**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISISSION**
 **WASHINGTON,
        DC 20549**
 
 **FORM
        10-KSB**
 _________________________
 
 (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
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  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
 
 ____________________________________________________________________________________________________________
 
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 **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**
  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.
  11
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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.
  12
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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.
  13
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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.
  14
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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
              
              
              
              --
              
              --
  15
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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.
  16
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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
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  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 Directorsand 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 Operationsand
                  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
 Table
            of Contents
  **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
                2004
                2003
              
              $
                $
                $
              61,200
                57,600
                57,628
              
              
              --
                --
                --
              
              
              --
                --
                --
              
              $
                $
                $
              4,360
                1,728
                1,729Paul
                  Ming-Ching Lo
                Vice
                  President of Manufacturing and Operations
              
              
              2005
                2004
                2003
              
              $
                $
                $
              139,188
                128,000
                136,954
              
              
              --
                --
                --
              
              $
                  $
                  $
              --
                --
                451,933
              
              $
                $
                $
              6,959
                3,200
                3,115Jannett
                  Wang
                Vice
                  President of Administration
              
              
              2005
                2004
                2003
              
              $
                $
                $
              130,617
                116,667
                76,859
              
              
              --
                --
                --
              
              
              --
                --
                --
              
              
              --
                --
                --Anthony
                  T. Miller
                General
                  Counsel and Secretary
              
              
              2005
                2004
                2003
              
              $
                $
                $
              152,469
                226,000
                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
 Table
            of Contents
  
 (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
 Table
            of Contents
  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
 Table
            of Contents
  
 (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
              
              ---
              (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
            of Contents
  **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
            of Contents
  
 **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)
   31
 Table
            of Contents
 
 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
            of Contents
  
 **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
            of Contents
  **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
 
 DICON
                  FIBEROPTICS, INC.
                (Registrant)Date:
              June
                  28, 2005
              By:
              /s/
                  Ho-Shang Lee(Signature)Name:
              Ho-Shang
                  Lee, Ph.D.Title:
              President
                  and Chief Executive Officer(principal
                  executive officer)Date:
              June
                  28, 2005
              By:
              /s/
                  Jannett Wang(Signature)Name:
              Jannett
                  WangTitle:
              Vice
                  President of Administration(principal
                  financial officer)
 
 In
        accordance with the Exchange Act, this report has been signed below by the
        following persons on behalf of the registrant and in the capacities and on
        the
        dates indicated.
 
 DICON
                  FIBEROPTICS, INC.
                (Registrant)Date:
              June
                  28, 2005
              By:
              /s/
                  Jannett Wang(Signature)Name:
              Jannett
                  WangTitle:
              Vice
                  President of Administration(principal
                  accounting officer)Date:
              June
                  28, 2005
              By:
              /s/
                  Gilles M. Corcos(Signature)Name:
              Gilles
                  M. CorcosTitle:
              Chairman
                  of the Board of DirectorsDate:
              June
                  28, 2005
              By:
              /s/
                  Ho-Shang Lee(Signature)Name:
              Ho-Shang
                  LeeTitle:
              Member
                  of the Board of DirectorsDate:
              June
                  28, 2005
              By:
              /s/
                  Andrew F. Mathieson(Signature)Name:
              Andrew
                  F. MathiesonTitle:
              Member
                  of the Board of DirectorsDate:
              June
                  28, 2005
              By:
              /s/
                  Chun-Lung Lin(Signature)Name:
              Chun-Lung
                  LinTitle:
              Member
                  of the Board of DirectorsDate:
              June
                  28, 2005
              By:
              /s/
                  Dunson Cheng(Signature)Name:
              Dunson
                  ChengTitle:
              Member
                  of the Board of Directors
  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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