million.
      It
      was primarily attributable to an income tax refund of $15.3 million. These
      amounts were partially offset by an increase of inventories of $1.6 million
      and
      accounts receivables of $1.0 million due to an increase in sales and by a
      decrease in accounts payable and accrued liabilities of $0.4 million. For the
      fiscal year ended March 31, 2003, the Company made a long-term investment of
      $0.5 million for a minority interest in a firm in Taiwan. The investment value
      was fully impaired in the fiscal year ended March 31, 2004.





The
      increase in cash flows from investing activities for the year ended March 31,
      2005 was primarily due to an increase in net proceeds of $5.6 million from
      the
      sale and purchase of marketable securities partially offset by $0.2 million
      in
      purchases of property and equipment.





Cash
      used
      in investing activities of $9.2 million for the year ended March 31, 2004 was
      primarily the result of the efforts to increase earnings on working capital
      by
      investing in certificates of deposits with maturities in excess of 90 days
      and
      mutual funds of $14.1 million. All certificates mature in one year or less.
      Additionally, the Company sold approximately $4.8 million of marketable
      securities during the year ended March 31, 2004.





Cash
      used
      in financing activities increased to $7.3 million in the current fiscal year
      ended March 31, 2005 from $3.2 million in the fiscal year ended March 31, 2004.
      This change is primarily attributable to the net increase of
      repayments of mortgages
      and other debt .




21
 Table
          of Contents




The
      Company financed, in part, a new corporate campus by obtaining a construction
      loan from a bank of $27.0 million on August 24, 2000. In November 2001,
      the
      same bank refinanced the outstanding balance of the construction loan with
      a
      mortgage loan maturing on November 20, 2004, with an amortization schedule
      based
      on a 25-year loan. Interest on the mortgage loan is accrued at a variable
      interest rate based on changes in the lender’s prime rate as of the
      20 th of each
      month. Principal and interest are payable monthly. During the year ended March
      31, 2002, the Chairman, President and Chief Executive Officer of the institution
      with which the Company maintains the mortgage loan was appointed to the
      Company’s Board of Directors.





On
      June
      28, 2004, the bank agreed to extend the maturity date of the mortgage loan
      to
      October 20, 2007, subject to additional terms and conditions requiring the
      Company to make additional principal repayments as follows: $1.5 million 10
      days
      after the date of execution of the loan extension agreement; $1.0 million on
      October 1, 2004; and seven installments each in the amount of $0.5 million
      on
      the first day of each calendar quarter, commencing on January 1, 2005 and ending
      on July 1, 2006.





The
      Company was in compliance with the additional principal repayments requirement
      as of March 31, 2005. In addition, the Company voluntarily prepaid the third
      $0.5 million equal installment to be due on July 1, 2005 during the year ended
      March 31, 2005. The balance of the mortgage loan as of March 31, 2005 was $20.9
      million with an interest rate of 5.5%. Subsequent to March 31, 2005, the Company
      voluntarily prepaid four additional $0.5 million equal installments that were
      originally due on October 1, 2005, January 1, 2006, April 1, 2006 and July
      1,2006 (see subsequent event on Note 18 of the consolidated financial
      statement).





In
      April
      2001, the Company obtained an equipment loan from a bank in the amount of $7.3
      million. The loan was secured by specific pieces of equipment. The loan was
      voluntarily prepaid in full on October 12, 2004.





Global
      maintains a line of credit in Taiwan backed by commercial paper issued by Global
      for a maximum of 50 million New Taiwan Dollars (or approximately $1.6 million
      as
      of March 31, 2005). The interest rate is based on a rate set by the bank at
      the
      time funds are drawn. The line of credit will mature on April 7, 2006. The
      outstanding balance of any commercial paper under this line of credit must
      be
      fully secured by either a cash deposit or bond fund certificate. As of March
      31,
      2005, there was no commercial paper outstanding.





Global
      maintains its second line of credit of 80 million New Taiwan Dollars
      (or  approximately
      $2.5 million as of March 31, 2005) from a Taiwan bank. The line of credit will
      mature on September 30, 2005. The interest rate is based on a rate set by the
      bank at the time funds are drawn. The amount drawn as of March 31, 2005 was
      41.0
      million New Taiwan Dollars (or approximately $1.3 million as of March 31, 2005)
      with an interest rate of 3.35%.





The
      maturities of mortgage and other debt outstanding as of March 31, 2005 are
      summarized as follows:





**Year
                Ending March 31,**
            
            **Line
                of Credit**
            
            **Mortgage
                Loan**
            
            **Total**(in
                thousands)2006
            
            $
            1,300
            
            $
            1,385
            
            $
            2,6852007
            
            
            -
            
            
            1,494
            
            
            1,4942008
            
            
            -
            
            
            18,034
            
            
            18,034Total
            
            $
            1,300
            
            $
            20,913
            
            $
            22,213




The
      Company believes its current cash and cash equivalents and marketable securities
      will be sufficient to meet its anticipated cash needs for working capital and
      capital expenditures for at least the next 12 months. There remains some
      possibility that the Company may need to raise additional capital. For instance,
      it might need additional capital in order to refinance the mortgage loan,
      finance unanticipated growth or to invest in new technology. There can be no
      certainty that the Company would be successful in raising the required capital
      or in raising capital at acceptable rates.


22
 Table
          of Contents




**Interest
      Rate Sensitivity and Market Risk**





The
      Company maintains its cash and cash equivalents primarily in money market funds
      or other short-term investments. The Company does not have any derivative
      financial instruments as of March 31, 2005. Accordingly, it does not believe
      that its investments have material exposure to interest rate risk.





Because
      its loans are variable rate, the Company is subject to interest rate risk for
      these liabilities. A 1% change in the prime rate would result in a change in
      interest expense of approximately $0.2 million per year at the maximum level
      of
      loan commitments the Company 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**





The
      Company has limited investments in marketable equity securities. As of March
      31,
      2005, the Company had no investments in marketable equity securities. As of
      March 31, 2004, the Company had marketable equity securities with an original
      cost of approximately $0.8 million that had an unrealized gain of $17,000.





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





**Exchange
      Rate Sensitivity**




The
      Company’s international business is subject to normal international business
      risks including, but not limited to, different economic conditions, changes
      in
      political climate, different tax structures, other regulations and restrictions,
      and foreign exchange rate volatility. Accordingly, the Company’s future results
      could be materially adversely affected by changes in these or other factors.





The
      Company generates a portion of its sales from sales to customers located outside
      the United States and from sales by its foreign subsidiary in Asia.
      International sales are typically denominated in U.S. dollars.




The
      Company’s foreign subsidiary incurs most of its expenses in New Taiwan Dollars,
      and therefore it uses New Taiwan Dollars as its functional currency.  Accordingly,
      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. The Company did not use derivatives for trading purposes for
      the
      fiscal years ended March 31, 2005 and 2004. The accumulated currency translation
      losses resulting from the translation of the financial position of Global were
      $0.5 million as of March 31, 2005 compared to a loss of $1.1 million as for
      the
      fiscal year ended March 31, 2004.




The
      Company considers its investment in its Taiwanese subsidiary to be essentially
      permanent in duration. At March 21, 2005, the undistributed foreign earnings
      amounted to approximately $5.1 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.





23
 Table
          of Contents




**Item
      7. Financial Statements.**





**Index
      to Financial Statements**





Financial
                Statements:Report
                of Independent Registered Public Accounting
                Firm
            F-1Report
                of Independent Registered Public Accounting
                Firm
            F-2Report
                of Independent Registered Public Accounting
                Firm
            F-3Consolidated
                Balance Sheets at March 31, 2005 and
                2004
            F-4Consolidated
                Statements of Operations and Comprehensive Loss
                for the years ended March 31, 2005, 2004 and 2003
            F-5Consolidated
                Statements of Changes in Shareholders’ Equity
                for the years ended March 31, 2005, 2004 and 2003
            F-6Consolidated
                Statement of Cash Flows for the years ended
                March 31, 2005, 2004 and 2003
            F-7Notes
                to Consolidated Financial
                Statements
            F-8
                to F-24Financial
                Statement Schedule:Valuation
                and Qualifying Accounts for each of the three
                years in the period ended March 31, 2005
            F-25All
                other schedules are omitted because they are not applicable or the
                required information is shown in the financial statements or notes
                thereto.








Table
          of Contents


**Report
      of independent registered public accounting
      firm**








To
      the
      Board of Directors and Shareholders


Dicon
      Fiberoptics, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Dicon Fiberoptics, Inc.
      and its subsidiary as of March 31, 2005, and the related consolidated statements
      of operations and comprehensive loss, shareholders’ equity, and cash flows for
      the year then ended. Our audit also included the financial statement schedule
      listed at Item 7. These consolidated financial statements and schedule are
      the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these consolidated financial statements and schedule based on our
      audit. We did not audit the financial statements of Global Fiberoptics, Inc.,
      a
      wholly-owned subsidiary, which statements reflect total assets and revenues
      constituting 26 percent and 1 percent, respectively, of the related consolidated
      totals. Those statements were audited by other auditors whose report has been
      furnished to us, and our opinion, insofar as it relates to the amounts included
      for Global Fiberoptics, Inc., is based solely on the report of the other
      auditors.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the
      consolidated financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the consolidated 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 and the report of the other auditors provide a
      reasonable basis for our opinion.





In
      our
      opinion, based on our audit and the report of the other auditors, the
      consolidated financial statements referred to above present fairly, in all
      material respects, the financial position of Dicon Fiberoptics, Inc. and its
      subsidiary as of March 31, 2005, 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 of America. Also, in our opinion, the
      related financial statement schedule, when considered in relation to the basic
      financial statements taken as a whole, presents fairly, in all material
      respects, the information set forth therein.











/s/
      Burr,
      Pilger & Mayer LLP


San
      Francisco, California


May
      11,
      2005, except as


to
      Note
      18, which is as of


June
      13,
      2005


F-1
 Table
          of Contents




**Report
      of independent registered public accounting
      firm**











To
      the
      Board of Directors and Shareholders


DiCon
      Fiberoptics Inc.





We
      have
      audited the accompanying balance sheets of Global Fiberoptics, Inc. as of March
      31, 2005, and the related statements of operations, shareholder’s equity, and
      cash flows for the years 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 the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. 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 Global Fiberoptics, Inc. as of
      March 31, 2005, and the results of its operations and its cash flows for the
      years then ended in conformity with accounting principles generally accepted
      in
      the United States of America.








/s/
      PricewaterhouseCoopers


Kaohsiung,
      Taiwan


May
      11,
      2005




F-2
 Table
          of Contents


**Report
      of independent registered public accounting
      firm**








To
      the
      Board of Directors and Shareholders


of
      DiCon
      Fiberoptics Inc.








In
      our
      opinion, the consolidated financial statements listed in the accompanying index
      present fairly, in all material respects, the financial position of DiCon
      Fiberoptics Inc. and its subsidiary at March 31, 2004, and the results of their
      operations and their cash flows for each of the two years in the period ended
      March 31, 2004 in conformity with accounting principles generally accepted
      in
      the United States of America. In addition, in our opinion, the financial
      statement schedule listed in the accompanying index   present
      fairly, in all material respects, the information set forth therein when read
      in
      conjunction with the related consolidated financial statements. These financial
      statements and financial statement schedule are the responsibility of the
      Company's management. Our responsibility is to express an opinion on these
      financial statements and financial statement schedule based on our audits.
      We
      conducted our audits of these statements in accordance with the standards of
      the
      Public Company Accounting Oversight Board (United States). Those standards
      require that we plan and perform the audit to obtain reasonable assurance about
      whether the financial statements are free of material misstatement. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, and evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.











**PricewaterhouseCoopers
      LLP**


San
      Francisco, California


June
      30,
      2004


F-3
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Consolidated
                Balance Sheets**
              **(in
                thousands)****March
                31,**
            
            **March
                31,****2005**
            
            **2004****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            1,784
            
            $
            1,359Marketable
                securities
            
            
            14,677
            
            
            20,250Accounts
                receivable, net of allowance of $180 and $78, respectively
            
            
            4,104
            
            
            3,155Inventories
            
            
            3,998
            
            
            4,506Interest
                receivables and prepaid expenses
            
            
            232
            
            
            521Income
                tax receivable
            
            
            -
            
            
            16Total
                current assets
            
            
            24,795
            
            
            29,807Property,
                plant and equipment, net
            
            
            48,465
            
            
            58,750Other
                assets
            
            
            41
            
            
            64Total
                assets
            
            $
            73,301
            
            $
            88,621**Liabilities
                and Shareholders' Equity**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            3,110
            
            $
            2,914Advances
                received from customers
            
            
            3,594
            
            
            3,549Mortgage
                and other debt
            
            
            2,685
            
            
            6,059Deferred
                compensation payable
            
            
            -
            
            
            120Total
                current liabilities
            
            
            9,389
            
            
            12,642Mortgage
                and other debt, net of current portion
            
            
            19,528
            
            
            23,310Total
                liabilities
            
            
            28,917
            
            
            35,952Commitments
                (Note 17)Shareholders'
                equity:Common
                stock: no par value; 200,000 shares authorized; 111,950 and 111,992
                shares
                issued and outstanding at March 31, 2005 and 2004,
                respectively
            
            
            22,238
            
            
            22,279Additional
                paid-in capital
            
            
            13,285
            
            
            13,217Deferred
                compensation
            
            
            (176
            )
            
            (550
            )Retained
                earnings
            
            
            9,537
            
            
            18,812Accumulated
                other comprehensive loss
            
            
            (500
            )
            
            (1,089
            )Total
                shareholders' equity
            
            
            44,384
            
            
            52,669Total
                liabilities and shareholders' equity
            
            $
            73,301
            
            $
            88,621




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


F-4
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Consolidated
                Statements of Operations and Comprehensive
                Loss**
              **(in
                thousands, except per share data)****Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**Net
                sales
            
            $
            24,183
            
            $
            18,658
            
            $
            20,735Cost
                of goods sold
            
            
            17,658
            
            
            18,710
            
            
            24,313Gross
                profit (loss)
            
            
            6,525
            
            
            (52
            )
            
            (3,578
            )Selling,
                general and administrative expenses
            
            
            6,333
            
            
            5,438
            
            
            9,217Research
                and development expenses
            
            
            5,658
            
            
            6,516
            
            
            13,178Loss
                on disposal of fixed assets
            
            
            1,935
            
            
            670
            
            
            930Loss
                on write down of idle fixed assets
            
            
            796
            
            
            -
            
            
            -14,722
            
            
            12,624
            
            
            23,325Loss
                from operations
            
            
            (8,197
            )
            
            (12,676
            )
            
            (26,903
            )Other
                (expense) income:Realized
                gains (losses) on sales of marketable securities
            
            
            22
            
            
            114
            
            
            (616
            )Impairment
                of other long-term investments
            
            
            -
            
            
            (512
            )
            
            -Interest
                expense
            
            
            (1,229
            )
            
            (1,366
            )
            
            (3,445
            )Interest
                income
            
            
            363
            
            
            402
            
            
            468Other
                income, net
            
            
            53
            
            
            29
            
            
            1,131Loss
                before income taxes
            
            
            (8,988
            )
            
            (14,009
            )
            
            (29,365
            )Income
                tax (expense) benefit
            
            
            (287
            )
            
            1,983
            
            
            6,178Net
                loss
            
            $
            (9,275
            )
            $
            (12,026
            )
            $
            (23,187
            )Other
                comprehensive income (loss):Foreign
                currency translation adjustment
            
            
            606
            
            
            999
            
            
            165Unrealized
                holding (losses) gains on marketable securities arising during the
                period,
                net of realized (losses) gains included in net loss
            
            
            (17
            )
            
            (64
            )
            
            183Comprehensive
                loss
            
            $
            (8,686
            )
            $
            (11,091
            )
            $
            (22,839
            )Net
                loss per share - basic and diluted
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.21
            )Average
                shares used in computing net loss per share - basic and
                diluted
            
            
            111,972
            
            
            112,014
            
            
            111,068




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


F-5
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Consolidated
                Statements of Changes in Shareholders’
                Equity**
              **(in
                thousands )**





**Common
                Stock**
            
            **Additional**
            
            **Deferred**
            
            **Retained**
            
            **Accumulated
                Other Comprehensive****Shares**
            
            **Amount**
            
            **Paid-In
                Capital**
            
            **Compensation**
            
            **Earnings**
            
            **Loss**
            
            **Total**Balance,
                March 31, 2002
            
            
            108,842
            
            $
            12,786
            
            $
            13,438
            
            $
            (1,659
            )
            $
            54,025
            
            $
            (2,372
            )
            $
            76,218Issuance
                of common stock pursuant to stock option and stock purchase plans,
                net of
                repurchases
            
            
            462
            
            
            950
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            950Issuance
                of common stock in connection with private placement
            
            
            2,736
            
            
            8,597
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            8,597Reversal
                of deferred compensation due to employee terminations prior to
                vesting
            
            
            -
            
            
            -
            
            
            (239
            )
            
            239
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            450
            
            
            -
            
            
            -
            
            
            450Unrealized
                gains (losses) on securities available for sale, net of realized
                gains
                (losses) included in net income loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            183
            
            
            183Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            165
            
            
            165Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (23,187
            )
            
            -
            
            
            (23,187
            )Balance,
                March 31, 2003
            
            
            112,040
            
            
            22,333
            
            
            13,199
            
            
            (970
            )
            
            30,838
            
            
            (2,024
            )
            
            63,376Repurchases
                of common stock pursuant to stock option and stock purchase
                plans
            
            
            (48
            )
            
            (54
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (54
            )Issuance
                of stock options
            
            
            -
            
            
            -
            
            
            161
            
            
            (154
            )
            
            -
            
            
            -
            
            
            7Reversal
                of deferred compensation due to employee terminations prior to
                vesting
            
            
            -
            
            
            -
            
            
            (143
            )
            
            143
            
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            431
            
            
            -
            
            
            -
            
            
            431Unrealized
                gain (loss) on securities available for sale, net of realized
                gains(losses) included in net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (64
            )
            
            (64
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            999
            
            
            999Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (12,026
            )
            
            -
            
            
            (12,026
            )Balance,
                March 31, 2004
            
            
            111,992
            
            
            22,279
            
            
            13,217
            
            
            (550
            )
            
            18,812
            
            
            (1,089
            )
            
            52,669Repurchases
                of common stock pursuant to stock option and stock purchase
                plans
            
            
            (42
            )
            
            (41
            )
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (41
            )Issuance
                of stock options
            
            
            -
            
            
            -
            
            
            68
            
            
            (68
            )
            
            -
            
            
            -
            
            
            -Amortization
                of deferred compensation
            
            
            -
            
            
            -
            
            
            -
            
            
            442
            
            
            -
            
            
            -
            
            
            442Unrealized
                gain (loss) on securities available for sale, net of realized
                gains(losses) included in net loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (17
            )
            
            (17
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            606
            
            
            606Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (9,275
            )
            
            -
            
            
            (9,275
            )Balance,
                March 31, 2005
            
            
            111,950
            
            $
            22,238
            
            $
            13,285
            
            $
            (176
            )
            $
            9,537
            
            $
            (500
            )
            $
            44,384





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


F-6
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Consolidated
                Statements of Cash
                Flows**
              **(in
                thousands )****Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003****Cash
                flows from operating activities:**Net
                loss
            
            $
            (9,275
            )
            $
            (12,026
            )
            $
            (23,187
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activities:Depreciation
            
            
            8,090
            
            
            9,219
            
            
            10,245Deferred
                incomes taxes
            
            
            -
            
            
            (1,983
            )
            
            9,282Write
                down excess and obsolete inventories
            
            
            1,278
            
            
            1,078
            
            
            4,081Write
                down idle fixed assets
            
            
            796
            
            
            -
            
            
            -Provision
                for bad debt
            
            
            102
            
            
            1
            
            
            (365
            )Loss
                on disposal of fixed assets
            
            
            1,935
            
            
            670
            
            
            930Provision
                for estimated losses due to vacated properties, net of sublease
                income
            
            
            (120
            )
            
            1
            
            
            (80
            )Impairment
                of other long-term investments
            
            
            -
            
            
            512
            
            
            -Realized
                (gain) loss on available-for-sale marketable securities
            
            
            (22
            )
            
            (114
            )
            
            616Interest
                accretion on deferred compensation liability
            
            
            -
            
            
            8
            
            
            1,942Stock
                compensation expense
            
            
            442
            
            
            574
            
            
            450Changes
                in assets and liabilities:Accounts
                receivable
            
            
            (1,051
            )
            
            (954
            )
            
            3,436Inventories
            
            
            (654
            )
            
            (1,602
            )
            
            (1,350
            )Prepaid
                expenses and other current assets
            
            
            290
            
            
            (123
            )
            
            3,591Income
                tax receivable
            
            
            16
            
            
            15,269
            
            
            (6,355
            )Other
                assets
            
            
            22
            
            
            43
            
            
            98Accounts
                payable and accrued liabilities
            
            
            522
            
            
            (417
            )
            
            (3,757
            )Income
                taxes payable
            
            
            -
            
            
            (53
            )
            
            (1,300
            )Deferred
                compensation payable
            
            
            (120
            )
            
            (93
            )
            
            (13,395
            )Net
                cash provided by (used in) operating activities
            
            
            2,251
            
            
            10,010
            
            
            (15,118
            )**Cash
                flows from investing activities:**Purchases
                of marketable securities
            
            
            (14,752
            )
            
            (14,133
            )
            
            (13,174
            )Sales
                of marketable securities
            
            
            20,333
            
            
            4,827
            
            
            15,641Investment
                in joint venture and long-term investment
            
            
            -
            
            
            -
            
            
            (506
            )Sales
                of property, plant and equipment
            
            
            47
            
            
            214
            
            
            645Purchases
                of property and equipment
            
            
            (218
            )
            
            (82
            )
            
            (1,622
            )Net
                cash provided by (used in) investing activities
            
            
            5,410
            
            
            (9,174
            )
            
            984**Cash
                flows from financing activities:**Borrowings
                under mortgages and other debt
            
            
            3,387
            
            
            4,123
            
            
            797Repayment
                of mortgages and other debt
            
            
            (10,600
            )
            
            (7,307
            )
            
            (2,652
            )Proceeds
                from issuance of common stock, net of repurchases
            
            
            (41
            )
            
            (54
            )
            
            9,547Net
                cash provided by (used in) financing activities
            
            
            (7,254
            )
            
            (3,238
            )
            
            7,692Effect
                of exchange rate changes on cash and cash equivalents
            
            
            18
            
            
            4
            
            
            29Net
                change in cash and cash equivalents
            
            
            425
            
            
            (2,398
            )
            
            (6,413
            )Cash
                and cash equivalents, beginning of year
            
            
            1,359
            
            
            3,757
            
            
            10,170Cash
                and cash equivalents, end of year
            
            $
            1,784
            
            $
            1,359
            
            $
            3,757**Supplemental
                disclosures of cash flow information:**Cash
                paid for interest
            
            $
            1,167
            
            $
            1,325
            
            $
            1,561Cash
                paid for income taxes
            
            $
            282
            
            $
            54
            
            $
            817





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




F-7
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial
                Statements**
              **(in
                thousands )**





**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.
      (“DiCon”), is incorporated in California. The Company has a domestic
      manufacturing facility and headquarters in California. The Company, through
      Global Fiberoptics Inc. (“Global”), its wholly owned Taiwanese subsidiary,
      formed in December 1999, also operates a manufacturing and sales facility in
      Kaohsiung, Taiwan, and conducts manufacturing and Asian marketing, and sales
      activities there.





**2.**
            **Summary
                of Significant Accounting
                Policies**





**Principles
      of consolidation**





The
      accompanying consolidated financial statements include the accounts of DiCon
      and
      Global, which is more than 99 percent owned and controlled by DiCon. 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. 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
      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.


F-8
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





**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.





**Other
      long-term investments**





Long-term
      investments are accounted for at historical cost and are subject to a periodic
      impairment review; however, for non-marketable equity securities classified
      under the other long-term investments of the Company, the impairment analysis
      requires significant judgment to identify events or circumstances that would
      likely have a significant adverse effect on the fair value of the investment.
      The indicators the Company uses to identify those events and circumstances
      include the investment’s revenue and earnings trends relative to predefined
      milestones and overall business prospects; the technological feasibility of
      the
      investment’s products and technologies; the general market conditions in the
      investment’s industry; and the investment’s liquidity, debt ratios and the rate
      at which the investment is using cash. Investments identified as having an
      indicator of impairment are subject to further analysis to determine if the
      investment is other than temporarily impaired, in which case the investment
      is
      written down to its impaired value. When an investment is not considered viable
      from a financial or technological point of view, the entire investment is
      written down, since the estimated fair market value is considered to be nominal.
      Impairment of non-marketable equity securities is recorded in impairment of
      other long-term investments in the consolidated statements of operations and
      comprehensive loss.





**Concentration
      of credit risk**





Financial
      instruments that potentially subject the Company to concentrations of credit
      risk comprise cash and cash equivalents, marketable securities and trade
      accounts receivable. Cash and cash equivalents, primarily composed of
      investments in money market funds, are maintained with high quality financial
      institutions and the composition and maturities are regularly monitored by
      management. The Company’s cash and cash equivalents are maintained at multiple
      financial institutions.





Despite
      the fact that the Company had over 200 customers in the year ended
      March 31, 2005, 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, 2005, 2004 and 2003, the Company experienced
      the
      following concentrations associated with sales and accounts
      receivable:





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**Percentage
                of revenue for 3 largest customers
            44.1%
            
            45.7%
            
            33.4%No.
                of customers accounting for over 10% of net sales
            3
            
            2
            
            1No.
                of customers accounting for more than 10% of accounts receivables
                balance
            4
            
            3
            
            2




F-9
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





**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 and accrued
      liabilities, mortgage and other debt approximate fair value because of their
      short maturities and/or variable interest rates. Marketable securities are
      reported at their fair market value based on quoted market prices.





**Inventories**





Inventories
      are valued at the lower of cost or market using the first-in, first-out (FIFO)
      method. Cost is determined using standard cost, which approximates actual cost.
      The inventory of the Company is subject to rapid technological changes and
      obsolescence that could have an adverse affect on its utilization in future
      periods. Accordingly, the Company writes down excess and obsolete inventory
      based on the Company’s estimates of inventory to be sold or
      consumed.





**Property,
      plant and equipment**





Property,
      plant and equipment are recorded at cost. Depreciation is provided using the
      double-declining-balance method for assets acquired prior to March 31, 2000
      and
      the straight-line method for assets acquired thereafter. The estimated useful
      lives of various assets are summarized as follows:





Machinery,
                equipment and fixtures
            5
                to 10 yearsBuilding
                and leasehold improvements
            39
                years or the shorter of the life of the improvement or term of the
                lease





The
      Company evaluates the recoverability of the net carrying value of its property;
      plant and equipment whenever events or changes in circumstances indicate
      impairment may exist, by comparing the carrying values to the estimated future
      undiscounted cash flows. A deficiency in these cash flows relative to the
      carrying 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.





**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 sheets and their respective tax bases. Deferred tax
      assets and liabilities are measured using the enacted tax rates expected to
      apply to taxable income in the years in which those temporary differences are
      expected to 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 17).




F-10
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**




**Research
      and development costs**





Research
      and development expenses consist primarily of salaries and related costs of
      employees engaged in research, design and development activities. The Company
      expenses all research and development related expenses in the period in which
      such expenses are incurred.





**Segment
      information**





The
      Company operates in one segment - the development, manufacturing and marketing
      of fiberoptic components and measurement equipment for the optical
      communications market.





**Derivative
      financial instruments and hedging activities**





Statement
      of Financial Accounting Standards No. 133 ("SFAS No. 133")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, 2005 to customers have been made in U.S. Dollars. Transactions
      between the Company’s Taiwan subsidiary, Global, 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 options in the fiscal year ended March
      31, 2003. Gains or losses on these contracts are recognized as other income
      (expense) and have not been significant. The Company did not use derivatives
      for
      trading purposes for the fiscal years ended March 31, 2005 and
      2004.





**Reclassification**





Certain
      prior year balances have been reclassified to conform to current year
      presentation. These reclassifications had no impact on previously reported
      total
      assets, shareholders’ equity or net loss.





**3.**  **Stock-based
      compensation**





The
      Company accounts for stock-based compensation issued to employees using the
      intrinsic value method of Accounting Principles Board (“APB”) Opinion No. 25,
“Accounting for Stock Issued to Employees,” and, accordingly, presents
      disclosure of pro forma information required under Statement of Financial
      Accounting Standard (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”,
      as amended by SFAS No. 148, “Accounting for Stock-Based Compensation, Transition
      and Disclosure.” Stock and other equity instruments issued to non-employees are
      accounted for in accordance with SFAS No. 123 and Emerging Issues Task Force
      Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other
      Than Employees for Acquiring, or in Conjunction with Selling Goods or Services,”
      and recorded at their fair value. Expenses associated with stock-based
      compensation is amortized on a straight line basis over the vesting period
      of
      the individual award.




F-11
 Table
          of Contents




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





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,****2005**
            
            **2004**
            
            **2003**Expected
                life (in years)
            5
            
            5
            
            4Risk-free
                interest rate
            2.20%-3.74%
            
            0.95%-3.33%
            
            2.0%
                to 4.24%Volatility
            0.00%
            
            0.00%
            
            0.00%Dividend
                yield
            0.00%
            
            0.00%
            
            0.00%Estimated
                weighted average fair value of options at the date of grant
            $
                0.22
            
            $
                0.28
            
            $
                0.51





Had
      compensation cost for the Company's stock option plans been determined based
      on
      the fair value of such awards at the grant dates as prescribed by SFAS No.
      123,
      stock-based compensation costs would have impacted net loss and loss per common
      share for the fiscal years ended March 31, as follows:





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**Net
                loss, as reported
            
            $
            (9,275
            )
            $
            (12,026
            )
            $
            (23,187
            )Add:
                Stock-based employee compensation expense included in reported net
                loss,
                net of tax
            
            
            442
            
            
            481
            
            
            441Deduct:
                Compensation expense based on fair value method, net of
                tax
            
            
            (536
            )
            
            (1,174
            )
            
            (1,313
            )Pro
                forma net loss
            
            $
            (9,369
            )
            $
            (12,719
            )
            $
            (24,059
            )Loss
                per share:Basic
                and diluted - as reported
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.21
            )Basic
                and diluted - pro forma
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.22
            )Weighted
                average shares outstanding:Basic
                and diluted
            
            
            111,972
            
            
            112,014
            
            
            111,068




No
      tax
      effects were included in the determination of pro forma net loss because the
      deferred tax asset resulting from stock-based employee compensation would be
      offset by an additional valuation allowance for deferred tax assets.


F-12
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





**4.**  **Recent
      accounting pronouncements**





In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement
      of Financial Accounting Standards No. 154 ("SFAS No.154") ,
      “Accounting Changes and Error Corrections.” This statement replaces APB 20
      and SFAS 3 and changes the requirements for the accounting for and
      reporting of a change in accounting principle. APB 20 previously required
      that most voluntary changes in accounting principle be recognized by including
      in net income of the period of the change the cumulative effect of changing
      to
      the new accounting principle. SFAS No.154 requires retrospective
      application to prior periods’ financial statements of changes in accounting
      principle. Adoption of this statement is not expected to have a material impact on
      its
      financial position and results of operations.





In
      December 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      123(R) ("SFAS No. 123(R)"), "Accounting for Stock-Based Compensation". SFAS
      No.
      123(R) establishes standards for the accounting for transactions in which an
      entity exchanges its equity instruments for goods or services. This Statement
      focuses primarily on accounting for transactions in which an entity obtains
      employee services in share-based payment transactions. SFAS No. 123(R) requires
      that the fair value of such equity instruments be recognized as expense in
      the
      historical financial statements as services are performed. Prior to SFAS No.
      123(R), only certain pro-forma disclosures of fair value were required. SFAS
      No.
      123(R) shall be effective for nonpublic companies and small business issuers as
      of the
      beginning of the first annual reporting period that begins after December 15,
      2005 . The
      Company has historically provided pro forma disclosures reflecting the effects
      of such compensation costs on its results of operations and financial condition.
      See Note 3, Stock-Based Compensation. The Company is still evaluating the impact
      of the adoption of this standard.





In
      November 2004, the FASB issued Statement of Financial Accounting Standards
      No.
      151 ("SFAS No. 151"), Inventory Costs, an amendment of ARB No. 43, Chapter
      4.
      The amendments made by SFAS No. 151 will improve financial reporting by
      clarifying those abnormal amounts of idle facility expense, freight, handling
      costs, and wasted materials (spoilage) that should be recognized as
      current-period charges and by requiring the allocation of fixed production
      overheads to inventory based on the normal capacity of the production
      facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal
      years beginning after June 15, 2005. Earlier application is permitted for
      inventory costs incurred during fiscal years beginning after November 24, 2004.
      The Company is currently evaluating the impact of adoption of SFAS No. 151
      on
      its financial position and results of operations.





**5.**  **Net
      loss per share**





Basic
      net
      loss per share is computed by dividing the net loss (numerator) by the weighted
      average number of common shares outstanding (denominator) during the periods,
      excluding the dilutive effect of stock options. Diluted net loss per share
      gives
      effect to all potentially dilutive common stock equivalents outstanding during
      the period. In computing diluted net loss per share, the average stock price
      for
      the period is used in determining the number of shares assumed to be purchased
      from the proceeds of stock option exercises.





The
      following is a reconciliation of the numerators and denominators of the basic
      and diluted net loss per share computations for the periods presented
      below:




F-13
 Table
          of Contents




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








**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**Numerator:Net
                loss
            
            $
            (9,275
            )
            $
            (12,026
            )
            $
            (23,187
            )Denominator:Basic
                and diluted weighted average shares
            
            
            111,972
            
            
            112,014
            
            
            111,068Net
                loss per share:Basic
                and diluted
            
            $
            (0.08
            )
            $
            (0.11
            )
            $
            (0.21
            )





As
      a
      result of the losses incurred by the Company for the years ended March 31,
      2005,
      2004 and 2003, weighted average options to purchase 4,583, 4,841 and 8,228
      shares of common stock were anti-dilutive and excluded from the net loss per
      share calculations, respectively. .




**6.**  **Liquidity**





As
      of
      March 31, 2005, the Company had cash and cash equivalents of $1.8 million.
      In
      addition, in conformity with the requirements of generally accepted accounting
      principles, $14.7 million was invested in certificates of deposit and other
      marketable securities that were classified as marketable securities. The Company
      invests cash in excess of short-term needs in these investments to attempt
      to
      improve yields on its total investment portfolio.





The
      Company believes its current cash and cash equivalents and marketable securities
      will be sufficient to meet its anticipated cash needs for working capital and
      capital expenditures for at least the next 12 months. There remains some
      possibility that DiCon may need to raise additional capital. For instance,
      it
      might need additional capital in order to refinance its loans, finance
      unanticipated growth or to invest in new technology. There can be no certainty
      that the Company would be successful in raising the required capital or in
      raising capital at acceptable rates.





**7.**  **Marketable
      Securities**





The
      value
      of the Company’s investments by major security type is as follows:





**Unrealized**
            
            **Unrealized**
            
            **Aggregate
                Fair****Cost**
            
            **Gains**
            
            **Losses**
            
            **Value****March
                31, 2005**Certificate
                of Deposit
            
            $
            14,677
            
            $
            -
            
            $
            -
            
            $
            14,677**March
                31, 2004**Foreign
                Mutual Fund
            
            $
            833
            
            $
            17
            
            $
            -
            
            $
            850Certificate
                of Deposit
            
            
            19,400
            
            
            -
            
            
            -
            
            
            19,400Total
            
            $
            20,233
            
            $
            17
            
            $
            -
            
            $
            20,250





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


F-14
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





**8.**
            **Inventories**





Inventories
      consist of the following as of March 31, 2005 and 2004 :





**March
                31,**
            
            **March
                31,****2005**
            
            **2004**Raw
                materials
            
            $
            1,177
            
            $
            1,813Work-in-process
            
            
            2,821
            
            
            2,693Total
            
            $
            3,998
            
            $
            4,506





During
      the fiscal year ended March 31, 2005, the Company wrote off approximately $1.3
      million of obsolete inventory. During the fiscal year ended March 31, 2004,
      the
      Company wrote off approximately $1.1 million of obsolete inventory and wrote
      down to fair value an additional $1.1 million of inventory.





**9.
      Investments in non-marketable equity securities**





Global
      has invested $0.5 million for a 5.45% minority interest in a private company
      in
      Taiwan engaged in the optical coating business. This investment is held for
      investment purposes and is accounted for on the cost basis of accounting. The
      investment value has been fully impaired as of March 31, 2004.





**10.**  **Property,
      Plant and Equipment, net**





Property,
      plant and equipment consist of the following as of March 31, 2004 and
      2003:





**March
                31,**
            
            **March
                31,****2005**
            
            **2004**Land
            
            $
            10,000
            
            $
            10,000Building
                and leasehold improvements
            
            
            36,281
            
            
            37,764Machinery,
                equipment and fixtures
            
            
            41,571
            
            
            47,993Property,
                plant and equipment
            
            
            87,853
            
            
            95,757Less:
                Accumulated depreciation
            
            
            (39,388
            )
            
            (37,007
            )Property,
                plant and equipment, net
            
            $
            48,465
            
            $
            58,750





Depreciation
      expense was $8,090, $9,219 and $10,245 for the years ended March 31, 2005,
      2004
      and 2003.





During
      the year ended March 31, 2005, the Company consolidated its research &
      development (“R&D”) projects to better align its business needs with
      existing operations and to provide more efficient use of its facilities. As
      a
      result, certain R&D projects were discontinued and it was
      determined that related support equipment had no alternative use within
      the
      Company. Accordingly the equipment was either abandoned or scrapped. The loss
      on
      the disposal of fixed assets was $1,935 for the year ended March 31, 2005,
      as
      compared to $670 and $930for the year ended March 31, 2004 and 2003,
      respectively. In addition the Company wrote off excess and idle equipment with
      a
      net book value of $796 in the year ended March 31, 2005.




F-15
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





**11.**
            **Accounts
                Payable and Accrued
                Liabilities**





Accounts
      payable and accrued liabilities consist of the following as of March 31,
      2005 and 2004:





**March
                31,**
            
            **March
                31,****2005**
            
            **2004**Accounts
                payable
            
            $
            1,186
            
            $
            1,053Accrued
                payroll
            
            
            723
            
            
            900Accrual
                for vacated properties (see Note 17)
            
            
            -
            
            
            250Temporary
                receipts
            
            
            510
            
            
            11Accrued
                liabilities
            
            
            691
            
            
            700$
            3,110
            
            $
            2,914





**12.**  **Mortgage
      and Other Debt**





The
      Company financed, in part, a new corporate campus by obtaining a construction
      loan from a bank of $27.0 million on August 24, 2000. In November 2001,
      the
      same bank refinanced the outstanding balance of the construction loan with
      a
      mortgage loan maturing on November 20, 2004, with an amortization schedule
      based
      on a 25-year loan. Interest on the mortgage loan is accrued at a variable
      interest rate based on changes in the lender’s prime rate as of the
      20 th of each
      month. Principal and interest are payable monthly. During the year ended March
      31, 2002, the Chairman, President and Chief Executive Officer of the institution
      with which the Company maintains the mortgage loan was appointed to the
      Company’s Board of Directors.





On
      June
      28, 2004, the bank agreed to extend the maturity date of the mortgage loan
      to
      October 20, 2007, subject to additional terms and conditions requiring the
      Company to make additional principal repayments as follows: $1.5 million 10
      days
      after the date of execution of the loan extension agreement; $1.0 million on
      October 1, 2004; and seven installments each in the amount of $0.5 million
      on
      the first day of each calendar quarter, commencing on January 1, 2005 and ending
      on July 1, 2006.





The
      Company was in compliance with the additional principal repayments requirement
      as of March 31, 2005. In addition, the Company voluntarily prepaid the third
      $0.5 million equal installment to be due on July 1, 2005 during the year ended
      March 31, 2005. Annual
      rates of interest on the borrowings ranged from 4.0% to 5.5% during the year. The
      balance of the mortgage loan as of March 31, 2005 was $20.9 million with an
      interest rate of 5.5%. Subsequent to March 31, 2005, the Company voluntarily
      prepaid four additional $0.5 million equal installments that were originally
      due
      on October 1, 2005, January 1, 2006, April 1, 2006 and July 1, 2006 (see
      subsequent event on Note 18).





In
      April
      2001, the Company obtained an equipment loan from a bank in the amount of $7.3
      million. The loan was secured by specific pieces of equipment. The loan was
      voluntarily prepaid in full on October 12, 2004.





Global
      maintains a line of credit in Taiwan backed by commercial paper issued by Global
      for a maximum of 50 million New Taiwan Dollars (or approximately $1.6 million
      as
      of March 31, 2005). The interest rate is based on a rate set by the bank at
      the
      time funds are drawn. The line of credit will mature on April 7, 2006. The
      outstanding balance of any commercial paper under this line of credit must
      be
      fully collateralized by either a cash deposit or bond fund certificate. As
      of
      March 31, 2005, there was no commercial paper outstanding.





Global
      maintains its second line of credit of 80 million New Taiwan Dollars
      (or  approximately
      $2.5 million as of March 31, 2005) from a Taiwan bank. The line of credit will
      mature on September 30, 2005. The interest rate is based on a rate set by the
      bank at the time funds are drawn. Annual
      rates of interest on the borrowings ranged from 3.25% to 3.35% during the year. The
      amount drawn as of March 31, 2005 was 41.0 million New Taiwan Dollars (or
      approximately $1.3 million as of March 31, 2005) with an interest rate of
      3.35%.




F-16
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**




The
      maturities of mortgage and other debt outstanding as of March 31, 2005 are
      summarized as follows:





**Year
                Ending March 31,**
            
            **Line
                of Credit**
            
            **Mortgage
                Loan**
            
            **Total**2006
            
            $
            1,300
            
            $
            1,385
            
            $
            2,6852007
            
            
            -
            
            
            1,494
            
            
            1,4942008
            
            
            -
            
            
            18,034
            
            
            18,034Total
            
            $
            1,300
            
            $
            20,913
            
            $
            22,213




**13.**  **Stock
      Plans and Deferred Compensation Liability**





As
      an
      incentive for employees to assist in growing the Company, prior to March 31,
      2001 the Company maintained a phantom stock plan (the “Phantom Stock Plan”)
      under which it granted eligible employees phantom stock units that entitled
      the
      employees to participate in the current and future value of the Company. In
      addition, the Company made contingent commitments to eligible employees to
      grant
      stock units in the future (the “Contingently Promised Stock Units”). The shares
      under the plan were valued semiannually, typically in May and December. These
      stock units vested 50 percent upon receipt and 50 percent on the first
      anniversary of the grant date and had an exercise price of zero. During the
      service period of one-year following the date of the grant, the vested units
      could be redeemed for cash on a net basis by forfeiting additional units equal
      to the number of units redeemed. Thereafter, a maximum of 60 percent of the
      units could be redeemed while the holder was still an employee of the Company.
      The Company recorded a liability for the value of the unredeemed vested shares
      at the current value as of the financial statement date.





On
      March
      31, 2001, the Company offered its employees two new equity incentive plans,
      an
      Employee Stock Option Plan (the “Option Plan”) and an Employee Stock Purchase
      Plan (the “Purchase Plan”). Grants under the Phantom Stock Plan have been
      discontinued. Under both the Option Plan and the Purchase Plan, the exercise
      or
      purchase price is not to be less than 85 percent of the fair value of Company’s
      common stock at the time of grant under the Option Plan or purchase under the
      Purchase Plan. New options granted under the Option Plan generally vest over
      five years and expire after ten years.





Under
      the
      terms of the Option Plan, employees who were participants in the Phantom Stock
      Plan could convert their awarded phantom stock units and their Contingently
      Promised Stock Units into (1) options with an exercise price of $4.11 per share
      and cash payments of $4.11 per share (paid over four years); (2) additional
      options with an exercise price of $4.11 per share; 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 were vested 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.


F-17
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





Cash
      payments related to the conversion were payables in four annual installments
      beginning on March 31, 2002. As of March 31, 2001, the Company
      anticipated making four annual payments of $5,930 each commencing March 31,
      2002 for those employees whom elected to receive a cash payout in lieu of
      additional options. The present value of the cash payments related to the
      conversion of vested phantom stock units of $15,131 was recorded as a liability
      as of March 31, 2001. The cash payments related to the conversion of
      the
      Contingently Promised Units were subject to continuing employment and,
      accordingly, the related expense and liability were accrued as earned by the
      employees. The first annual installment of $5,812 to those employees electing
      to
      receive cash in lieu of additional options was paid on March 28, 2002.





As
      of
      December 31, 2002, the total remaining undiscounted future payments related
      to
      the conversion of the Company’s Phantom Stock Plan to its Option Plan totaled
      $7,645, payable in three equal annual installments beginning March 31, 2003.
      In
      order to reduce this liability, the Company offered the participants an
      opportunity to receive an early payment in January 2003. As a result, under
      the
      terms of the early payment program, the Company paid $1,979 on January 10,
      2003
      and reduced the future liability for Contingently Promised Units by $2,058.





The
      second, third and final annual installments of $416, $347 and $197 to those
      employees who elected to receive cash in lieu of additional options but did
      not
      elect the early payment program were paid on March 31, 2003, 2004 and
      2005.





The
      Purchase Plan was available to all eligible employees who meet certain service
      requirements. Effective April 1, 2001 employees participating in the Purchase
      Plan could elect to deduct up to 10 percent of gross pay to purchase stock
      in
      the Company. Stock transactions pursuant to the Purchase Plan occurred
      semiannually on December 31 and March 31. The Company could sell up
      to
      3,230 shares of stock under the Purchase Plan. Employees purchased 70 shares
      at
      a price of $3.85 per share on December 31, 2001 and 174 shares at a price of
      $2.10 on March 31, 2002. In May 2002, the Company issued 659 additional shares
      of common stock to employees under the Purchase Plan for aggregate cash
      consideration of $1,384 at a price of $2.10. In September 2002, the Company
      suspended the sale of shares to employees under the Purchase Plan.





Under
      both the Option Plan and the Purchase Plan, the exercise or purchase price
      is
      not less than 85 percent of the stock’s fair value, based on the valuation as
      determined by the Company. Under this valuation methodology, the value of the
      shares at March 31, 2005, 2004 and 2003 was $0.96, $0.96 and $1.21 per
      share.





The
      Company has accounted for the equity incentive plans under APB No. 25. As a
      result of the Phantom Stock Plan Conversion, the amount of accrued compensation
      that was not payable in cash was reclassified as additional paid-in capital
      as
      of March 31, 2001. Deferred compensation is being amortized on a straight-line
      basis over four years for the intrinsic value of stock options associated with
      the conversion of the Contingently Promised Units and over the vesting period
      for in-the-money option grants subsequent to March 31, 2001.





Compensation
      expense, including the Company’s stock compensation plans has been reflected in
      the below referenced line items of the consolidated statement of operations
      and
      comprehensive loss for the years ended March 31, 2005, 2004 and 2003
      as
      follows:





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**Cost
                of goods sold
            
            $
            44
            
            $
            79
            
            $
            157Selling,
                general and administrative expenses
            
            
            152
            
            
            275
            
            
            957Research
                and development expenses
            
            
            323
            
            
            577
            
            
            314$
            519
            
            $
            931
            
            $
            1,428




F-18
 Table
          of Contents




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





Information
      with respect to the Option Plan activity for the years ended March 31, 2005,
      2004 and 2003 is set forth below:





**Outstanding
                Options****Shares
                Available for Grant**
            
            **Number
                of Options**
            
            **Weighted
                Average Exercise Price Per Share**Balance
                at March 31, 2002
            
            
            1,355
            
            
            10,485
            
            $
            4.01Options
                granted
            
            
            (445
            )
            
            445
            
            
            2.37Options
                exercised
            
            
            1
            
            
            (1
            )
            
            4.11Options
                expired
            
            
            6,158
            
            
            (6,158
            )
            
            4.05Balance
                at March 31, 2003
            
            
            7,069
            
            
            4,771
            
            
            3.80Options
                granted
            
            
            (1,024
            )
            
            1,024
            
            
            0.93Options
                expired
            
            
            588
            
            
            (588
            )
            
            3.61Balance
                at March 31, 2004
            
            
            6,633
            
            
            5,207
            
            
            3.26Options
                granted
            
            
            (171
            )
            
            171
            
            
            0.83Options
                expired
            
            
            1,046
            
            
            (1,046
            )
            
            2.19Balance
                at March 31, 2005
            
            
            7,507
            
            
            4,332
            
            $
            3.43





As
      of
      March 31, 2005, the options outstanding and exercisable under the Option Plan
      are presented below:





**Options
                Outstanding****Exercise
                Price Per Share**
            
            **Number
                of Shares**
            
            **Weighted
                Average Exercise Price Per Share**
            
            **Weighted
                Average Remaining Contractual Life (in Year)**
            
            **Weighted
                Average Exercise Price Per Share**
            
            **Options
                Vested and Exercisable**$
                0.82
            
            
            526
            
            $
            0.82
            
            
            8.83
            
            $
            0.82
            
            
            186$
                0.96
            
            
            10
            
            
            0.96
            
            
            9.50
            
            
            0.96
            
            
            8$
                1.03
            
            
            39
            
            
            1.03
            
            
            8.46
            
            
            1.03
            
            
            39$
                1.21
            
            
            10
            
            
            1.21
            
            
            8.78
            
            
            1.21
            
            
            10$
                2.10
            
            
            193
            
            
            2.10
            
            
            6.98
            
            
            2.10
            
            
            131$
                2.47
            
            
            249
            
            
            2.47
            
            
            6.80
            
            
            2.47
            
            
            205$
                2.72
            
            
            160
            
            
            2.72
            
            
            7.12
            
            
            2.72
            
            
            96$
                3.85
            
            
            130
            
            
            3.85
            
            
            6.22
            
            
            3.85
            
            
            106$
                4.11
            
            
            3,015
            
            
            4.11
            
            
            6.00
            
            
            4.11
            
            
            28874,332
            
            $
            3.43
            
            
            6.52
            
            $
            3.69
            
            
            3,668


F-19
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**




**14.**  **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. DiCon at its option may make additional contributions to
      employee accounts. DiCon’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, 2004 and 2003, DiCon elected to match 50 percent
      of
      the first 6 percent of employee contributions. Payments of $125 and
      $143
      were made for calendar year 2004 and 2003, respectively. An accrual has been
      made for this expense for the three months ending March 31, 2005 in the amount
      of $57.





Global
      has a non-contributory and funded defined benefit retirement plan covering
      all
      full-time employees. Under the plan, the Company contributes monthly to an
      independent retirement fund based on a fixed contribution rate of the employees’
      monthly salary in compliance with Taiwan Labor Standards Law. The current
      contribution rate is 5%. The pension expense for the years ended March 31,
      2005,
      2004 and 2003 was 2.8 million New Taiwan Dollars (or approximately $86 as of
      March 31, 2005), 2.4 million New Taiwan Dollars (or approximately $71 as of
      March 31, 2004), and 2.9 million New Taiwan Dollars (or approximately $83 as
      of
      March 31, 2003, respectively.





**15.**
            **Income
                taxes**





The
      (expenses) benefit for income taxes for the years ended March 31, 2005, 2004,
      and 2003 consists of the following:





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003****Current:**Federal
            
            $
            (281
            )
            $
            0
            
            $
            15,484State
            
            
            (1
            )
            
            (1
            )
            
            3Foreign
            
            
            (5
            )
            
            (7
            )
            
            (27
            )(287
            )
            
            (8
            )
            
            15,460**Deferred:**Federal
            
            
            0
            
            
            1,713
            
            
            (5,332
            )State
            
            
            0
            
            
            573
            
            
            (4,104
            )Foreign
            
            
            0
            
            
            (295
            )
            
            1540
            
            
            1,991
            
            
            (9,282
            )$
            (287
            )
            $
            1,983
            
            $
            6,178





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, 2005, 2004 and 2003. Management
      regularly evaluates the recoverability of the deferred tax asset and the level
      of the valuation allowance. At such time as it is determined that it is more
      likely than not that the deferred tax asset will be realizable, the valuation
      allowance will be reduced.





During
      the fiscal year ended March 31, 2005, the Company’s federal income tax returns
      for fiscal years ended in 2000 to 2003 have been examined by the Internal
      Revenue Service. As a result of this review, certain tax credits previously
      claimed were considered to be excessive and therefore additional tax assessment
      was required. In the fiscal year ended March 31, 2005, the Company paid $281
      for
      the tax assessments that may result. As of March 31, 2005, the Company's
      estimated related interest payment of $45 was included in accounts payable
      and
      accrued liabilities in the consolidated balance sheets. The Company believes
      that adequate amounts have been provided for any final tax assessment that
      may
      result.




F-20
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





During
      the fiscal year ended March 31, 2003, the Company had sufficient income for
      federal income tax purposes in prior years to carryback the anticipated losses
      from that year and to receive $15.2 million of federal income tax
      refunds.





The
      Company’s loss before income taxes consisted of the following for the years
      ended March 31:





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**United
                States
            
            $
            (6,688
            )
            $
            (10,670
            )
            $
            (28,363
            )Foreign
            
            
            (2,300
            )
            
            (3,339
            )
            
            (1,002
            )Total
                loss before income tax benefit
            
            $
            (8,988
            )
            $
            (14,009
            )
            $
            (29,365
            )





The
      Company was granted a five-year tax holiday in Taiwan, which will expire in
      2006. There was no net impact of this tax holiday for the years ended March
      31,
      2005, 2004 and 2003.





The
      Company’s investment in its Taiwan subsidiary is essentially permanent in
      duration and undistributed foreign earnings on March 31, 2005 amounted to $5.1
      million. In accordance with the Taiwan Company Law and Global’s Articles of
      Incorporation, 10% of annual earnings shall be appropriated as legal reserve
      until the accumulated reserve equals the total capital of Global.





There
      is
      no plan to distribute these earnings to DiCon. If at some future date all or
      portions of these foreign earnings are distributed as dividends to DiCon,
      substantial additional taxes would be due. On October 22, 2004, the
      American Jobs Creation Act of 2004 (the “Act”) was signed into law. The Act
      creates a temporary incentive for U.S. companies to repatriate accumulated
      foreign earnings by providing a one-time deduction of 85% for certain dividends
      from controlled foreign corporations. The deduction is subject to certain
      limitations and numerous provisions of the Act contain uncertainties that
      require interpretation and evaluation. The Company has not accrued income taxes
      on the accumulated undistributed earnings of the Company’s Taiwan subsidiary, as
      these earnings are currently expected to be reinvested
      indefinitely.





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, 2005 and 2004 are as follows:





**March
                31, 2005:**
            
            **United
                States**
            
            **Taiwan**
            
            **Total****Deferred
                tax assets (liabilities):**Net
                operating loss carryforwards
            
            $
            7,852
            
            $
            944
            
            $
            8,796Tax
                credits carryforwards
            
            
            3,052
            
            
            567
            
            
            3,619Other
            
            
            662
            
            
            816
            
            
            1,478Gross
                deferred assets
            
            
            11,566
            
            
            2,327
            
            
            13,893Valuation
                allowance
            
            
            (10,027
            )
            
            (2,327
            )
            
            (12,354
            )**Deferred
                tax assets**
            
            
            1,539
            
            
            -
            
            
            1,539Property
                and equipment
            
            
            (1,539
            )
            
            -
            
            
            (1,539
            )**Deferred
                tax liabilities**
            
            
            (1,539
            )
            
            -
            
            
            (1,539
            )**Net
                deferred income tax assets (liabilities)**
            
            $
            -
            
            $
            -
            
            $
            -




F-21
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**








**March
                31, 2004:**
            
            **United
                States**
            
            **Taiwan**
            
            **Total****Deferred
                tax assets (liabilities):**Deferred
                compensation
            
            $
            53
            
            $
            -
            
            $
            53Net
                operating loss carryforwards
            
            
            6,509
            
            
            1,060
            
            
            7,569Tax
                credits carryforwards
            
            
            3,053
            
            
            408
            
            
            3,461Other
            
            
            581
            
            
            278
            
            
            859Gross
                deferred assets
            
            
            10,196
            
            
            1,746
            
            
            11,942Valuation
                allowance
            
            
            (7,768
            )
            
            (1,746
            )
            
            (9,514
            )**Deferred
                tax assets**
            
            
            2,428
            
            
            0
            
            
            2,428Property
                and equipment
            
            
            (2,428
            )
            
            -
            
            
            (2,428
            )**Deferred
                tax liabilities**
            
            
            (2,428
            )
            
            -
            
            
            (2,428
            )**Net
                deferred income tax assets (liabilities)**
            
            $
            -
            
            $
            -
            
            $
            -





As
      of
      March 31, 2005, the Company had federal and state net operating loss
      carryforwards of approximately $11.8 million and $42.0 million, respectively,
      and federal and state tax credit carryforwards of approximately $0.8 million
      and
      $2.2 million, respectively. The net operating loss will expire at various dates
      beginning in 2013, if not utilized. The tax credit can be carried forward
      indefinitely. The Company also has foreign net operating loss carry-forward
      of
      119.0 million New Taiwan Dollars (or approximately $3.8 million as of March
      31,
      2005), which expire beginning in the year 2008.





**16.
      Geographic and Product Information**





The
      breakdown of sales by geographic customer destination is as
      follows:





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**United
                States
            
            $
            11,240
            
            $
            7,583
            
            $
            13,671International
            
            
            12,943
            
            
            11,075
            
            
            7,064Total
            
            $
            24,183
            
            $
            18,658
            
            $
            20,735





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,****2005**
            
            **2004**United
                States
            
            $
            40,525
            
            $
            47,865Taiwan
            
            
            7,981
            
            
            10,949Total
            
            $
            48,506
            
            $
            58,814




F-22
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





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





**Years
                Ended March 31,****2005**
            
            **2004**
            
            **2003**WDM
            54%
            
            56%
            
            50%Switch
            46%
            
            44%
            
            50%





**17.**
            **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. Should the Company’s accrual experience
      relative to these factors differ from estimates, the Company may be required
      to
      record additional warranty reserves. Alternatively, if the Company provides
      more
      reserves than needed, the Company may reverse a portion of such provision in
      future periods.





Changes
      in the Company’s warranty accrual, which is included as a component of accounts
      payable and accrued liabilities on the consolidated balance sheets, are as
      follows:


**Fiscal
                Year****2005**
            
            **2004**Balance
                at beginning of period
            
            $
            16
            
            $
            56Accruals
                for warranties during the period
            
            
            124
            
            
            74Settlements
                made (in cash) during the period
            
            
            (115
            )
            
            (114
            )Balance
                at closing of period
            
            $
            25
            
            $
            16





The
      Company moved to its new facilities in Richmond, California during the 2001
      fiscal year. Accordingly, certain of the leased properties , primarily
      in the U.S.,  were
      no
      longer used for operating purposes and were available for sublease. The Company
      estimated the cost of exiting and terminating the facility leases based on
      the
      contractual terms of the agreements and real estate market conditions. The
      mutual settlement agreement and release for  the
      last
      non-cancelable operating lease was executed on November 23, 2004, and the amount
      in excess of the estimate of the remaining costs of the lease, net of expected
      sublease income of $0.1 million, was adjusted as of December 31, 2004. Lease
      expense net of sublease income for the year ended March 31, 2005 and 2004 was
      $97 and $82, respectively.





Global
      owns a condominium interest in the building in Kaohsiung, Taiwan. This facility
      is located on a ground lease that extends through 2011. The ground lease may
      be
      renewed indefinitely, and there is no penalty for early cancellation, except
      for
      forfeiture of the owned facility.




As
      of
      March 31, 2005, DiCon’s future gross commitments under all leases are as
      follows:





Fiscal
                Year Ending March 31,
            
            (000’s)2006
            
            $
            212007
            
            
            212008
            
            
            212009
            
            
            212010
            
            
            21Thereafter
            
            
            15$
            120





F-23
 Table
          of Contents




**DiCon
                Fiberoptics, Inc. and Subsidiary**
              **Notes
                to the Consolidated Financial Statements**
              **(in
                thousands )**





Global
      maintains a line of credit in Taiwan backed by commercial paper issued by Global
      for a maximum of 50 million New Taiwan Dollars (or approximately $1.6 million
      as
      of March 31, 2005). The interest rate is based on a rate set by the bank at
      the
      time funds are drawn. The line of credit will mature on April 7, 2006. The
      outstanding balance of any commercial paper under this line of credit must
      be
      fully collateralized by either a cash deposit or bond fund certificate. As
      of
      March 31, 2005, there was no commercial paper outstanding.





Global
      maintains its second line of credit of 80 million New Taiwan Dollars
      (or  approximately
      $2.5 million as of March 31, 2005) from a Taiwan bank. The line of credit will
      mature on September 30, 2005. The interest rate is based on a rate set by the
      bank at the time funds are drawn. The amount drawn as of March 31, 2005 was
      41.0
      million New Taiwan Dollars (or approximately $1.3 million as of March 31, 2005)
      with an interest rate of 3.35%.




**18.**
            **Subsequent
                event**




In
      May
      2005, Lucent Technologies Inc. (“Lucent”) filed an action against the Company in
      the United States District Court for the District of New Jersey. Lucent alleges
      that certain switches purchased by it under a contract with the Company entered
      into in 2000 were defective. The complaint asserts breach of contract and the
      implied duty of good faith and fair dealing by the Company and seeks damages,
      costs, expenses and other sums totaling in excess of $10 million. The Company
      intends to contest the case vigorously.




Subsequent
      to March 31, 2005, the Company voluntarily prepaid four additional $0.5 million
      equal principal repayment installments of the mortgage loan that were originally
      due on October 1, 2005, January 1, 2006, April 1, 2006 and July 1, 2006.


F-24
 Table
          of Contents


**Financial
      Statement Schedule.**





**Valuation
                and Qualifying Accounts**Balance
                at
            
            Charged
                to
            
            Charged
                to
            
            
            
            Balance
                atBeginning
            
            Costs
                and
            
            Other
            
            Deductions/
            
            End
                ofDescription
                (in 000’s)
            
            of
                Period
            
            Expenses
            
            Accounts
            
            Writeoffs
            
            PeriodAllowances
                for doubtful accountsYear
                ended March 31, 2003
            
            $
            634
            
            $
            37
            
            $
            -
            
            $
            (594
            )
            $
            77Year
                ended March 31, 2004
            
            $
            77
            
            $
            1
            
            $
            -
            
            $
            -
            
            $
            78Year
                ended March 31, 2005
            
            $
            78
            
            $
            102
            
            $
            -
            
            $
            -
            
            $
            180Allowances
                for deferred tax assetsYear
                ended March 31, 2003
            
            $
            -
            
            $
            -
            
            $
            6,005
            
            $
            -
            
            $
            6,005Year
                ended March 31, 2004
            
            $
            6,005
            
            $
            -
            
            $
            3,509
            
            $
            -
            
            $
            9,514Year
                ended March 31, 2005
            
            $
            9,514
            
            $
            -
            
            $
            2,840
            
            $
            -
            
            $
            12,354Provision
                for estimated losses due to vacated propertiesYear
                ended March 31, 2003
            
            $
            1,813
            
            $
            512
            
            $
            -
            
            $
            (1,806
            )
            $
            519Year
                ended March 31, 2004
            
            $
            519
            
            $
            -
            
            $
            -
            
            $
            (269
            )
            $
            250Year
                ended March 31, 2005
            
            $
            250
            
            $
            -
            
            $
            -
            
            $
            (250
            )
            $
            -




F-25
 Table
          of Contents


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





There
      is
      no information required to be reported under Item 304(b) of Regulation S-B.





**Item
      8A. Controls and Procedures.**





*(a)*
            *Evaluation
                of Disclosure Controls and Procedures*.
                The undersigned principal executive officer and principal financial
                officer of the Company conclude that the Company’s disclosure controls and
                procedures are effective as of March 31, 2005, based on the evaluation
                of
                these controls and procedures required by paragraph (b) of Exchange
                Act
                Rule 13a-15.





*(b)*
            *Changes
                in Internal Controls*.
                There has been no change in the Company’s internal control over financial
                reporting identified in connection with the evaluation required by
                paragraph (d) of Exchange Act Rule 13a-15 that occurred during the
                fourth
                quarter of the fiscal year ended March 31, 2005, that has materially
                affected, or is reasonably likely to materially affect, the Company’s
                internal control over financial
                reporting.




**Item
      8B. Other Information.**





There
      is
      no information or event required to be reported on Form 8-K during the fourth
      quarter of the fiscal year ended March 31, 2005 that was not so
      reported.


**PART
      III**





**Item
      9. Directors, Executive Officers, Promoters and Control
      Persons; Compliance With Section 16(a) of the Exchange**


**Act.**





**Directors
      and Executive Officers**





DiCon’s
      directors and executive officers as of June 28, 2005, are as
      follows:





Name
            
            Age
            
            PositionHo-Shang
                Lee, Ph.D.
            
            46
            
            President,
                Chief Executive Officer and DirectorGilles
                M. Corcos, Ph.D.
            
            78
            
            Chairman
                of the Board and DirectorChun-Lung
                Lin
            
            46
            
            President
                of Global Fiberoptics Inc. and DirectorAndrew
                F. Mathieson
            
            48
            
            DirectorDunson
                Cheng, Ph.D.
            
            60
            
            DirectorPaul
                Ming-Ching Lo
            
            47
            
            Vice
                President of Manufacturing and OperationsJannett
                Wang
            
            52
            
            Vice
                President of AdministrationAnthony
                T. Miller
            
            63
            
            General
                Counsel and Secretary





*Ho-Shang
      Lee, Ph.D., President, Chief Executive Officer and Director* .
      Dr.
      Ho-Shang Lee has served as DiCon’s President, Chief Executive Officer and a
      member of the Board of Directors since the inception of DiCon in June 1986.
      Dr.
      Lee earned his B.S. in Engineering from National Cheng-Kung University, Taiwan,
      in 1979 and his M.S. and Ph.D. in Mechanical Engineering from the University
      of
      California, Berkeley in 1984 and in 1986, respectively.





*Gilles
      M. Corcos, Ph.D., Chairman of the Board and Director.* Dr.
      Gilles M. Corcos has served as Chairman of the Board and Director since 1986.
      Dr. Corcos has also served as Chief Financial Officer. From 1985 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.


24
 Table
          of Contents




*Chun-Lung
      Lin, President of Global Fiberoptics Inc. and Director.* Chun-Lung
      Lin is the President of Global Fiberoptics Inc., DiCon’s subsidiary in Taiwan.
      Before joining Global in January 2000, Mr. Lin owned and managed Guo Bao
      Construction Co. Ltd. in Taiwan for ten years. Mr. Lin joined DiCon’s Board of
      Directors in June 2000. Mr. Lin earned a B.S. and an M.S. in Engineering from
      National Cheng-Kung University, Taiwan, in 1979 and 1981, respectively. He
      is
      the brother-in-law of Dr. Ho-Shang Lee.





*Andrew
      F. Mathieson, Director.* Andrew
      F.
      Mathieson has served as a member of the Board of Directors since June 2000.
      Mr.
      Mathieson is the President of Fairview Capital Investment Management LLC
      (“Fairview”), a registered investment advisor located in Greenbrae, California.
      Fairview, which was founded by Mr. Mathieson in 1995, manages separate
      portfolios and is the General Partner of a private investment partnership.
      Mr.
      Mathieson earned a B.A. from Yale University in 1978, and an M.B.A. from
      Stanford University in 1984.





*Dunson
      Cheng, Ph.D., Director* .
      Dr.
      Dunson Cheng joined the Board of Directors in February 2002. Dr. Cheng is
      Chairman of the Board, Director, and President and Chief Executive Officer
      of
      Cathay Bank and Cathay General Bancorp. Dr. Cheng earned his B.S. in Applied
      Math and Physics from the University of Wisconsin at Madison, Wisconsin and
      his
      Ph.D. in Physics from the State University of New York at Stony Brook, and
      did
      post-doctorate research at the University of Oregon. Dr. Cheng worked for Xerox
      before joining Cathay Bank. Dr. Cheng was appointed President of Cathay Bank
      in
      1985, President of Cathay Bancorp (predecessor of Cathay General Bancorp) in
      1990 and Chairman of both institutions in 1994.





*Paul
      Ming-Ching Lo, Vice President of Manufacturing and Operations.* Paul
      Ming-Ching Lo joined DiCon in August 1997. Prior to joining DiCon, Mr. Lo was
      President and Chief Engineer of FEAC Technologies, Inc. from 1986 to 1997.
      Mr.
      Lo earned his B.S. in Engineering in 1979 from National Cheng-Kung University,
      Taiwan.





*Jannett
      Wang, Vice President of Administration.* Jannett
      Wang joined DiCon in April 1999. Prior to joining DiCon, Ms. Wang worked for
      several management consulting firms, including Data Resources Inc. (now McGraw
      Hill). Ms. Wang earned a B.S. in Engineering in 1974 from National Taiwan
      University and an M.B.A. in 1980 from Columbia University. Ms. Wang did graduate
      work in economics and city and regional planning at the University of
      Pennsylvania.





*Anthony
      T. Miller, General Counsel and Secretary.* Anthony
      T. Miller joined DiCon in March 2000. Before joining DiCon, Mr. Miller was
      in
      private law practice in San Francisco. Mr. Miller’s prior experience includes
      serving as Vice President-Administration, General Counsel and Secretary of
      American Resource Corporation, and as an Assistant General Counsel of Bank
      of
      America. Mr. Miller earned a B.A. in Political Science from Stanford University
      in 1964 and a J.D. from Hastings College of Law in 1968.





**Audit
      Financial Expert**





The
      Board
      of Directors does not have an audit committee or an audit financial expert
      serving on the Board. The Board does not have an audit financial expert because
      there is no vacancy on the Board, and the incumbent directors have been
      re-elected each year since 2002 and earlier. A larger Board would not be
      appropriate for a company the size of the Company.





**Compliance
      with Section 16(a) of the Exchange Act**





Section
      16(a) of the Securities Exchange Act of 1934 requires the Company’s directors
      and executive officers, and holders of more than 10% of the Company’s common
      stock, to file with the SEC initial reports of ownership and reports of changes
      in ownership of common stock of the Company. Such officers, directors, and
      10%
      stockholders are required by SEC regulation to furnish the Company with copies
      of all Section 16(a) forms they file.





Based
      solely on its review of such forms that it has received, the Company believes
      that, during the fiscal year ended March 31, 2005, all Section 16(a) filing
      requirements were satisfied on a timely basis.


25
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**Code
      of Ethics**





The
      Company has not adopted a code of ethics that applies to its principal executive
      officer, principal financial officer, principal accounting officer or
      controller, or persons performing similar functions, because it has written
      rules on conduct (covering, among other matters, dishonesty and falsifying
      or
      altering Company records), confidential and proprietary information, and
      conflicts of interest, which are applicable to all DiCon employees. These rules
      are contained in various Chapters of the DiCon Employee Handbook. A copy of
      the
      rules can be obtained without charge by sending a request by email to
      hr@diconfiber.com.





**Item
      10. Executive Compensation.**





**Summary
      Compensation Table**





The
      following table sets forth all compensation for the chief executive officer
      and
      the three most highly compensated executive officers other than the chief
      executive officer who were serving at the end of the fiscal year ended March
      31,
      2005. This table shows the compensation earned by these individuals for the
      last
      three fiscal years ended March 31, 2005.





**Annual
                Compensation**
            
            **Long-term
                Compensation****Name
                And Principal Position**
            **Fiscal
                Year Ended March 31**
            
            **Salary
                ($)**
            
            **Securities
                Underlying Options (#)**
            **LTIP**
              **Payouts
                ($)**
              **(1)**
            
            **All
                Other Compensation ($) (2)**Ho-Shang
                Lee, Ph.D.
              President
                and Chief Executive Officer
            2005
            
            $61,200
            
            --
            --
            
            $4,3602004
            
            $57,600
            
            --
            --
            
            $1,7282003
            
            $57,628
            
            --
            --
            
            $1,729Paul
                Ming-Ching Lo
              Vice
                President of Manufacturing and Operations
            2005
            
            $139,188
            
            --
            --
            
            $6,9592004
            
            $128,000
            
            --
            --
            
            $3,2002003
            
            $136,954
            
            --
            $451,933
            
            $3,115Jannett
                Wang
              Vice
                President of Administration
            2005
            
            $130,617
            
            --
            --
            
            --2004
            
            $116,667
            
            --
            --
            
            --2003
            
            $76,859
            
            --
            --
            
            --Anthony
                T. Miller
              General
                Counsel and Secretary
            2005
            
            $152,469
            
            --
            --
            
            --2004
            
            $226,000
            
            --
            --
            
            --2003
            
            $233,015
            
            --
            --
            
            --








(1)
            Effective
                March 31, 2001, DiCon offered a new Employee Stock Option Plan to
                replace
                its Phantom Stock Plan which had been in place since 1999. Under
                the terms
                of the Employee Stock Option Plan, employees who were participants
                in the
                Phantom Stock Plan were allowed to convert their vested phantom stock
                units and their “promised” phantom stock units to cash payments of $4.11
                per share (paid in equal annual installments over four years), additional
                employee stock options, or a combination of both. The amount in this
                column is the cash payment received pursuant to the Company’s offer for an
                early discounted payment to employees who were entitled to future
                cash
                payments in installments under the conversion of the Phantom Stock
                Plan to
                the Employee Stock Option Plan. The first installment of $251,074
                was paid
                on March 28, 2002. The amount of the remaining future promised cash
                payments of $753,221 were reduced by $301,288, resulting in a discounted
                early cash payment of $451,933 on January 10,
                2003.


26
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(2)
            The
                amounts in this column include DiCon’s contributions to the 401(k) plan
                which covers all eligible employees who meet certain service requirements.
                Employees may elect to defer a portion of their gross salary to their
                accounts within the 401(k) plan. DiCon at its option may make additional
                contributions to the employee accounts. For the fiscal years ended
                March
                31, 2005, 2004, and 2003, 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.





**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,
      2005.





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





The
      following table sets forth for each executive listed in the Summary Compensation
      Table the number of options exercised in the fiscal year ended March 31, 2005,
      and the number of shares subject to both exercisable and unexercisable stock
      options as of March 31, 2005. In addition, the table sets forth the value of
      unexercised options as of March 31, 2005.





**Name**
            
            **Shares
                Acquired On Exercise**
              **(#
                of shares)**
            
            **Value
                Realized**
              **($)**
            
            **Number
                Of Shares Underlying Unexercised Options at Fiscal Year-End (# of
                shares)**
            
            **Value
                of Unexercised in-the-money Options at Fiscal Year End
                (1)****Exercisable**
            **Unexercisable**
            
            **Exercisable**
            **Unexercisable**Paul
                Ming-Ching Lo
              Vice
                President of Manufacturing and Operations
            
            **--**
            
            **--**
            
            676,354
            --
            
            **--**
            **--**Jannett
                Wang
              Vice
                President of Administration
            
            **--**
            
            **--**
            
            118,703
            23,873
            
            **--**
            **--**Anthony
                T. Miller
              General
                Counsel and Secretary
            
            **--**
            
            **--**
            
            130,720
            26,080
            
            **--**
            **--**





(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**





Dr.
      Gilles M. Corcos received compensation of $54,400 during the fiscal year ended
      March 31, 2005. None of the other Directors received compensation from the
      Company other than the stock options described below.





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.


27
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The
      exercise price for the options is the fair market value of the shares on the
      date of the grant.





The
      term
      of the options is ten years from the date of the grant.





In
      January 2004, Dunson Cheng voluntarily surrendered past and future stock option
      awards under the Employee Stock Option Plan.





**Item
      11. Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters.**





(a)
            Security
                Ownership of Certain Beneficial
                Owners.





The
      following table sets forth information regarding persons who are known to DiCon
      to be the beneficial owner of more than five percent of DiCon’s common stock as
      of March 31, 2005.





Title
                Of Class
            
            Name
              And
                Address
              Of
                Beneficial Owner
            
            Amount
              And
                Nature Of
              Beneficial
                Ownership
            
            Percent
                Of ClassCommon
            
            Ho-Shang
                Lee, Ph.D.
              1689
                Regatta Blvd.
              Richmond,
                CA 94804
            
            27,867,524
            (1)
            
            24.1%Common
            
            Gilles
                M. Corcos, Ph.D., as Trustee for The Gilles M. Corcos Trust
              1689
                Regatta Blvd.
              Richmond,
                CA 94804
            
            14,626,410
            
            
            12.6%Common
            
            Anne
                Bleecker Corcos, as Trustee for The Anne Bleecker Corcos Revocable
                Trust
              88
                Codornies Road
              Berkeley,
                CA 94708
            
            11,786,000
            
            
            10.2%Common
            
            Mei-Li
                Lee
              1689
                Regatta Blvd.
              Richmond,
                CA 94804
            
            21,287,440
            (2)
            
            18.4%Common
            
            Andrew
                F. Mathieson, as co-Trustee for the Charlotte Bliss Taylor
                Trust
              300
                Drake’s Landing Road, Suite 250
              Greenbrae,
                CA 94904-2498
            
            7,473,500
            (3)
            
            6.5%Common
            
            Samuel
                L. Taylor
              506
                Arlington Ave.
              Berkeley,
                CA 94707
            
            14,522,920
            (4)
            
            12.6%





(1)
            Includes
                913,524 shares issued to employees under the Employee Stock Option
                Plan
                and the Employee Stock Purchase Plan which are subject to voting
                right
                agreements pursuant to which Dr. Lee has sole voting
                rights.





(2)
            Includes
                277,691 shares subject to stock options under the Employee Stock
                Option
                Plan which are exercisable.





(3)
            Includes
                47,500 shares subject to stock options under the Employee Stock Option
                Plan which are exercisable, 7,076,000 shares owned by Mr. Mathieson
                as
                co-Trustee for the Charlotte Bliss Taylor Trust, and 350,000 shares
                owned
                by Darlington Partners, L.P., an investment partnership for which
                Fairview
                Capital Investment Management LLC (“Fairview”) is the general partner. Mr.
                Mathieson is the managing member of
                Fairview.





(4)
            Includes
                7,076,000 shares held by Mr. Taylor as co-Trustee for the Charlotte
                Bliss
                Taylor Trust.


28
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(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,
      2005.





Title
                Of Class
            
            Name
              Of
                Beneficial Owner
            
            Amount
              And
                Nature Of
              Beneficial
                Ownership
            
            Percent
                Of ClassCommon
            
            Ho-Shang
                Lee, Ph.D.
            
            27,867,524
            (1)
            
            24.1%Common
            
            Gilles
                M. Corcos, Ph.D., as Trustee for The Gilles M. Corcos
                Trust
            
            14,626,410
            
            
            12.6%Common
            
            Chung-Lung
                Lin
            
            3,707,885
            (2)
            
            3.2%Common
            
            Andrew
                F. Mathieson, as co-Trustee for the Charlotte Bliss Taylor
                Trust
            
            7,473,500
            (3)
            
            6.5%Common
            
            Dunson
                Cheng
            
            -0-
            (4)
            
            0.00%Common
            
            Paul
                Ming-Ching Lo
            
            744,165
            (5)
            
            0.6%Common
            
            Jannett
                Wang
            
            141,393
            (6)
            
            0.1%Common
            
            Anthony
                T. Miller
            
            163,704
            (7)
            
            0.1%**Total
                for directors and executive officers**
            
            54,724,581
            
            
            47.3%





(1)
            Includes
                913,524 shares issued to employees under the Employee Stock Option
                Plan
                and the Employee Stock Purchase Plan which are subject to voting
                right
                agreements pursuant to which Dr. Lee has sole voting
                rights.





(2)
            Includes
                48,000 shares subject to stock options under the Employee Stock Option
                Plan which are exercisable and 1,180,000 shares held by a company
                owned by
                Mr. Lin.





(3)
            Includes
                47,500 shares subject to stock options under the Employee Stock Option
                Plan which are exercisable, 7,076,000 shares owned by Mr. Mathieson
                as
                co-Trustee for the Charlotte Bliss Taylor Trust, and 350,000 shares
                owned
                by Darlington Partners, L.P., an investment partnership for which
                Fairview
                Capital Investment Management LLC (“Fairview”) is the general partner. Mr.
                Mathieson is the managing member of
                Fairview.





(4)
            In
                January 2004, Dunson Cheng voluntarily surrendered past and future
                stock
                option awards under the Employee Stock Option
                Plan.





(5)
            Includes
                676,354 shares subject to stock options under the Employee Stock
                Option
                Plan which are exercisable.





(6)
            Includes
                138,503 shares subject to stock options under the Employee Stock
                Option
                Plan which are exercisable or exercisable within 60
                days.





(7)
            Includes
                152,320 shares subject to stock options under the Employee Stock
                Option
                Plan which are exercisable or exercisable within 60
                days.





(c)
            Changes
                in Control.





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


29
 Table
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**Item
      12. Certain Relationships and Related
      Transactions.**





Dr.
      Dunson Cheng is Chairman of the Board, Director, President and Chief Executive
      Officer 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 12 to financial statements
      appearing herein). Dr. Cheng became a Director of DiCon in February
      2002.





During
      the fiscal year ended March 31, 2005, DiCon paid Cathay Bank $5,656,404 in
      principal and interest on the mortgage loan. The loan balance at March 31,
      2005,
      was $20,913,460. Subsequent to March 31, 2005, the Company voluntarily prepaid
      four additional $0.5 million equal installments that were due on October 1,
      2005, January 1, 2006, April 1, 2006 and July 1, 2006. DiCon anticipates that
      it
      will refinance the mortgage loan at maturity, but there can be no certainty
      that
      it will be able to do so at that time.





Dr.
      Ho-Shang Lee, President and Chief Executive Officer of DiCon, has personally
      indemnified Cathay Bank against any loss, expense or damage suffered by Cathay
      Bank resulting from Cathay Bank’s reliance upon certain representations and
      warranties provided by DiCon under the mortgage loan. Dr. Lee does not receive
      any fee or other compensation for issuing this indemnity.





The
      bank
      line of credit to Global from a Taiwan bank is personally guaranteed by Dr.
      Lee
      and corporately guaranteed by DiCon. Neither guarantor receives any fee or
      other
      compensation for issuing its guarantee.





The
      line
      of credit to Global backed by commercial paper issued by Global is personally
      guaranteed by Chun-Lung Lin, President of Global. Mr. Lin does not receive
      any
      fee or other compensation for issuing this guarantee.


30
 Table
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**Item
      13. Exhibits.**





Exhibit
                No.
            
            Description3.1
            
            Articles
                of Incorporation of DiCon Fiberoptics, Inc., filed June 2, 1986.
                (a)3.1.1
            
            Certificate
                of Amendment of Articles of Incorporation of DiCon Fiberoptics, Inc.,
                filed November 9, 1988. (a)3.1.2
            
            Certificate
                of Amendment of the Articles of Incorporation of DiCon Fiberoptics,
                Inc.,
                filed April 12, 2000. (a)3.1.3
            
            Certificate
                of Amendment of the Articles of Incorporation of DiCon Fiberoptics,
                Inc.,
                filed January 24, 2001. (a)3.1.4
            
            Certificate
                of Amendment of the Articles of Incorporation of DiCon Fiberoptics,
                Inc.,
                filed June 26, 2002. (a)3.2
            
            By-Laws
                of DiCon Fiberoptics, Inc., as amended dated May 15, 2002.
                (a)4.1
            
            Specimen
                Common Stock Certificate. (a)4.2
            
            Form
                of Buy-Sell Agreement (investors). (a)4.2.1
            
            Form
                of Buy-Sell Agreement (employees). (a)9.1
            
            Form
                of Voting Rights Agreement. (a)10.1
            
            DiCon
                Fiberoptics, Inc. Employee Stock Option Plan. (a)10.2
            
            DiCon
                Fiberoptics, Inc. Employee Stock Purchase Plan. (a)10.3
            
            Term
                Loan Agreement with Cathay Bank dated November 20, 2001, together
                with
                Promissory Note issued thereunder. (a)10.3.1
            
            Indemnity
                from Ho-Shang Lee in favor of Cathay Bank dated November 20, 2001.
                (a)10.3.2
            
            Loan
                Modification and Extension Agreement and Amendment to Promissory
                Note
                dated June 28, 2004, with Cathay Bank. (b)10.3.3
            
            Modification
                of Construction Trust Deed dated June 28, 2004, with Cathay Bank.
                (b)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.
                (c)


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 Table
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21.1
            
            Subsidiaries
                of Registrant. (a)23.1
            
            Consent
                of Burr, Pilger & Mayer
                LLP.23.2
            
            Consent
                of PricewaterhouseCoopers. Kaohsiung,
                Taiwan23.3
            
            Consent
                of PricewaterhouseCoopers
                LLP.31.1
            
            Certificate
                of President and Chief Executive Officer
                pursuant to Section 302 of the Sarbanes - Oxley Act of
                2002.31.2
            
            Certificate
                of Vice President of Administration pursuant
                to Section 302 of the Sarbanes - Oxley Act of 2002.32.1
            
            Certificate
                of President and Chief Executive Officer
                pursuant to Section 906 of the Sarbanes - Oxley Act of
                2002.32.2
            
            Certificate
                of Vice President of Administration pursuant
                to Section 906 of the Sarbanes - Oxley Act of 2002.





(a)
            Incorporated
                by reference from the correspondingly numbered Exhibit to the Form
                10
                Registration Statement filed by registrant with the Securities and
                Exchange Commission on July 23,
                2002.





(b)
            Incorporated
                by reference from the correspondingly numbered Exhibit to the Form
                10-QSB
                Quarterly Report filed by registrant with the Securities and Exchange
                Commission on August 13, 2004.





(c)
            Incorporated
                by reference from the correspondingly numbered Exhibit to the Form
                8-K
                Current Report filed by registrant with the Securities and Exchange
                Commission on August 4, 2004.





**Item
      14. Principal Accountant Fees and
      Services.**





**Audit
      Fees**





The
      aggregate fees billed for each of the last two fiscal years for professional
      services rendered by the principal accountant for the audit of DiCon’s annual
      financial statements and review of financial statements included in DiCon’s Form
      10-QSB quarterly reports and services normally provided by the accountant in
      connection with statutory and regulatory filings or engagements were $124,000
      for the fiscal year ended March 31, 2005 and $155,812 for the fiscal year ended
      March 31, 2004.





**Audit-Related
      Fees**





There
      were no other fees for audit related services for the fiscal year ended March
      31, 2005 or for the fiscal year ended March 31, 2004.





**Tax
      Fees**





The
      aggregate fees billed for the fiscal year ended March 31, 2005 for professional
      services rendered by the principal accountant for tax compliance, tax advice
      and
      tax planning were $6,700. There were $17,500 in fees billed for tax compliance
      for the fiscal year ended March 31, 2004.





**All
      Other Fees**





There
      were no other fees billed in either of the fiscal years ended March 31, 2005
      and
      2004 for products and services provided by the principal accountant, other
      than
      reported above.


32
 Table
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**Policy
      on Board Approval of Accountant Services**





The
      Board
      of Directors does not have an audit committee.





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




33
 Table
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**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report on Form 10-KSB/A-1 to be signed on its behalf by the undersigned,
      thereunto duly authorized.





DICON
                FIBEROPTICS, INC.
              (Registrant)Date:
            July
                11, 2005
            By:
            /s/
                Ho-Shang Lee(Signature)Name:
            Ho-Shang
                Lee, Ph.D.Title:
            President
                and Chief Executive Officer(principal
                executive officer)Date:
            July
                11, 2005
            By:
            /s/
                Jannett Wang(Signature)Name:
            Jannett
                WangTitle:
            Vice
                President of Administration(principal
                financial officer)




34
 Table
          of Contents




**EXHIBIT
      INDEX**





Exhibit
                No.
            
            Description3.1
            
            Articles
                of Incorporation of DiCon Fiberoptics, Inc., filed June 2, 1986.
                (a)3.1.1
            
            Certificate
                of Amendment of Articles of Incorporation of DiCon Fiberoptics, Inc.,
                filed November 9, 1988. (a)3.1.2
            
            Certificate
                of Amendment of the Articles of Incorporation of DiCon Fiberoptics,
                Inc.,
                filed April 12, 2000. (a)3.1.3
            
            Certificate
                of Amendment of the Articles of Incorporation of DiCon Fiberoptics,
                Inc.,
                filed January 24, 2001. (a)3.1.4
            
            Certificate
                of Amendment of the Articles of Incorporation of DiCon Fiberoptics,
                Inc.,
                filed June 26, 2002. (a)3.2
            
            By-Laws
                of DiCon Fiberoptics, Inc., as amended dated May 15, 2002.
                (a)4.1
            
            Specimen
                Common Stock Certificate. (a)4.2
            
            Form
                of Buy-Sell Agreement (investors). (a)4.2.1
            
            Form
                of Buy-Sell Agreement (employees). (a)9.1
            
            Form
                of Voting Rights Agreement. (a)10.1
            
            DiCon
                Fiberoptics, Inc. Employee Stock Option Plan. (a)10.2
            
            DiCon
                Fiberoptics, Inc. Employee Stock Purchase Plan. (a)10.3
            
            Term
                Loan Agreement with Cathay Bank dated November 20, 2001, together
                with
                Promissory Note issued thereunder. (a)10.3.1
            
            Indemnity
                from Ho-Shang Lee in favor of Cathay Bank dated November 20, 2001.
                (a)10.3.2
            
            Loan
                Modification and Extension Agreement and Amendment to Promissory
                Note
                dated June 28, 2004, with Cathay Bank. (b)10.3.3
            
            Modification
                of Construction Trust Deed dated June 28, 2004, with Cathay Bank.
                (b)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)




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 Table
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16.1
            
            Letters
                re Change in Certifying Accountant. (c)21.1
            
            Subsidiaries
                of Registrant. (a)23.1
            
            Consent
                of Burr, Pilger & Mayer
                LLP.23.2
            
            Consent
                of PricewaterhouseCoopers. Kaohsiung,
                Taiwan23.3
            
            Consent
                of PricewaterhouseCoopers
                LLP.31.1
            
            Certificate
                of President and Chief Executive Officer
                pursuant to Section 302 of the Sarbanes - Oxley Act of
                2002.31.2
            
            Certificate
                of Vice President of Administration pursuant
                to Section 302 of the Sarbanes - Oxley Act of 2002.32.1
            
            Certificate
                of President and Chief Executive Officer
                pursuant to Section 906 of the Sarbanes - Oxley Act of
                2002.32.2
            
            Certificate
                of Vice President of Administration pursuant
                to Section 906 of the Sarbanes - Oxley Act of 2002.





(a)  Incorporated
      by reference from the correspondingly numbered Exhibit to the Form 10
      Registration Statement filed by registrant with the Securities and Exchange
      Commission on July 23, 2002.





(b)  Incorporated
      by reference from the correspondingly numbered Exhibit to the Form 10-QSB
      Quarterly Report filed by registrant with the Securities and Exchange Commission
      on August 13, 2004.





(c)  Incorporated
      by reference from the correspondingly numbered Exhibit to the Form 8-K Current
      Report filed by registrant with the Securities and Exchange Commission on August
      4, 2004.




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