<PAGE>

                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D. C. 20549

                                   FORM 10-K
(Mark One)
[X]           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
                    For the fiscal year ended April 30, 1999
                                       OR
[_]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
               SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

       For the transition period from ______________ to ________________

                               ORTEL CORPORATION
             (Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S>                                        <C>                          <C>
           Delaware                             0-22598                    95-3494360
  (State or other jurisdiction           (Commission File No.)          (I.R.S. Employer
of incorporation or organization)                                      Identification No.)
</TABLE>

<TABLE>
<S>                                                                     <C>
2015 West Chestnut Street, Alhambra, California                            91803-1542
   (Address of principal executive offices)                                (Zip Code)
</TABLE>

      Registrant's telephone number, including area code:  (626) 281-3636
Securities registered pursuant to Section 12(b) of the Act
None
          Securities registered pursuant to Section 12(g) of the Act:
                         Common Stock, $.001 par value
                               (Title of Class)
                                ______________

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

                              Yes [X]     No [_]

     The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 1999 was $81 million based on the closing sales
price of such stock on such date of $10.625 per share.

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

     The number of shares outstanding of the registrant's Common Stock, as of
June 30, 1999 was 11,975,156
                                ______________

                      DOCUMENTS INCORPORATED BY REFERENCE
     Portions of registrant's Proxy Statement for its 1999 Annual Meeting of
Stockholders to be held on September 24, 1999 are incorporated by this reference
into Part III as set forth herein.
<PAGE>

                               ORTEL CORPORATION



                                     INDEX
                                     -----

<TABLE>
<CAPTION>
                                            PART I

<S>          <C>                                                                                     <C>
Item 1.      Description of Business................................................................. 1
Item 2.      Description of Property.................................................................21
Item 3.      Legal Proceedings.......................................................................21
Item 4.      Submission of Matters to a Vote of Security Holders.....................................22

                                            PART II

Item 5.      Market for Registrant's Common Stock and Related Stockholder Matters....................22
Item 6.      Selected Financial Data.................................................................23
Item 7.      Management's Discussion and Analysis of Financial Condition and Results of Operations...24
Item 8.      Financial Statements and Supplementary Data.............................................28
Item 9.      Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....28

                                            PART III

Item 10.      Directors and Executive Officers of the Registrant.....................................29
Item 11.      Executive Compensation.................................................................29
Item 12.      Security Ownership of Certain Beneficial Owners and Management.........................29
Item 13.      Certain Relationships and Related Transactions.........................................29

                                            PART IV

Item 14.      Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................29
</TABLE>

                                       i
<PAGE>

                                    PART I

   Some of the information presented in or in connection with this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  Although the Company believes that
its expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations.  Factors that could
cause actual results to differ from expectations are discussed in Risk Factors.


Item 1.  BUSINESS

   Ortel Corporation ("Ortel" or the "Company") has been in the forefront of
semiconductor optoelectronics for almost two decades.  With its deep technical
roots, Ortel has been a leading innovator providing solutions that enable the
high speed transmission and utilization of bandwidth for the communications
industry.  Advanced technology, in-depth understanding of end-user applications
and close working relationships with major manufacturers have made Ortel a
leading supplier of optoelectronic components in the cable television (CATV),
satellite communications and wireless markets and more recently a strong
presence in the data communications and telecommunications markets.

   Ortel pioneered the development of "linear fiberoptic" technology that
enables the transmission of digital, digitally compressed or analog information
via radio frequency ("RF") signals on fiberoptic cable. By utilizing this
technology, users do not need to convert RF signals into a digital format or
transform them to individual channels at low frequencies.  The Company's linear
fiberoptic technology has contributed to the development of a network
architecture called "hybrid fiber/coax," combining the best features of fiber
optics and coaxial cable.  Today, linear fiberoptics enables CATV system
operators to transform their traditional one-way, video-only systems to
interactive, two-way, video, voice and data delivery systems and provides
telephone companies with the means to cost-effectively transform their
traditional telephone networks to deliver interactive video and data services.

   Fiber distribution systems utilizing Ortel's proprietary technology have
enabled multiple system operators (MSO's), satellite earth station operators and
certain government agencies to capitalize on the inherent ability of this
technology to transmit signals over longer transmission distances, thereby
improving signal quality, increasing bandwidth, and providing immunity to
interfering signals and ultimately providing operating cost savings as compared
to most other non-fiber solutions. The Company's intellectual know-how with
respect to developing and manufacturing optoelectronic devices has more recently
been applied to developing products for digital telecommunications applications
wherein signals are transmitted and received by high frequency pulses of light
over fiberoptic cable. The company's recent announcement of solutions for 10 Gb
transmission and reception has already been well received by customers.

   Building on its knowledge of RF electronics, the Company has also positioned
itself as a leading supplier of wireless communication products which enhances
the coverage of base stations for cellular, PCS and other wireless services.

   The Company's principal executive offices are located at 2015 West Chestnut
Street, Alhambra, California 91803-1542 U.S.A.  Its telephone number is (626)
281-3636.

HISTORY

   The Company was incorporated in April 1980 under the laws of California and
was reincorporated in October 1994 under the laws of Delaware concurrent with
the Company's initial public offering.  For the first several years, the Company
focused on the application of its semiconductor laser technology primarily for
high-speed government applications and the development of fiberoptic links for
remoting satellite antennas at microwave frequencies.  In 1987, the Company was
the first to demonstrate that amplitude modulated CATV signals could be cost-
effectively transmitted over fiber.  This demonstration led to an effort to
commercialize the technology for CATV applications culminating with initial
volume shipment of products for this purpose in fiscal

                                       1
<PAGE>

1990. In May 1993, Ortel introduced the industry's first "digital ready" laser
for interactive services, which transmits multi-channel video and digitally
modulated RF signals at frequencies up to 850 MHz.

   Concurrent with the development of its linear fiberoptic technology for CATV
applications, the Company also leveraged its strengths in high speed
optoelectronics to develop transmitter-receiver links which could be sold to end
users and original equipment manufacturers ("OEMs") and used for the
transmission of RF signals that enable the remoting of satellite antennas over
long distances, up to 80 Km.  The acquisition of Avitec AB of Sweden in March
1996, expanded the Company's technical capabilities and wireless product
offering and gave the Company the means to build a complete line of repeater
products for both OEMs and end-users. In June 1999, the Company announced its
intention to sell its Wireless operations in order to focus on its fiber optic
business.

   Throughout most of its history, the Company concentrated its R&D efforts in
the area of linear fiberoptics and did not develop semiconductor laser products
for the telecommunications industry which relied on lasers using pulse-code
modulation (i.e. existence of a pulse of light is equivalent to a "1" while
absence of a pulse is equivalent to a "0").  However, during fiscal 1997, the
Company announced its first product for telecommunications applications and has
followed that with the successful introduction of 10 Gb lasers and receivers
during fiscal 1999.

   The Company has made several strategic investments and acquisitions,
beginning with the acquisition of Avitec AB of Sweden in March 1996, which
expanded the Company's technical capabilities and wireless product offering and
gave the Company the means to build a complete line of repeater products for
both OEMs and end-users.  During fiscal 1997, the Company invested in Photon
Technology Co., Ltd., a joint venture based in Shenzhen, China.  Photon is one
of the first companies in China with the technical expertise to manufacture
fiberoptic components.  This investment provides the Company with the
opportunity to capitalize on a lower cost manufacturing source as well as
enhance the Company's presence in that country.  In May 1997, the Company
invested in Tellium, Incorporated, a startup venture backed by Ortel, Scientific
Applications (SAIC) and a number of venture capital firms led by Oak Investment
Partners.  Tellium is expected to develop systems for dense wavelength division
multiplexing ("DWDM") applications.  Tellium recently introduced three systems
into the market place consisting of a long distance optically amplified WDM
transmission system appropriate for inter-exchange carriers, a short-reach WDM
transmission system suitable for local exchange carrier (LECs) and competitive
local exchange carriers (CLECs), and an optical cross-connect system for
interconnecting optical data streams.  Ortel expects to supply components used
in DWDM applications.


INDUSTRY BACKGROUND

Broadband Communications

   Prior to linear fiberoptics (prior to 1987)

   Fiberoptic cables transport optical signals (i.e., information represented as
light energy) through ultra-pure strands of glass. The first lasers developed
for the purpose of transmitting signals over fiberoptic cable operated in an
"on-off" fashion known as digital modulation.  With the ability of these signals
to be transmitted over long distances without any significant degradation in the
signal received and the accompanying benefits of increased bandwidth and lower
operating costs, this technology was quickly deployed for long-distance
terrestrial communication links, submarine links and for carrying regional
intercity traffic.

   Many communications systems use radio frequency (RF) signals to transmit
voice, data and video. An important feature of RF signals is that they can
"carry" both analog and digitized electronic information. RF signals transmitted
through free space have been used in radio and television broadcasting,
satellite communications, cellular telephone and other "wireless" communications
systems. Such systems also have used copper cables (coaxial cables) or specially
designed hollow metal pipes ("waveguides") to distribute RF signals between
ground based facilities.  CATV, which grew out of traditional television
broadcasting, also has used coaxial cable to carry RF signals both between
antennas and "headends" and from "headends" to the home.

                                       2
<PAGE>

   When RF signals are transmitted through coaxial cables or waveguides, signal
strength and quality deteriorate as transmission distance increases. To
compensate for these effects, system designers had to either (i) use other
compensating RF equipment, such as amplifiers and equalizers, or (ii) limit the
distance between various pieces of RF equipment. Amplifiers and equalizers
introduce cost, reliability and performance limitations to the overall system
design.  Limiting the transmission distance has placed restrictions on the range
and flexibility of the overall system design. In addition, coaxial cable and
waveguides have often been heavy, inflexible and difficult to install.

   CATV networks have relied on a "tree and branch" coaxial cable network, with
multiple cascaded amplifiers to overcome the signal deterioration, to distribute
television signals to subscribers. This "tree and branch" architecture evolved
as the only cost-effective cable network for CATV systems. The range of CATV
networks has been limited because only a certain number of amplifiers can be
cascaded without degrading the signal unacceptably. To reach more distant
subscribers, new transmission control facilities ("headends") had to be built
and "super-trunk" lines had to be installed to convey a high quality signal deep
into the network. As the number of CATV channels multiplied, requiring increased
system bandwidth and additional amplifiers, CATV operators were faced with
expensive re-builds of their systems to provide increased channel capacity.

   Fiberoptics offered a potential solution to the limitations associated with
the transmission of RF signals over coaxial cable and waveguides. Compared to
coaxial and waveguide cables, fiberoptic cables provide significant performance
advantages, including (i) longer transmission distance, (ii) greater signal
capacity (e.g., higher bandwidth), (iii) reduced cable size and weight and (iv)
invulnerability to interference from external electronic signals.

   In spite of these advances, there had been no widespread adoption of
fiberoptics in broadband RF, cellular and wireless and satellite communications
systems. The fiberoptic technology designed for "on/off" operation could not
reproduce all of the RF signals used in these communications systems. To be used
with RF signals, lasers had to reproduce the exact wave form of the original
signal at every instant in time ("linear" operation) and at sufficiently high
frequencies and light output power. These and other technical limitations
presented a dilemma to proponents of fiberoptic transmission in broadband RF,
cellular and wireless and satellite communications systems.  For this reason,
the Company initially focused its research and development efforts on developing
a solution to this problem.

   The introduction of linear fiberoptics (1987)

   In mid-1987, the Company was the first to demonstrate that CATV signals could
be cost-effectively transmitted over fiber.  Unlike traditional "on/off" digital
lasers, Ortel's proprietary linear lasers proportionally change the intensity of
the light signal with the CATV signal. These variations in light signal are
detected at the other end of the fiberoptic cable by Ortel's proprietary
photodiodes and converted into RF signals. By proportionally changing the
intensity of the light signal, the Company's linear fiberoptic technology
enables the transmission of CATV signals over fiberoptic cables, carrying a wide
variety of digital, digitally compressed and analog information.  Based on that
demonstration, Ortel began the process of commercializing this technology and
shipping product in volume beginning in 1990.

   The Company's linear fiberoptic technology dramatically changed the
architecture for CATV systems combining the best features of fiber optics and
coaxial cable. This new architecture, called "hybrid fiber/coax," enables the
use of "star-bus" networks rather than traditional "tree and branch" coaxial
networks.  The hybrid fiber/coax architecture contributed significantly to the
development of broadband communications services, including interactive
multimedia. The benefits of the Company's broadband products include:


     Interactive services.  Unlike traditional tree and branch coaxial
     networks, star-bus networks using hybrid fiber/coax can support two-way
     high speed services, such as telephony, internet access, video on demand,
     home shopping, interactive games and telecommuting.

     Higher performance.  CATV networks using hybrid fiber/coax eliminate the
     need for lengthy cascades of amplifiers by bringing the headend signal to
     within a few thousand feet of the home. This results in

                                       3
<PAGE>

     improved signal quality, higher capacity and allows cable television
     operators to increase the number of channels offered.

     Use of existing infrastructure.  Ortel's linear fiberoptic technology
     allows the CATV industry to use the "last mile" of the existing coaxial
     cable infrastructure connecting the network to individual homes, thereby
     reducing the investment required to upgrade the network.

     Scalability.  The use of the Company's products in hybrid fiber/coax
     networks allows network operators to expand channel capacity by segmenting
     these networks such that fewer homes are served by any one laser.  In
     addition, because "digital switching" occurs at one end of the network
     rather than in the "field," these networks may more easily be upgraded in a
     cost-effective manner in the future.

     Transparency to subscribers.  The Company's products enable subscribers to
     continue using their existing television sets and set-top converters,
     because the CATV signals are transmitted in standard technical formats.

     Reduced maintenance.  Network reliability is increased and operating costs
     are reduced as a result of a simplified network layout and fewer cascaded
     amplifiers requiring field service.

   With these benefits in mind, cable operators in the United States (U.S.)
began upgrading their networks in 1990 primarily to increase channel capacity,
reduce operating costs and improve reliability.  In the latter half of calendar
1993, Ortel introduced the industry's first digital-ready laser operating at up
to 750 MHz (previous lasers were capable of 550 MHz).  Subsequently, the Company
introduced products operating up to 860 MHz for CATV networks in Europe and
other parts of the world.  With this added spectrum, cable operators could now
conceive of a fully interactive network capable of offering high-speed data,
telephony and other narrowband services.  As of the end of calendar 1998, 60% of
the U.S. CATV subscribers are served by interactive networks while less than 30%
of subscribers are served by networks that are high speed two-way capable.
Internationally, where CATV penetration is much less, the percentage of networks
that have been upgraded is even lower.

   Through fiscal 1999, the Company's broadband products were primarily deployed
by CATV operators to transmit signals between a CATV headend and an optical node
near the home, thereby bypassing multiple cascades of coaxial amplifiers. 1310nm
is still the wavelength of choice for distributing CATV signals.  However,
increased consumer demand for higher speed interactivity is forcing cable
companies to look at additional ways of exploiting the inherent capacity of the
fiber.  One way is to use multiple wavelengths of light on the same fiber.  The
additional wavelengths are centered at 1550nm.  Because transmission of signals
at 1550nm requires stringent requirements on the laser, the Company used its
technological strengths to develop a laser well suited for this application.
The Company began shipping product for this application in FY 1999 and has
captured significant market share.  As the U.S. CATV industry has consolidated
its subscriber base in order to eliminate redundant headends, it has also sought
to interconnect headends to achieve greater operating efficiencies.  To do so,
requires that the signals be transmitted much longer distances using products
that use external modulation and operate at a wavelength of 1550nm.  With
external modulation, a steady optical signal is transmitted from a laser through
a separate device that modulates the amount of light transmitted in response to
the application of a broadband RF signal.  Signals at 1550nm can also be
amplified by the use of erbium-doped fiber in conjunction with 980nm pump laser
modules and certain other components.  These erbium-doped fiberoptic amplifiers
("EDFAs") function as repeaters to send signals even farther.  The Company
manufactures subsystem products for these applications incorporating a number of
critical technologies including 1550nm source lasers.

Satellite Communications

   Satellite earth stations have traditionally relied upon coaxial cable and
waveguides to transport RF satellite signals between antennas and nearby control
rooms. The distance between the antenna and control room has historically been
limited by the deterioration of signal strength using coaxial cables and
waveguides.  Earth stations are often located in remote areas.  Accordingly,
there has been a growing need for products that would cost-effectively transmit
RF satellite signals over longer distances.  That need is expected to grow
during the next few years with the startup of wireless satellite communications
services being planned by low-earth orbit ("LEO")

                                       4
<PAGE>

and middle-earth orbit ("MEO") operators (together known as Big LEO) such as
Globalstar, Iridium, ICO, SkyBridge, Spaceway, Ellipso, and Teledesic.

   The Company's products enable interconnection of antennas, control rooms and
remote users through fiberoptic cable, permitting the replacement of coaxial
cable and waveguides in earth stations and multiple leased lines between remote
users and earth stations.  The benefits of the Company's products include:

     Reduced installation costs.  The Company's linear fiberoptic products often
     reduce real estate and installation costs by eliminating the need for
     additional land and buildings for new antennas and lengthy runs of coaxial
     cable or waveguides.

     Reduced operating costs.  Ortel's products permit centralization of
     operating and monitoring equipment in a single control room serving
     multiple antennas, resulting in lower equipment and personnel operating
     costs.

     Reduced access costs.  Ortel's products transmit up to 12 satellite
     channels over a single fiberoptic cable, eliminating the need for multiple
     leased lines and reducing access costs for remote users.

   While it is currently estimated that only about 7% of earth stations today
incorporate any fiberoptic links in their facilities, management believes that
linear fiberoptics capable of handling multiple RF signals over a single fiber
will play a key role in the future development of this industry.

   Several companies have introduced wireless broadcast television services
(also known as direct broadcast satellite or DBS) in competition with cable
television operators including DirectTV and Echostar.  These services rely on
the use of small aperture antennas to capture satellite signals, which are then
available for distribution to one or more television sets over coaxial cable.
However, these wireless broadcast services to date have achieved minimal
penetration in multi-dwelling units ("MDU") such as large apartment or
condominium buildings.  The distribution of such signals using fiberoptic links
offers a number of advantages over copper-based solutions.  With approximately
25% of U.S. households living in MDUs and even a greater percentage in many
other parts of the world internationally, the Company has recently developed
products for use by this emerging market as well.

Telecommunications

   Telephone networks in many parts of the world are under increasing pressure
to transport an ever-growing volume of traffic due to the rapid growth of fax,
data, voice and internet services while a trend toward industry deregulation
both in the U.S. and abroad provides new impetus for providing these services in
a cost effective manner.  The deployment of fiberoptic cable beginning in the
early 1980's has helped these networks keep pace with the growing demand for
bandwidth by utilizing digital lasers which send high frequency pulses of light.
The amount of information that can be transported over an optical fiber has been
steadily increasing by the use of Time Division Multiplexing ("TDM") and
Wavelength Division Multiplexing ("WDM").  The first of these techniques expands
capacity by increasing the transmission bit rate at a given wavelength while the
second increases the number of wavelengths employed.  Transmission speeds up to
10 gigabits per second and up to 64 wavelengths are now being used to expand
greatly the capacity of the installed base of optical fiber.

   In fiscal 1999 Ortel introduced a 10 Gb PIN receiver family of products with
performance surpassing all products of its kind currently available on the
market.  This has been confirmed by a significant contract award from a major
telecommunications manufacturer to supply our 10 Gb receivers.  In addition,
Ortel has announced and is sampling directly modulated 10 Gb lasers.

   Wireless Communications

   Cellular telephone systems, operating at 800 MHz in the U.S. and 900 MHz in
many other parts of the world, have used RF signals to transmit telephone
conversations to and from mobile users using traditional analog or new digital
formats via fixed "base stations." Each base station serves a single "cell," a
geographical area

                                       5
<PAGE>

inside of which mobile users can communicate with the same base station. In many
instances, these signals are blocked by buildings, hills or other obstacles
resulting in incomplete coverage ("shadow" areas). In other instances, the
operator desires to extend the area of coverage into subways, office buildings
and large buildings such as airport terminals, exhibit halls or shopping malls.
User demands for better service and less tolerance for dropped calls require
system operators to address these issues by 1) installing additional base
stations and supporting equipment or 2) installing one or more remote antennas
("repeaters") which can receive and re-transmit the radio signals to enhance
signal coverage in the desired location.

   Operators will typically employ two methods for establishing a link between
the base station and remote antenna: 1) an "off-air" repeater, or, 2) a "fiber-
fed" repeater.  "Off-air" repeaters are the more popular means of providing a
communications link with the base station due to the ease with which they are
deployed without any peripheral support.  Fiber-fed repeaters are most useful in
distributing RF signals inside buildings, tunnels or other underground systems.
They can also be used to bring a unique set of frequencies from one base station
to an area that is served by another, but which is limited in capacity.

   While the use of repeaters in analog cellular systems was fairly limited,
dramatic changes taking place with respect to the use of higher frequencies to
distribute RF signals for personal communications services ("PCS") promise to
make repeaters a more common technique for extending signal coverage.  These
systems, operating at 1900 MHz in the U.S. ("PCS 1900") and 1800 MHz in Europe
("DCS 1800") and other parts of the world, promise to integrate several services
in a single mobile phone unit including paging, fax, voice, and data and all
within a smaller profile than the cellular counterpart.  In the U.S., operators
have bid over $20 billion to-date for the right to transmit at these higher
frequencies and began to deploy equipment for these networks in 1996.

   Because PCS operators are faced with additional coverage problems associated
with the loss of signal strength at PCS frequencies compared to cellular
frequencies, management believes repeaters will play an important role in
providing a cost-effective solution for deploying these networks.  The benefits
of using these products include:

     Cost-effective buildout of new networks.  Repeater products can reduce the
     infrastructure cost to deploy new PCS networks which must overcome the loss
     of signal strength at higher frequencies.  By minimizing the amount of base
     station signal generating equipment, the operator avoids an investment in
     excess capacity when additional signal coverage is the primary concern.

     Reduced real estate costs.  Site costs for a repeater are lower than for a
     base station due to the smaller size of a typical repeater product which
     can be located on the side of a building, pole or other convenient
     location.  No additional supporting equipment is required other than for
     power and, in certain instances, a connection with a telephone line or
     fiberoptic cable (in the case of a fiber-fed repeater).

     Reduced backhaul costs.  Repeaters do not require microwave or T1 links for
     backhaul to the switch.

     Reduced installation and maintenance costs for in-building applications.
     The use of fiberoptic cable for RF signal distribution inside large
     buildings in place of coaxial cable eliminates the need to use amplifiers,
     which simplifies the design and installation procedures and reduces
     maintenance costs.

     Improved service.  Repeaters and in-building RF distribution systems are
     used to improve signal coverage area and reduce dropped call rates.

     Expanded capacity.  In CDMA systems in which capacity is the sum of all
     dependent received signal levels at the base station, repeaters can be used
     to enhance system capacity by lowering the transmission power of wireless
     phones in an area of weak coverage.

   The use of repeater products in the U.S. for PCS coverage has been slow to
develop to date for a number of reasons.  In addition to the "legacy" of
equipment problems associated with the use of broadband repeaters in analog
cellular networks, newer channel selective products were not ready for
deployment at the time major PCS operators in the U.S. were designing their
networks for the initial startup phase of services.  Nevertheless, PCS

                                       6
<PAGE>

operators in the U.S. are expected to increasingly use repeaters in filling
"holes" and expanding coverage in future phases of their networks.

   In Europe and many other parts of the world, GSM900 digital cellular systems
and DCS1800 digital systems are being deployed.  A number of the operators of
such systems incorporate repeaters as a part of the initial rollout of services.
The Company offers several repeater products to this market segment, its most
recent offering being a high-power GSM repeater which provides an attractive
alternative to standard power GSM base stations.


PRODUCTS

   Ortel's optoelectronic product line consists of packaged lasers and
photodiodes coupled to optical fiber ("modules"), transmitters and receivers
incorporating modules and other circuits ("sub-systems"), and transmitters and
receivers in modular rack-mount chassis designs ("links").  The Company offers
this range of products to meet the specific requirements of various OEMs and
system integrators that serve the communications market.  For example, because
of the unique circuit design challenges of RF circuits, many of Ortel's
customers rely on Ortel to integrate the laser package and the RF circuit into a
transmitter sub-system or "Engine" with a higher level of integration than a
simple packaged laser. Ortel has developed a variety of such sub-systems,
standard and custom, for various end-user applications. Ortel's vertically
integrated manufacturing operations permit the Company to optimize the physical
and electrical interface with its customers' circuit, product and system
designs.

   Ortel's ability to design and manufacture wireless products incorporating RF
electronic circuitry to process signals for various communications applications
was greatly enhanced with the acquisition of Avitec AB in Sweden in March 1996.
This acquisition allowed the Company to accelerate the process of introducing a
number of repeater products for PCS operators in the U.S. and elsewhere in the
world including "off-air" repeaters as well as fiberoptic microcells
incorporating the Company's optoelectronic technology.

Broadband Communications

   Ortel is a leading supplier of lasers, fiberoptic transmitter engines and
receiver modules to OEMs for use in broadband communications systems. Ortel's
products meet the various frequency requirements of CATV networks in the United
States and abroad for both 1310nm and 1550nm wavelengths.

   A substantial majority of the Company's customers for its broadband products
purchase custom products. The following table lists certain of the Company's
current standard products for the broadband RF communications market. The table
shows the date a particular product line was first introduced (date of first
public announcement) as well as the date of introduction of the most recent
version of that product.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
                                          Broadband Communications
------------------------------------------------------------------------------------------------------
                             RF Frequency                                  First          Latest
                                (MHz)                                     Version         Version
Description                  / Power (mw)          Where Used            Introduced      Introduced
------------------------------------------------------------------------------------------------------
<S>                         <C>                       <C>                   <C>             <C>
1310nm OEM                                      CATV Transmitter
Laser Module                 50-860 MHz             Systems           February 1998    November 1998
------------------------------------------------------------------------------------------------------
1310nm OEM                                           CATV
Transmitter  Engine          40-860 MHz             Headend            August 1990     December 1998
------------------------------------------------------------------------------------------------------
1310nm Cooled OEM                                    CATV
Return Path Laser             5-200 MHz              Hub                June 1996        June 1996
------------------------------------------------------------------------------------------------------
1310nm Photodiode                                CATV Optical
Receiver                     40-860 MHz              Node              January 1989      May 1994
------------------------------------------------------------------------------------------------------
1550nm OEM Transmitter                               CATV
Engine                       40-860 MHz            Headend              April 1996       May 1996
------------------------------------------------------------------------------------------------------
1550nm Optical Amplifier                          CATV Signal
Engine (EDFA)                                Amplification Between
                                             Headend and Secondary
                              25-150 mW         Headends/Hubs            April 1996     April 1998
------------------------------------------------------------------------------------------------------
1550nm OEM                                        CATV 1550nm
Laser Module                    40 mW         Transmitter Systems       October 1996     May 1998
------------------------------------------------------------------------------------------------------
1550nm Cooled OEM
AWDM Return Path Laser                               CATV
 Module                          6 mW                 hub                June 1998       June 1998
------------------------------------------------------------------------------------------------------
1550nm OEM
AWDM Forward Path                                 CATV 1550nm
Laser Module                     10 mW        Transmitter Systems        June 1998       June 1998
-----------------------------------------------------------------------------------------------------
</TABLE>

                                       7
<PAGE>

Satellite Communications

   Ortel has developed complete rack mounted transmission equipment for small to
very large earth station designs. Ortel's products are used with both receive-
only antennas and transmit-and-receive antennas by the originators of television
programming, major international telecommunications organizations and by
government and defense communications agencies.


   In October 1993, Ortel announced its System 8000 product line, which enables
operators of major satellite communication earth stations, including the
Intelsat and Inmarsat networks, to transmit all interfacility signals for
standard satellite frequency bands between the control room and antennas over
fiberoptic cable.  This product line is also used by certain government agencies
such as the U.S. Air Force to upgrade their communications capabilities
worldwide.  The Company also offers a low cost product (System 5100) for a
wideband, microwave fiberoptic interfacility link between the satellite earth
terminal antenna and a satellite receiver.  A new version of this L-band link
was incorporated into a fiberoptic system called "LightLinks" which enables
satellite-delivered services including TV and internet access to be distributed
from one antenna to hundreds of receivers in medium and large office buildings
with multi-dwelling units (MDUs).

   The following table lists certain of the Company's current products for the
satellite communications market. The table shows the date a particular product
line was first introduced (date of first public announcement) as well as the
date of introduction of the most recent version of that product.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------------
                                                 Satellite Communications
--------------------------------------------------------------------------------------------------------------------------
                                                                                                    First         Latest
                                                                                                   Version       Version
Description                         Specifications                   Where Used                  Introduced     Introduced
--------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>                      <C>                              <C>             <C>
Fiberoptic                              70 MHz                Satellite Earth Station           November 1993   March 1998
Transmission Link                       140 MHz                       VSAT Hub
                                     1 transponder
--------------------------------------------------------------------------------------------------------------------------

Fiberoptic                          950 - 2050 MHz             Teleport TV Broadcast            November 1990   March 1998
Transmission Link                   12 transponders                 CATV Headend
--------------------------------------------------------------------------------------------------------------------------
Fiberoptic                           3.6 - 4.2 GHz            Satellite Earth Station           November 1993   April 1998
Transmission Link                    5.8 - 6.5 GHz                  TV Broadcast
                                    7.25 - 8.4 GHz
                                   10.95 - 12.75 GHz
                                    14.0 - 14.5 GHz
                                    12 transponders
--------------------------------------------------------------------------------------------------------------------------
Fiberoptic Transmission Link         950-2050 MHz         Multi-Dwelling Units (MDUs) and         July 1998     June 1999
                                      45-860 MHz                  Office Buildings
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

Telecommunications

   While the Company has previously focused its product development efforts in
the area of linear fiberoptics and RF electronics, it has more recently begun to
apply its technical talents to developing digital optoelectronic devices and
subsystems.

   The Company introduced an OC-192 (industry classification for optical devices
operating at 10 gigabits per second ["Gbps"]) receiver module which can be used
in both TDM and WDM applications.  In June 1999 the Company announced that a
major telecommunications equipment provider had awarded Ortel a contract to
purchase its Model 2860 10 Gbps receivers.  The Company also announced that it
was sampling several other major telecom equipment providers who were in the
process of qualifying the 2860 for potential high volume applications.  Ortel is
applying its experience in high speed linear fiberoptics to develop 10 Gbps
laser modules as well.  These high value components are being designed into next
generation high speed transmission equipment including routers, switches, and
SONET/SDH rings.

                                       8
<PAGE>

   The following table lists certain of the Company's current products for
telecommunications applications. The table shows the date a particular product
line was first introduced (date of first public announcement) as well as the
date of introduction of the most recent version of that product.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
                                                 Telecommunications
---------------------------------------------------------------------------------------------------------------------
                                                                                        First            Latest
                                                                                       Version           Version
       Description           Specifications               Where Used                 Introduced        Introduced
---------------------------------------------------------------------------------------------------------------------
<S>                             <C>                  <C>                             <C>              <C>
      980 Pump Laser           90 150 mW              Optical Amplifiers                            Discontinued 1998
---------------------------------------------------------------------------------------------------------------------
  OC-192 Receiver Module       10.0 Gbps      Telecom Networks Using TDM and WDM    February 1999     February 1999
                                                           Equipment
---------------------------------------------------------------------------------------------------------------------
</TABLE>

Wireless Communications

   Ortel offers "off-air" and "fiber-fed" repeaters to end-users and OEMs for
many major cellular and PCS standards including CDMA1900, GSM900, DCS1800 and
PCS1900.  The Company has also developed a line of complementary products
designed to be integrated by cellular, PCS and other wireless system
manufacturers into equipment cabinets and specialized outdoor RF repeaters.
These products include a transmitter/receiver for single-fiber links to fiber-
fed repeaters and a high dynamic range transmitter/receiver for fiber-fed
repeaters with heavy traffic loading.

   A new fiberoptic antenna system was introduced by Ortel during fiscal 1995.
This system uses small, smoke-detector size devices which are connected to a
central distribution hub that connects to the outside cellular system, but
allows calls to be placed throughout a building.

   In June 1999, the Company announced its intention to sell its wireless
operations in order to focus on its fiber optic business.

   The following table lists certain of the Company's current standard products
for the wireless communications markets. The table shows the date a particular
product line was first introduced (date of first public announcement) as well as
the date of introduction of the most recent version of that product.

<TABLE>
<CAPTION>
                                                   Wireless Communications
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                  First            Latest
                                      RF Frequency                                               Version          Version
Description                               (MHz)                     Where Used                  Introduced       Introduced
-----------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>                <C>                                   <C>              <C>
DFB Laser Transmitter                800 - 1000 MHz      Cellular Base Station for Analog,     August 1992       April 1994
Photodiode Receiver                                            Digital and Dual-mode
                                                                 Microcell Antenna
-----------------------------------------------------------------------------------------------------------------------------
DFB Laser Transmitter                 1.7 - 2.2 GHz      Personal Communications Networks       April 1994       April 1994
and Photodiode Receiver
-----------------------------------------------------------------------------------------------------------------------------
DFB Laser                            175 - 1000 MHz          For UHF, VHF and Cellular          April 1994       April 1994
Transmitter Links                                                  Applications
-----------------------------------------------------------------------------------------------------------------------------
Fiberoptic Antenna                   800 - 1000 MHz       In-building Cellular, PCS, and      February 1995    September 1995
System                                1.7 - 2.2 GHz                Wireless PBX
-----------------------------------------------------------------------------------------------------------------------------
Medium Power CDMA Repeaters           1850-1990MHz      Remote Off-air and Fiber Feed from    September 1996   September 1996
                                                                   Base Station
-----------------------------------------------------------------------------------------------------------------------------
Medium Power                          890 - 960 MHz     Remote Off-air and Fiber Feed from      March 1996       March 1996
GSM Repeaters                                                      Base Station
-----------------------------------------------------------------------------------------------------------------------------
Medium Power DCS1800/PCS1900         1750 - 1990MHz     Remote Off-air and Fiber Feed from    November 1994      March 1996
 Repeaters                                                         Base Station
-----------------------------------------------------------------------------------------------------------------------------
High Power                            890 - 960 MHz        Remote Off-air Fed from Base         March 1996       March 1996
GSM Repeaters                                                         Station
-----------------------------------------------------------------------------------------------------------------------------
Repeaters for                         75 - 1000 MHz      Remote Off-air Feed from Main RF      January 1986      March 1999
Underground Emergency                                     Source for Tunnels, Subways and
 Communications Systems                                       Underground Facilities
-----------------------------------------------------------------------------------------------------------------------------
High Power CDMA Repeaters            1850 - 1990 MHz     Remote Off-air & Fiber Feed from     September 1998   September 1998
                                                                   Base station
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

                                       9
<PAGE>

TECHNOLOGY

   Ortel's leadership in delivering fiberoptic and wireless communications
systems is based upon its expertise in a number of key technologies. These
include:

Advanced Optoelectronic Semiconductor Technology

   Each of the Company's high performance product lines is built around indium
phosphide and gallium arsenide based laser and photodiode devices fabricated at
Ortel using state-of-the-art nanoscale epitaxial technologies.  The lasers used
in most of the Company's products use Distributed Feedback ("DFB") to ensure
single frequency operation.  Ortel's proprietary designs have been optimized for
high output power, high speed and linear operation.  These designs ensure that
the light output from the laser transmitter is accurately proportional to the
electrical current input, thereby guaranteeing low levels of signal distortion
in RF communications links.  Certain applications are supported by high output
power and high speed transmitters and receivers.

Optoelectronic Packaging

   Packaging is a critical aspect of fiberoptic product performance. Every laser
and photodiode package is hermetically sealed and provides for the electrical
connection from the external circuit to the device and the efficient transfer of
light between the device and an optical fiber. Ortel has designed a patented
miniature "optical bench" consisting of a laser chip, various optical components
to capture and focus the light and an arrangement to hold the optical fiber
rigidly fixed in place within a tolerance of less than one-millionth of a meter
(one micron). This optical bench is integrated inside the package with an
electrical interface and is used in several of the Company's laser products.

RF Electronics

   Predistortion.  Predistortion is a technique in which the performance of
linear devices can be considerably improved by pre-conditioning signals in such
a way as to negate predictable deviations from ideal performance. Management
believes that Ortel was the first company to make commercially available
broadband RF predistortion circuits for semiconductor lasers. Ortel's patented
predistorter designs, which provide critical performance advantages in Ortel's
laser-based products for CATV applications, electronically cancel distortion
over a wide frequency range.  Ortel's vertically integrated manufacturing
operations allow for close interplay between the laser device characteristics
and the optimal design of the predistortion circuit.

   Repeaters.  With the acquisition of Avitec AB of Sweden in March 1996, the
Company added important new technical capabilities with respect to using RF
electronic techniques to extend the reach of a wireless base station.  Unlike
the early repeaters used in analog cellular networks, Ortel's products are
channel selective, controlling the portion of the signal to be amplified in
order to improve signal strength.  In addition, operation management software
has been developed by Ortel to provide the wireless operator with the means of
monitoring the use and performance of the repeater.  The acquisition of Avitec
also brings the capability of providing turnkey project management with respect
to providing wireless signals inside tunnels, subways, and other similar public
venues.

RESEARCH AND PRODUCT DEVELOPMENT

   The market for communication products is subject to rapid technological
change.  Management believes that the Company's strength in the marketplace will
depend in part on its ability to continue to design and manufacture high
performance products and enhancements that maintain technological
competitiveness for its customers.

   Ortel's research and product development strategy emphasizes continuing
evaluation of emerging trends and technical challenges in communications
technologies and standards in order to identify new markets and product
opportunities. The Company believes that its success is due in part to its
ability to maintain sophisticated technology research programs while
simultaneously focusing on practical applications and its customers' strategic
needs.

                                       10
<PAGE>

   The Company's management believes that substantial investment in research and
product development is important for the Company to maintain a leadership
position in the industry.  Accordingly, the Company continued to spend at
historical levels in fiscal 1999 despite a reduction in revenues compared to
prior years.  The Company intends to increase its spending for research and
development in subsequent fiscal years primarily by adding experienced engineers
in the area of fiberoptic technology, high speed digital electronics, and RF
circuits and systems.  In fiscal years 1999, 1998 and 1997 research and
development expenses were approximately $12.4 million, $11.7 million and $12.9
million, respectively.

   From time to time, the Company enters into select contract research and
development programs. The Company's strategy is to choose research and
development programs that supplement established research and development
efforts within the Company. The Company typically retains rights to the
technology developed under such contracts.  Revenues from such contracts, which
were $195,000, $730,000 and $1,489,000 in fiscal years 1999, 1998 and 1997,
respectively, are netted against research and development expenses.


MARKETING AND SALES

   Ortel markets and sells its products worldwide to OEM manufacturers and
system integrators that serve the broadband, satellite, and telephony and
datacom sectors of the communication market.

   During fiscal 1999, Ortel expanded its direct sales force which now includes
direct sales teams in Asia and Europe to compliment the sales team in the United
States.  Ortel's Asia Pacific headquarters are in Singapore (Ortel Asia Private,
Ltd.), with satellite offices in Beijing and our European headquarters are in
Munich (Ortel Vertriebs GmbH) with satellite offices in Stockholm, Berlin, and
Paris (Ortel SARL).  Ortel utilizes both direct and indirect (representatives
and distributors) channels to reach its customers.

   Ortel also sells its wireless products through a dedicated sales force to
both OEMs and end users from both the U.S. and Avitec AB in Sweden. Sales to
customers outside of the United States represented 38%, 49% and 34% of the
Company's total revenues in fiscal years 1999, 1998 and 1997, respectively.

   The typical sales cycle for Ortel's products requires a substantial
investment of time and effort. Initial leads are investigated to determine if
the customer's needs can be met. Engineering and applications support is usually
required during this stage. Often, a lengthy product evaluation phase follows,
which may make it necessary to modify the physical and electrical specifications
of the product. Ortel's policy is to perform such modifications for large OEM
customers. Finally, negotiations regarding volume, delivery and price take
place. Since customer adoption of the Ortel product architecture is often a
major decision for the customer, Ortel's senior management is actively involved
in the sales process.


CUSTOMERS

   Ortel has strategic long-term relationships with its major OEM customers.  In
fiscal 1999 two of these CATV OEMs represented 42% of the company's revenues.
Ortel began selling to Antec Corporation in May 1996 and in fiscal 1999, Antec
became Ortel's largest customer, due to a strategic partnership that has allowed
Ortel to sell its entire product portfolio to this customer.  Sales to this
customer were 10% or more of total revenues in fiscal years 1999, 1998 and 1997.
Prior to fiscal 1999, General Instrument Corporation ("GI") was Ortel's largest
customer and in the fiscal year ended April 30, 1999, maintained the number two
position procuring 1310nm products from Ortel.  Sales to GI were more than 10%
of total revenues in fiscal years 1999, 1998 and 1997.  While the Company has
enjoyed a long-term relationship with these customers, there can be no assurance
that these customers will not secure a second source or continue buying products
from the Company.

   Since March 1994, Ortel has shipped broadband DFB laser-based CATV products
to other OEMs in the United States.  Sales of broadband products to customers
other than Antec and GI represented 29%, 36% and 31% of total revenues in fiscal
years 1999, 1998 and 1997, respectively.

                                       11
<PAGE>

   Approximately 51%, 36% and 54% of the Company's revenues in fiscal years
1999, 1998 and 1997, respectively, were derived from sales of products to the
Company's top five largest customers.

   In fiscal 1999 with the introduction of the 10 Gb product family of lasers
and receivers, the Company announced that it received an award of a multi-year
contract for the supply of 10 Gb receivers from a major telecom equipment
manufacturer.  This award represents more than $1 million dollars scheduled for
delivery in fiscal 2000.


MANUFACTURING AND SUPPLIERS

   Most of Ortel's manufacturing operations are located at the Company's
headquarters in Alhambra, California. The Company's manufacturing is vertically
integrated and consists of wafer fabrication, chip processing, device packaging,
hybrid microelectronic packaging, printed circuit board testing and final
assembly and test. The Company also manufactures repeater products at its
wholly-owned Swedish subsidiary, Avitec AB.

   Many of the key processes used in Ortel's products are proprietary.
Consequently, many of the key components of Ortel's products are designed and
produced internally.  The Company's internal wafer fabrication facility is the
sole source with respect to producing semiconductor lasers for use in its
transmitter products.  The loss or reduction in output of this source would
severely impact the Company's financial performance.

   Outside contractors are used to supply standard components and to assemble
printed circuit boards. The Company sources certain components from single
vendors or from international vendors. Currently, the Company purchases several
components from sole suppliers for which alternative sources are either not
available or for which several months would be needed to qualify a second
source. The Company's policy is to maintain a safety stock to help minimize any
disruption if the Company needs or determines to shift to an alternative vendor;
however the loss of any sole supplier could have a materially adverse effect on
the Company.

   The Company assembles most of its products. Relevant assembly processes
include die attach, wirebond, substrate attachment and fiber coupling. Ortel
also conducts tests throughout its manufacturing process using commercially
available and in-house built testing systems that incorporate proprietary
procedures. Ortel performs final product tests on 100% of its manufactured
products prior to shipment to customers. Based on customer requirements, the
Company also conducts environmental testing before shipping certain of its
products.


COMPETITION

   This topic is discussed in the Risk Factors section under Highly Competitive
Marketplace.


INTELLECTUAL PROPERTY

   Because of the rapidly evolving nature of the telecommunications industry,
the Company believes its ability to develop a continuous stream of new
innovations along with its accumulated base of intellectual property is
extremely important.  The Company has a policy of reviewing its innovations for
patentability. In some cases, the Company decides to maintain its intellectual
property as a trade secret rather than to seek patent protection.

   The Company currently holds sixteen United States patents and has a number of
patent applications on file at the United States Patent and Trademark Office.
The Company also has twenty-six foreign patents and a number of foreign patent
applications pending in Europe and other countries. There can be no assurance
that any patent owned by the Company will not be invalidated, circumvented or
challenged, and that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future patent
applications will be issued with the scope of the claims sought by the Company,
if at all. Furthermore, there can be no assurance that others will not develop
technologies that are similar or superior to the Company's

                                       12
<PAGE>

technology, duplicate the Company's technology or design around the patents
owned by the Company. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. The
Company generally enters into confidentiality or license agreements with its
employees and consultants, and vendors and customers as needed, and generally
limits access to and distribution of its proprietary information. Nevertheless,
there can be no assurance that the steps taken by the Company will prevent
misappropriation of its technology. In addition, litigation may be necessary in
the future to enforce the Company's patents and other intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, financial condition or results of operations. For a
description of litigation relating to the Company's patents, see "Legal
Proceedings."

   The Company holds a number of registered trademarks with the U.S. Patent and
Trademark Office: ORTEL(R), ORTEL CORPORATION(R) (when appearing with the
Company's logo) and the phrase MAKING LIGHT WORK FOR YOU(R) as well as the word
MIRRORCELL(R) used for the Company's repeater product line.  The company also
holds registered trademarks on two phrases which describe applications of its
products:  RADIO ON FIBER(R) is applied to products involving the transmission
of radio signals using linear fiberoptic technology and MICROWAVES ON FIBER(R)
is applied to products that have the capability to transmit signals over optical
fiber whose frequencies lie in the microwave range.  In addition, the Company
has a pending application for FIBEROPTIC ANTENNA(TM), which is used in
association with its fiberoptic systems for providing in-building cellular and
PCS coverage and THE INFINITE POSSIBILITIES OF LIGHT for all of its laser and
fiber optic products.  The Company also has registered the trademark for
ORTEL(R) when it appears with the logo in Germany, France, Italy, United
Kingdom, Japan and South Korea; and has applied for registration in a number of
other countries.


REGULATION

   The U.S. Congress passed the 1996 Telecommunications Act on February 8, 1996.
This act allows the Regional Bell Operating Companies (RBOCs) to enter the cable
industry, the cable companies to enter the local phone business and the long
distance phone companies to compete in local phone and video markets. Management
believes that this legislation will promote competition and, hence, at some
point accelerate the upgrading of networks by both cable and telephone
operators.  However, both telephone companies and cable companies are still
subject to certain rules under this act which could have the effect of limiting
capital expenditures by CATV operators and thus could have a material adverse
effect on the Company's results of operations.


EMPLOYEES

   As of April 30, 1999, the Company employed 480 worldwide including 437
persons in the U.S. On a worldwide basis, 348 were in manufacturing, 45 in
research and development, 52 in sales and marketing, and 35 in a general and
administrative capacity. The Company also employs a number of temporary
employees and consultants on a contract basis at any one time. As of April 30,
1999, there were 7 consultants and 53 temporary employees most of whom were in
manufacturing. None of the Company's employees is represented by a labor union.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.


RISK FACTORS

   Some of the information presented in or in connection with this report
constitutes "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Although the Company believes that its
expectations are based on reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurance that actual
results will not differ materially from its expectations.  Factors that could
cause actual results to differ from expectations are discussed below:

                                       13
<PAGE>

Dependence on Large Customers

   Approximately 42%, 26% and 46% of the Company's total revenues in fiscal
years 1999, 1998 and 1997, respectively, were derived from sales to Antec
Corporation and General Instrument Corporation.  Neither company is under any
contractual obligation to purchase any specified amount of the Company's
products or to provide the Company with binding forecasts of product purchases
for any period. As a result, there can be no assurance that either company will
continue to purchase the Company's products.  The decrease in sales of the
Company's products in fiscal year 1998 was primarily related to general industry
factors as opposed to the use of alternative suppliers, there can be no
assurance that sales to either GI or Antec Corporation will reach or exceed
historical levels in any future period. A substantial decrease in sales to
either of these customers would have a material adverse effect on the Company's
results of operations and financial condition.

   Sales to the top five largest customers represented 51%, 36% and 54% of the
Company's total revenues in fiscal year 1999, 1998 and 1997, respectively.  A
substantial portion of revenues from each of these customers during this period
was attributable to our 1310nm and 1550nm product lines.  The Company expects
that it will continue to be dependent upon these customers for a significant
portion of its revenues in future periods, although none of them is obligated to
purchase any specified amount of products or to provide the Company with binding
forecasts of product purchases for any period. Accordingly, there can be no
assurance that any sales to these entities, individually or as a group, will
continue, or if continued will reach or exceed historical levels in any future
period.  Any substantial decrease or delay in sales to one or more of these
entities would have a material adverse effect on the Company's results of
operations and financial condition.

Dependence on CATV Industry Capital Spending

   Approximately 71%, 62% and 77% of the Company's total revenues in fiscal
years 1999, 1998 and 1997, respectively, came from worldwide sales of its
broadband products for use primarily by CATV operators.  Demand for the
Company's broadband products depends to a large extent upon capital spending by
CATV operators for constructing, rebuilding, maintaining or upgrading their
systems.  Capital spending by CATV operators and therefore, the Company's sales
and profitability, are dependent on a variety of factors, including access by
CATV operators to financing, demand for their cable services, availability of
alternative video delivery technologies such as direct broadcast satellite
(DBS), government regulation of cable operators and general economic conditions.
There can be no assurance that CATV operators will continue capital spending for
constructing, rebuilding, maintaining or upgrading their systems.  Any
substantial decrease or delay in capital spending by CATV operators would have a
material adverse effect on the Company's results of operations and financial
condition.

Fluctuation in Quarterly Operating Results

   The Company's quarterly operating results have fluctuated and may continue to
fluctuate as a result of a number of factors, including changes in market
demand, prices of the Company's or its competitors' products, increased
competition, length of sales cycles, new product introductions by the Company or
its competition, market acceptance of new or existing products, manufacturing
yields, the cost and availability of components, the mix of the Company's
customer base or sales channels, the mix of products sold, the level of
international sales and general economic conditions.  The Company's
manufacturing costs are affected by the cost and availability of components,
inefficiencies encountered during the manufacturing process, manufacturing
yields, the rate of inventory obsolescence and other factors.  In the past, the
Company's manufacturing costs have fluctuated, due in part to fluctuations in
production, which have adversely affected the Company's results of operations.
The Company's gross margin varies by product due to specific product pricing,
design characteristics, production volumes and other factors.  The Company's
expenditure levels for operating costs including research and development, sales
and marketing and general administrative are relatively fixed in the short term.
As a result, variations in timing of revenues can cause significant variations
in quarterly results of operations.  In addition, since a significant portion of
the Company's business is derived from orders placed by a few large customers,
the timing of such orders can cause material fluctuations in the Company's
business and operating results.  Anticipated orders from the Company's customers
have in the past failed to materialize and delivery schedules

                                       14
<PAGE>

have been deferred or canceled as a result of changes in customer requirements.
If sales are below expectations in any given quarter, the adverse impact of the
shortfall on the Company's operating results may be magnified by the Company's
inability to adjust spending to compensate for the shortfall. The Company may
also reduce prices or increase spending in response to competition or to pursue
new market opportunities. Accordingly, there can be no assurance that the
Company will be able to maintain historical levels of profitability,
particularly on a quarterly basis.

Decrease in Gross Margins

   In order to respond to competitive pricing, Ortel has lowered and may further
lower the prices of its products.  Unless the Company is able to reduce costs
commensurate with such price reductions, the result will be lower gross margins.
There can be no assurance that the lowering of prices will increase or maintain
the sales of the Company's products, or that the effect of such price reductions
will not be to lower the Company's profitability in the future.  The effect of
such pricing actions played an important role in the decrease in gross margins
from 42% in fiscal 1998 to 39% in fiscal 1999.  Other factors which can impact
gross margins include new market entrants and foreign exchange rates (see
"Highly Competitive Marketplace" and "International Operations").

Risk of Failure to Manage Growth

   The Company's growth has placed, and could continue to place, a significant
strain on the Company's resources in two respects: 1) finding experienced and
qualified management and 2) managing the transition from older products in order
to minimize disruption in customer ordering patterns, avoid excessive levels of
older product inventories and ensure adequate supplies of new products can be
delivered to meet customer demand.  There can be no assurance the Company will
successfully manage this growth or the transition to selling new products, and
the failure to do so could have a material adverse effect on the Company's
results of operations or financial condition.

Highly Competitive Marketplace

   Within each of its market sectors, the Company faces current or potential
competition from (i) direct competitors, (ii) potential entrants, (iii)
suppliers of alternative network technology and (iv) Ortel's own customers in
those instances where they desire to manufacture a portion of the product in-
house.

   Broadband.  The growth of broadband RF networks for CATV has created a highly
competitive marketplace for linear fiberoptic products. The Company expects that
direct and indirect competition will increase in the future with a number of
these competitors and potential entrants possessing greater financial,
scientific, manufacturing, marketing and sales resources.  Additional
competition could adversely affect the Company's results of operations or
financial condition through price reductions, loss of market share and delays in
the timing of customer orders.

   Currently, the Company's direct competitors include both domestic and foreign
companies such as Mitsubishi, Fujitsu, NEC, Lucent Technologies and Uniphase
Corporation.  As the market for linear fiberoptic products grows, new
competitors are likely to emerge.

   There are also several alternative network technologies which could directly
or indirectly affect demand for the Company's products. For example, certain
telephone companies are experimenting with a network known as "digital fiber to
the curb" offered by Broadband Technologies and Nextlevel, a division of General
Instrument Corporation.  This network uses PCM digital fiberoptic technology
rather than linear fiberoptics.  If telephone companies were to widely deploy
such a network and were successful in gaining market share at the expense of the
CATV industry, this could lead to lower levels of profitability which could
affect the ability of the CATV industry to finance the upgrade of its broadband
infrastructure, thus reducing demand for the Company's products.  Similarly, in
broadband RF communications, CATV operators compete with the satellite delivery
of television signals to the home such as through the DirecTV(TM) system
launched by Hughes Communications.  These systems do not require a broadband RF
coaxial network on the ground. To the extent that these systems reduce the
number of CATV subscribers, the net impact could be a reduction in demand for
the Company's products.  CATV

                                       15
<PAGE>

operators themselves could elect to deploy wireless television, called MMDS or
LMDS, which can also be deployed without coaxial or fiberoptic distribution
networks and has been tested in several large cities. Many industry observers
claim that MMDS and LMDS systems can be made interactive with suitable high
frequency transmission devices installed in the home. Widespread adoption of any
of these technologies would also reduce the demand for the Company's products.

   The principal competitive factors in the Company's markets are product
performance, volume shipment capability, customer support, flexibility and
price. While management believes the Company competes favorably with respect to
each of these factors, there can be no assurance the Company will be able to
compete successfully in the future. Many of Ortel's current or potential
competitors have significantly greater financial, technical, manufacturing,
marketing, sales and other resources than Ortel. In addition, many of these
entities have greater name recognition and extensive experience in the
communications industry. The Company expects that direct and indirect
competition will increase in the future. Additional competition could adversely
affect the Company's results of operations through price reductions, loss of
market share and delays in the timing of customer orders.

   Satellite Communications.  Currently, the Company offers earth station
operators a variety of products for satellite communications applications at
various frequencies.  While there are many advantages to using fiberoptics in
these interfacility links, only about 7% of earth stations currently use such
products with most having deployed other solutions based on coaxial cable or
waveguide before fiberoptic solutions were possible.  However, there is no
guarantee that these operators will use fiberoptic solutions in the future or
that significant competition will not develop which could adversely impact the
amount of revenues realized from sales of these products.  Other companies such
as Foxcom, IRT and Uniphase also offer a fiberoptic solution to these operators.

   Telecommunications.  Currently, the Company offers a variety of products for
telecommunications applications including receiver module products. While the
Company's product offerings for telecommunications applications is currently
limited, the Company plans to invest significant resources to gain a meaningful
presence in this marketplace.  In doing so, the Company's products will compete
with much larger, entrenched suppliers including Lucent, Nortel, Fujitsu,
Hitachi, Uniphase and Toshiba.

   Wireless.  Currently, the Company offers solutions to extend the area of
coverage of cellular and PCS base stations utilizing repeater products which
connect to the base station via linear fiberoptic signals or through the air.
Direct competitors for its repeater products for cellular and PCS networks
includes companies such as Allen Telecom, Repeater Technologies, Watkins-Johnson
and Allgon.  New entrants are expected to develop products for this relatively
new marketplace.  In addition, development of smaller more economical base
stations by base station manufacturers such as Lucent Technologies, Ericsson,
Motorola, Nokia, Nortel and Qualcomm represents an alternative approach to
extending the coverage offered by these networks.  Although generally more
expensive to install and operate than the use of repeaters, smaller base
stations add capacity to the network whereas the use of wireless repeaters does
not.

Risks of Internal Wafer Fabrication

   The Company relies exclusively on its own production capability for critical
semiconductor lasers and photodiodes used in many of its products.  Because the
Company manufactures these and other key components of its products at its own
facility, and such components are not readily available from other sources, any
interruption in manufacturing would have a material adverse affect on the
Company's results of operations and financial condition.  Furthermore, the
Company has a limited number of employees dedicated to the operation and
maintenance of its wafer fabrication equipment, the loss of whom could impact
the Company's ability to effectively operate and service such equipment.  Wafer
fabrication is sensitive to a wide variety of factors, including variation and
impurities in the raw materials, difficulties in the fabrication process,
performance of the manufacturing equipment, defects in the masks used to print
circuits on a wafer and the level of contaminants in the manufacturing
environment.  The Company has periodically experienced lower than expected
production yields that have adversely affected gross margins and delayed product
shipments.  There can be no assurance that the Company will be able to maintain
acceptable production yields in the future.  To the extent that the Company does
not achieve acceptable manufacturing yields or experiences product shipment
delays, the Company's results of operations and financial condition would be
materially adversely affected.

                                       16
<PAGE>

Need to Effectively Manage Manufacturing Processes

   The Company's success will depend in part on whether it will be able to
effectively manage its various manufacturing processes, including wafer
fabrication and device packaging.  No assurance can be given that the Company
will be able to effectively manage its various manufacturing processes.  The
failure to effectively manage manufacturing processes in a timely fashion would
have a material adverse effect on the Company's results of operations and
financial condition.

Risks of Lengthy Sales Cycles

   The typical sales cycle for Ortel's products requires a substantial
investment of time and effort.  Initial leads are investigated to determine if
the customer's needs can be met.  Engineering and applications support is
usually required during this stage.  Often, a lengthy product evaluation phase
follows, which may lead to the modification of the physical or electrical
specifications of the product.  Finally, negotiations regarding volume, delivery
and price take place.  For this reason, the Company's products typically have a
lengthy sales cycle.  Lengthy sales cycles subject the Company to a number of
significant risks, including fluctuations in operating results and inventory
obsolescence, over which the Company has little or no control.

Dependence on Key Personnel

   The Company's future success depends in large part on the continued service
of its key management and technical personnel and on whether or not the Company
will be able to continue to attract and retain highly skilled engineering,
manufacturing, marketing and managerial personnel.  The competition for such
personnel is intense, and the loss of key employees could have a material
adverse effect on the results of operations or financial condition of the
Company.

Dependence on New Product Development

   The broadband, telecom, and wireless markets are characterized by the
continuing advancement of technology.  A significant component of the Company's
business strategy is the development of new applications for new and existing
technologies for use in the broadband, wireless and telecommunications
industries.   There can be no assurance that the technologies and applications
under development by the Company will be successfully developed, or, if they are
successfully developed, that they will achieve market acceptance.  If the
Company is unable, for technological or other reasons, to develop and introduce
products and applications in a timely manner in response to changing market
conditions or customer requirements, the Company's results of operations and
financial condition could be materially adversely affected.

Risks of International Operations

   Sales to customers outside of the United States represented 38%, 49% and 36%
of the Company's total revenues in fiscal years 1999, 1998, and 1997,
respectively. Such sales are subject to certain risks such as changes in foreign
government regulations and telecommunications standards, export license
requirements, tariffs and taxes, other trade barriers, fluctuations in foreign
currency exchange rates, difficulties in staffing and managing foreign
operations, and political and economic instability.  Fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country.  Payment cycles for international customers
are typically longer than those for customers in the United States.  There can
be no assurance that international markets will continue to develop or that the
Company will receive additional contracts to supply its products for use in
systems and equipment in international markets.  The Company's results of
operations or financial condition could be materially adversely effected if
international markets do not continue to develop, the Company does not continue
to receive additional contracts to supply its products for use in systems and
equipment in international markets or the Company's international sales are
affected by the other risks of international operations.

                                       17
<PAGE>

   The Company's sales to Asia decreased to $8.8 million in fiscal 1999 compared
to $16.9 million in fiscal 1998.  Economic conditions in Asia make it a
particular volatile area of the world with an unpredictable impact on the
Company.

Dependence on Single Source and Other Third Party Suppliers

   The Company sources certain components from single vendors (domestic or
international) for which a second source is not available.  While the Company
attempts to maintain a safety stock of these and other key components, an
inability to obtain these components on a timely basis and in adequate
quantities or an increase in the price of these components could have a material
adverse effect on the Company's results of operations or financial condition.

Dependence on Timely Receipt of Acceptable Components

   The Company depends on timely receipt of non-defective components to meet its
manufacturing schedule.  The Company's operating results or financial condition
could be adversely affected by receipt of a significant number of defective
components or the delay of component delivery, an increase in component prices
or the inability of the Company to obtain lower component prices in response to
competitive pressures on the pricing of the Company's products.

Potential Adverse Impact of Environmental Regulations

   The Company is subject to a wide variety of federal, state and local
governmental regulations related to the storage, use, discharge and disposal of
toxic, volatile or otherwise hazardous chemicals used in its manufacturing
process. There can be no assurance that environmental regulations will not
impose the need for additional capital equipment or other requirements. Further,
such regulations could restrict expansion of the Company's operations. Any
failure by the Company to obtain required permits for, control the use of, or
adequately restrict the discharge of, hazardous substances under present or
future regulations could subject the Company to substantial liability or could
cause its manufacturing operations to be suspended. Such liability or suspension
of manufacturing operations could have a material adverse effect on the
Company's results of operations or financial condition.

Earthquake

   The Company's headquarters and all of its manufacturing and research and
development operations (other than its Avitec operations which is located in
Sweden) are located near major earthquake fault lines.  While the Company has
taken measures to mitigate the potential impact of a major earthquake, the
Company's results of operations and financial condition could be materially
adversely affected in the event of such an earthquake near Alhambra, California.

Credit Risk

   Cash and cash equivalents and short investments are maintained with several
high quality financial institutions.  As part of its cash management process,
the Company performs periodic evaluations of the relative credit ratings of
these financial institutions.  The Company has established guidelines relative
to diversification and maturities that attempt to maintain safety and liquidity.

Dependence on Proprietary Technology

   The Company's future success and competitive position is dependent in part
upon its proprietary technology, and the Company relies in part on patent,
trademark and copyright law to protect its intellectual property. There can be
no assurance that any patent owned by the Company will not be invalidated,
circumvented or challenged, that the rights granted thereunder will provide
competitive advantages to the Company or that any of the Company's pending or
future patent applications will be issued with the scope of the claims sought by
the Company, if at all. Furthermore, there can be no assurance that others will
not develop technologies that are similar or superior to the Company's
technology, duplicate the Company's technology or design around the

                                       18
<PAGE>

patents owned by the Company. In addition, effective copyright and trade secret
protection may be unavailable or limited in certain foreign countries. There can
be no assurance that the steps taken by the Company will prevent
misappropriation of its technology. In addition, litigation may be necessary in
the future to enforce the Company's patents and other intellectual property
rights, to protect the Company's trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims of
infringement or invalidity. Such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's results of operations or financial condition.

Year 2000

   The Company has assessed the impact the year 2000 issue will have on its
products and internal information systems and took corrective action to ensure
that its operations will not be adversely impacted.  Steps have been taken to
reduce the risk to the availability and integrity of financial systems and the
reliability of operational systems.  The Company has established processes for
evaluating and managing the risks and costs associated with this issue and does
not anticipate that addressing the year 2000 problem for its internal
information systems and current and future products will have a material impact
on its operations or financial results.  The Company has certain key
relationships with customer and suppliers.  If these customers and suppliers
fail to adequately address the year 2000 issue as promised, this could have a
material adverse impact on the Company's operations and financial results.  This
item is discussed in greater detail in Item 7, Managements Discussion and
Analysis of Financial Condition and Results of Operations.

Risk of Patent Infringement Claims

   From time to time the Company has received, and may receive in the future,
notice of claims of infringement of other parties' proprietary rights. While the
Company has had certain claims made within the past several years, the Company
is aware of only one claim which are being actively pursued (See Item 3 Legal
Proceedings and Patents in Note 7, Commitments and Contingencies).  However,
there can be no assurance that infringement or invalidity claims (or claims for
indemnification resulting from infringement claims) will not be asserted against
the Company or affect the Company's business, financial condition or results of
operations. Irrespective of the validity or the successful assertion of such
claims, the Company would incur significant costs and diversion of resources
with respect to the defense thereof which could have a material adverse effect
on the Company's business, financial condition or results of operations. If any
claims or actions are asserted against the Company, the Company may seek to
obtain a license under a third party's intellectual property rights. There can
be no assurance, however, that under such circumstances, a license would be
available under reasonable terms or at all. The failure to obtain a license to a
third party's intellectual property rights on commercially reasonable terms
could have a material adverse effect on the Company's results of operations or
financial condition.


Control of the Company by Officers and Directors

   The Company's officers, directors and their affiliates beneficially own
approximately 36% of the outstanding shares of the Company's Common Stock. As a
result, such persons, acting together, would have the ability to exercise
significant influence over all matters requiring stockholder approval. The
concentration of ownership could have the effect of delaying or preventing a
change in control of the Company and could have a material adverse effect on the
market value of the Company's Common Stock.

Potential Issuance of Preferred Stock and Other Anti-Takeover Provisions

   The Board of Directors have the authority to issue up to 5,000,000 shares of
undesignated Preferred Stock, to determine the powers, preferences and rights
and the qualifications, limitations or restrictions granted to or imposed upon
any unissued series of undesignated Preferred Stock and to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the Company's stockholders. The Preferred Stock could
be issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. Furthermore, such Preferred Stock may have other
rights, including economic rights, senior to the Common Stock, and as a result,
the issuance of such stock could have a material adverse effect on the market
value of the Common Stock. In addition, the Company's Certificate of
Incorporation eliminates the right of

                                       19
<PAGE>

stockholders to act without a meeting and does not provide cumulative voting for
the election of directors or the right of stockholders to call special meetings.
The Company's Certificate of Incorporation also provides for a classified board
of directors. The ability of the Board to issue Preferred Stock and these other
provisions of the Company's Certificate of Incorporation and Bylaws may have the
effect of deterring hostile takeovers or delaying changes in control or
management of the Company. The Company is also afforded the protection of
Section 203 of the Delaware General Corporation Law, which could delay or
prevent a change in control of the Company, impede a merger, consolidation or
other business combination involving the Company or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
the Company. Any of these provisions which may have the effect of delaying or
preventing a change in control of the Company could have a material adverse
effect on the market value of the Company's Common Stock.

   On March 3, 1995, the Company's Board of Directors adopted a Stockholders
Rights Plan that is intended to protect Stockholder interests in the event the
Company is confronted with coercive takeover tactics. Pursuant to the Plan, the
Company distributed Rights to purchase shares of a newly created series of Ortel
Preferred Stock.  Under certain circumstances these Rights become the rights to
purchase shares of Common Stock of the Company or securities of an acquiring
entity at one-half market value. The Rights may be exercised only if certain
events occur. The Rights are not intended to prevent a takeover of Ortel. They
are designed to deal with the possibility of unilateral actions by hostile
acquirers that could deprive the Board of Directors and stockholders of Ortel of
their ability to determine the Company's destiny and obtain the highest price
for the Company's Common Stock.

Dividends Unlikely and Limited

   The Company has never declared or paid dividends on its Common Stock and
currently does not intend to pay dividends in the foreseeable future so that it
may reinvest its earnings in the development of its business. The payment of
dividends in the future will be at the discretion of the Board of Directors.

                                       20
<PAGE>

Item 2.  PROPERTIES

   The Company leases its principal manufacturing, engineering, sales and
administrative facilities consisting of approximately 114,300 square feet in
Alhambra, California. Total monthly cost of these leased facilities is
approximately $75,000. Significant leases are as follows:

<TABLE>
<CAPTION>
                             Square Footage
     Building No(s).            (Approx.)      Current Lease Period   Option Period 1    Option Period 2
--------------------------------------------------------------------------------------------------------
<S>                          <C>               <C>                    <C>                <C>
          1 - 4                      50,000          10/96 - 9/2000   10/2000 - 9/2005        None
--------------------------------------------------------------------------------------------------------
            5                        18,000          10/97 - 9/2000   10/2000 - 9/2005        None
--------------------------------------------------------------------------------------------------------
            6                         9,300           7/98 - 6/2000    7/2000 - 6/2003        None
--------------------------------------------------------------------------------------------------------
            7                         8,000          10/98 - 9/2000   10/2000 - 9/2005        None
--------------------------------------------------------------------------------------------------------
            9                         7,500           5/97 - 4/2000    5/2000 - 4/2003   5/2003 - 4/2006
--------------------------------------------------------------------------------------------------------
            10                        7,500           9/97 - 8/2000    9/2000 - 8/2003   9/2003 - 8/2006
--------------------------------------------------------------------------------------------------------
         Trailers                    14,000                 Owned or rented month-to-month
--------------------------------------------------------------------------------------------------------
          Total                     114,300
-------------------------------------------
</TABLE>

   During fiscal 1999, the Company entered into a two-year lease for building
six combining the space it previously leased in two separate increments.  The
Company also exercised an option period for building seven extending the lease
term for two years.

   The Company also leases additional space on a month-to-month basis for office
and storage space at its main facilities and leases small sales offices in
Atlanta, Georgia, Philadelphia, Pennsylvania and Santa Clara, California.
Sales offices in France, Germany, Beijing and Singapore are also leased. The
facility lease for Avitec AB in Sweden has been reduced in size to approximately
11,000 square feet with an approximate monthly cost of  $10,000. This lease
expires on June 30, 2000 and there is no renewal option.

   In December 1997, the Company entered into a ten-year lease for approximately
3.4 acres of automobile parking.  The location is adjacent to both the current
leased facilities and the purchased property.  The Company purchased
approximately 76,500 square feet of land (56,500 square feet in November 1994
and 20,000 square feet in May 1996) near its existing facilities at a cost of
$1.8 million. The Company expects to construct a building on this site as market
conditions dictate. See Note 7 of Notes to Consolidated Financial Statements.


Item 3.  LEGAL PROCEEDINGS

   As early as January 1990, the Company received notices from Rockwell
International Corporation ("Rockwell") alleging that a process used by Ortel for
growing epitaxial layers infringes certain broad patent rights that Rockwell
holds.  In August 1993, Rockwell sued the U.S. government alleging infringement
of its patent rights with respect to the contracts the U.S. government has had
with at least 15 companies, including Ortel.  During fiscal 1997, this patent
was held invalid in a court action brought by Rockwell.  A subsequent ruling of
the Court of Appeals for the federal circuit sent the case back to trial court.
The U.S. government settled the lawsuit and in April 1999, Rockwell once again
approached the Company asserting its rights to the patent.  The Company has
requested information regarding terms of a possible license.

   If the Company were found to be infringing on any patent holder's rights, the
Company could be subject to liabilities for such infringement, which could be
material, and could be required to seek licenses from other companies or to
refrain from manufacturing certain products. Although patent holders commonly
offer licenses to their patent or other intellectual property rights, no
assurance can be given that the licenses would be offered, or that the terms of
any offered license would be acceptable to the Company or that failure to obtain
a license would not adversely affect the Company's operating results.

   During fiscal 1996, the Company settled certain litigation with a third party
related to an intellectual property dispute and has now received the total
settlement aggregating $3 million.  Included in other income in the accompanying
consolidated financial statements is approximately $1 million in each year
fiscal 1998, 1997 and 1996 less related litigation expenses.

                                       21
<PAGE>

   The Company is, from time to time, involved in routine legal matters
incidental to its business.  In the opinion of Company management, the
resolution of such matters will not have a material effect on its financial
condition or results of operations.

Item 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

   As filed in the 10-Q for the quarter ended October 31, 1998.


                                    PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

   The Common Stock is listed on the Nasdaq National Market under the symbol
"ORTL." The following table sets forth, for the calendar periods indicated, the
range of high and low closing sales prices for the Common Stock, as reported by
Nasdaq:

<TABLE>
<CAPTION>
                                                                          Fiscal                    Fiscal
                                                                           1999                      1998
                                                                         ----------                ----------
                                                                     High         Low          High         Low
                                                                  ----------   ----------   ----------   ----------
<S>                                                                 <C>         <C>          <C>          <C>
1st  Quarter ended July 31.......................................   $19.94       $12.88      $22.00        $12.00
2nd  Quarter ended October 31....................................    19.69        10.44       25.00         18.88
3rd  Quarter ended January 31....................................    13.13         7.81       23.88         12.75
4th  Quarter ended April 30......................................    10.75         6.00       15.38         10.69
</TABLE>

   The closing sales price of the Company's Common Stock on June 30, 1999 was
$10.625.  The approximate number of stockholders of record on June 30, 1999 was
144.

   The Company has never declared or paid dividends on its Common Stock and
currently does not intend to pay dividends in the foreseeable future so that it
may reinvest its earnings in the development of its business. The payment of
dividends in the future will be at the discretion of the Board of Directors. In
addition, the Company's bank line of credit limits the Company's ability to pay
dividends without the lender's consent.

                                       22
<PAGE>

Item 6.  SELECTED FINANCIAL DATA

   Set forth below is selected consolidated financial data of the Company for
the five years ended April 30, 1999.  This data should be read in conjunction
with the consolidated financial statements and notes thereto set forth elsewhere
herein.  See accompanying notes to condensed consolidated financial statements.

<TABLE>
<CAPTION>
                                                                                          Year Ended April 30,
                                                                                  (in thousands, except per share amounts)
                                                                      ------------------------------------------------------------
                                                                        1999        1998 (1)     1997 (1)      1996        1995
                                                                      ----------   ----------   ----------   ---------   ---------
<S>                                                                     <C>          <C>          <C>          <C>         <C>
Consolidated Statement of Operations Data:
Revenues.............................................................   $72,059     $75,927      $82,363      $57,666     $50,090
Cost of revenues.....................................................    44,091      44,065       42,746       29,477      25,311
                                                                        -------     -------      -------      -------     -------
  Gross profit.......................................................    27,968      31,862       39,617       28,189      24,779
Operating expenses:
  Research and development(2)........................................    12,374      11,662       12,875        8,878       6,328
  Sales and marketing................................................    11,840      10,251       10,605        7,969       6,306
  General and administrative.........................................     6,889       6,157        5,968        3,454       2,869
  Acquired research and development in-process.......................         -           -            -        4,800           -
                                                                        -------     -------      -------      -------     -------
   Total operating expenses..........................................    31,103      28,070       29,448       25,101      15,503
                                                                        -------     -------      -------      -------     -------
  Operating income (loss)............................................    (3,135)      3,792       10,169        3,088       9,276
Other:
  Interest income, net...............................................     1,291       1,278        1,458        1,842       1,126
  Other income (expense), net........................................       179         584          743          765         (48)
                                                                        -------     -------      -------      -------     -------
Income (loss) from continuing operations before income taxes.........    (1,665)      5,654       12,370        5,695      10,354
Provision (credit) for income taxes..................................      (995)      1,517        3,801        3,302       4,051
                                                                        -------     -------      -------      -------     -------
  Income (loss) from continuing operation............................      (670)      4,137        8,569        2,393       6,303
Loss from discontinued operation, net of income tax benefits of
  $360 in 1999, $794 in 1998 and $113 in 1997........................    (1,439)     (1,400)        (254)           -           -
Loss from disposal of discontinued operations, net of income tax
 benefits of $980....................................................    (3,919)          -            -            -           -
                                                                        -------     -------      -------      -------     -------
Net  income (loss)...................................................   $(6,028)    $ 2,737      $ 8,315      $ 2,393     $ 6,303
                                                                        =======     =======      =======      =======     =======
Income (loss) per common share - Basic
  Income (loss) from continuing operations...........................   $  (.06)    $   .36      $   .75      $   .21     $   .62
  Discontinued operations............................................      (.45)       (.12)        (.02)           -           -
                                                                        -------     -------      -------      -------     -------
  Income (loss) per share - Basic....................................   $  (.51)    $   .24      $   .73      $   .21     $   .62
                                                                        =======     =======      =======      =======     =======
Income (loss) per common share - Diluted (3)
  Income (loss) from continuing operations (3).......................   $  (.06)    $   .33      $   .68      $   .19     $   .55
  Discontinued operations (3)........................................      (.45)       (.11)        (.02)           -           -
                                                                        -------     -------      -------      -------     -------
  Income (loss) per share - Diluted (3)..............................   $  (.51)    $   .22      $   .66      $   .19     $   .55
                                                                        =======     =======      =======      =======     =======
Shares used in share computation:
  Basic..............................................................    11,876      11,634       11,463       11,312      10,157
  Diluted............................................................    11,876      12,639       12,609       12,361      11,506
</TABLE>

<TABLE>
<CAPTION>
                                                                                         Year Ended April 30,
                                                                       -----------------------------------------------------------
                                                                         1999       1998 (1)     1997 (1)      1996        1995
                                                                       ---------   ----------   ----------   ---------   ---------
<S>                                                                     <C>         <C>          <C>          <C>         <C>
Consolidated Balance Sheet Data:
  Cash and short term investments....................................   $23,771     $28,668      $34,562      $38,872     $43,881
  Working capital....................................................    46,001      49,163       52,937       51,127      54,980
  Total assets.......................................................    89,228      90,341       90,996       77,457      74,323
  Long-term debt.....................................................         -           -            -            6           -
  Stockholders' equity...............................................    75,188      78,784       74,883       66,274      64,144
</TABLE>

(1) Certain amounts related to discontinued operations have been reclassified to
    conform to current year presentation.
(2) Revenues from research and development contracts are netted against research
    and development expenses.
(3) Options to purchase 652,000 shares at or below the average price of the
    common shares were outstanding at April 30, 1999, but were excluded from the
    computation of diluted earnings per share as the Company reported a loss
    position and the effect would be antidilutive.

                                       23
<PAGE>

Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS


GENERAL

   The discussion in this section contains forward-looking statements that
involve risks and uncertainties.  The Company's actual results could differ
materially from those discussed herein.  Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in Item 1
as well as those discussed in this Item.

Comparison of Years Ended April 30, 1999 and 1998

   Total revenues for fiscal 1999 were $72.1 million, a 5% decrease from
revenues of $75.9 million in fiscal 1998. Revenues from the fiber optics
business, consisting of broadband, satellite communications and
telecommunications, increased 2% year to year while revenues from the wireless
business decreased 43%, a reflection of the continued slow pace of deployment of
repeater products by wireless PCS operators.

   International business made up 38% of total revenue in fiscal 1999, a
decrease of 26% from fiscal 1998. This decrease was primarily due to the
completion of a multi-million dollar contract from our Wireless business in Asia
in fiscal 1998. European revenues increased 6% while U.S. revenues rose 16% year
to year.

   Sales to Antec and GI in fiscal 1999 were 24% and 18% respectively, compared
to 10% and 16% respectively in fiscal 1998. While the Company has enjoyed a
long-term relationship with these customers, there can be no assurance that they
will not secure a second source or continue buying products from the company.

   Gross margin for fiscal 1999 was 39% compared to 42% in fiscal 1998. The
reduction was due in part to reduced revenue, lower average prices for certain
broadband products and also from a mix of some lower margin products. The
Company anticipates that gross margins in the near term may trend lower as a
result of lower prices on its broadband products offset by on-going cost
reduction efforts associated with the introduction of a number of new products.
The allowance for doubtful accounts receivable was increased by a net of
$666,000 as a precautionary measure related to certain older receivables
currently in dispute.

   For fiscal 1999, research and development expenses of $12.4 million, or 17%
of revenue, was 6% higher than $11.7 million, or 15% of revenue, in fiscal 1998.
This increase is in line with the Company's ongoing commitment to invest in its
core linear and high-speed fiber optics business.

   Sales and marketing expense increased 16% from $10.3 million, or 14% of
revenue, in fiscal 1998, to $11.8 million, or 16% of revenue in fiscal 1999.
This increase was primarily due to costs associated with the opening of offices
in Asia during the year.

   General and administrative expenses increased 12% from $6.2 million, or 8% of
revenue, in fiscal 1998, to $6.9 million, or 10% of revenue, in fiscal 1999.
This increase is primarily due to certain costs related to changes in senior
management and a charge related to the board of directors stock option plan.

   There was an operating loss of $3.1 million from continuing operations in
fiscal 1999 compared to an operating profit of $3.8 million last year.

   The effective income tax rate from continuing operations was a 59.7% tax
benefit on losses resulting in an income tax benefit of $995,000. This compared
to an effective income tax rate of 26.8% on profits recorded in fiscal 1998.

   The loss from continuing operations for fiscal 1999 was $670,000, or $0.06
per basic share compared to a net profit of $4.1 million, or $0.36 per basic
share in fiscal 1998. Net income for fiscal 1999 includes an adjustment of
$590,000 to the tax accrual which is primarily the current tax benefit from the
carryback of unused

                                       24
<PAGE>

research and development credits. Net income for fiscal 1998 includes a gain of
$915,000, or an after-tax impact of $0.05 per basic share, as the Company
received the final installment of three equal annual payments related to an
intellectual property dispute.

   After giving effect to losses from discontinuing our 980nm pump laser product
in the second quarter of fiscal 1999 of $5.4 million, or $0.45 per basic share,
and $1.4 million, or $0.12 per basic share, in fiscal 1998, the Company
reported a net loss for fiscal 1999 of $6.0 million, or $0.51 per basic share,
compared to net income in fiscal 1998 of $2.7 million, or $0.24 per basic share.

Comparison of Years Ended April 30, 1998 and 1997

   The Company's results for the fiscal year ended April 30, 1998, were, in
large part, dependent upon the level of capital spending on fiberoptic
technologies within the CATV industry.  Approximately 84% of the Company's
revenues during fiscal year 1998 was derived from its fiber optics business,
mainly for CATV. For the year, sales to GI accounted for approximately 16% of
total revenues.  While the Company has enjoyed a long-term relationship with
this customer, there can be no assurance that GI will not secure a second source
or continue buying products from the company.

   Compared to the prior year, the 8% reduction in revenue in fiscal 1998 is the
result of a 14% reduction in fiber optics revenues partially offset by a 47%
increase in revenue for wireless applications.  The reduction in fiber optics
revenues reflects a continued slowdown in the domestic broadband industry due in
part to a reduction in spending by Tele-Communications, Inc. (TCI) for network
upgrades and a reduction in the average price of forward-path transmitters sold
during the year in response to competitive pressures emanating from an
unfavorable movement in foreign exchange rates.

   On a geographic basis, domestic revenues decreased by 27% in fiscal 1998
reflecting a significant decrease in sales to GI and Antec, while international
revenues increased by 26% during the same period. Sales to customers outside the
U.S. represented 49% of the Company's total revenues in fiscal year 1998.

   The decrease in gross margin to 42% in fiscal 1998 as compared to 48% in
fiscal 1997 reflected 1) a reduction in total revenues while certain other costs
remain relatively fixed, 2) a reduction in the average price of forward path
transmitters in response to competitive pressures emanating from an unfavorable
movement in foreign exchange rates, and 3) the startup costs related to the
introduction of certain new products.

   Research and development expenses of $11.7 million were $1.2 million lower in
fiscal 1998 compared to fiscal 1997 and was unchanged as a percent of revenue at
approximately 15% in both years.  Research and development costs are expensed as
incurred and are net of contract revenues.  Revenues from such contracts totaled
approximately $730,000 in 1998. The Company has, in the past, maintained a
strong research and development program and expects to continue to invest
significant resources for research and product development.

   Sales and marketing expenses of $10.3 million in fiscal 1998 were slightly
lower than fiscal 1997 but unchanged as a percent of revenue at approximately
14% in both years.

   General and administrative expenses of $6.2 million in fiscal 1998 increased
slightly from $6.0 million in fiscal 1997 and as a percent of revenue increased
to 8% from 7% in the previous year.

   Interest and other income, net of interest expense of $1.9 million in fiscal
1998 was down from $2.2 million in fiscal 1997 primarily due to lower average
cash balances. Other income for fiscal 1998 includes a gain of $915,000 as the
Company received the final installment of three equal annual payments related to
an intellectual property dispute. No further payments are expected related to
this dispute.

   The effective income tax rate from continuing operations was 26.8% in fiscal
1998 and 30.7% in fiscal 1997.  The fiscal 1998 rate has been adjusted to
reflect the effective tax rate from continuing operations.

                                       25
<PAGE>

DISCONTINUED OPERATIONS

   In early November 1998, the Company announced it would discontinue its 980 nm
pump laser business.  Sales of the 980 nm product began in the first quarter of
fiscal year 1997 and totaled $1.9 million over three fiscal years.  Such revenue
was below the Company's expectations due largely to rapid and continual price
reductions in the marketplace.  The necessary research and development costs,
which would further differentiate Ortel's product, were not merited under these
market conditions.

   In addition to the operating losses incurred, the Company expects it will
incur further costs as a result of its exit from the market.  These costs were
recognized in the second quarter of this fiscal year and totaled $4.9 million
before income tax and $3.9 million after tax.  Significant items included in
this write-off were expected product warranty costs, write-off of inventory,
equipment and accounts receivable plus severance costs of the associated
reduction in workforce.


LIQUIDITY AND CAPITAL RESOURCES

   In fiscal 1999, the Company utilized $400,000 of cash in its operating
activities for both its continuing and discontinued operations.  This was
primarily due to increases in accounts receivable and inventory, partially
offset by a higher level of trade accounts payable.  The Company also utilized
$1.8 million in investment activities during the year.  This was due to capital
equipment purchases of $5.2 million and a further investment of $1.5 million in
the Tellium joint venture, offset by $4.9 million of proceeds from the sale of
short-term investments.  The exercise of stock options generated $1.4 million in
cash in fiscal 1999.

   Cash and cash equivalents of $12.7 million remained unchanged from the prior
year ended April 30, 1998.  As of April 30, 1999, the Company's principal
sources of liquidity included cash and short-term investments of $23.8 million.
The Company also had a credit facility for $5 million consisting of an unsecured
revolving line of credit that expired on September 30, 1998.  The revolving line
of credit is renewable at the Company's option.

   The Company believes that cash, short-term investments and funds generated
from operations will be sufficient to satisfy its projected working capital and
capital expenditure requirements over the next twelve months.


YEAR 2000

State of Readiness

   The Company's Year 2000 (Y2K) initiatives are focusing primarily on four
areas of potential impact: internal information technology (IT) systems;
internal non-IT systems and processes, including services and embedded chips
(controllers); the Company's products and services and the readiness of
significant third parties with whom the Company has material business
relationships.  The Company established a Y2K project committee to coordinate
these programs across the enterprise.  The committee reports the results of
these activities directly to senior management and the board of directors.
Remediation is currently in process for all addressed areas with an expected
completion date of September 30, 1999.

   The Company has approached its Y2K IT internal readiness program in the
following four phases: (1) assessment, (2) planning, (3) preparation and (4)
implementation.  The Company has targeted its efforts to ensure that its
critical IT applications were Y2K compliant by June 30, 1999.  The assessment,
planning and preparation phases have been completed.  As of June 30, 1999, the
implementation phase is approximately 50 percent complete.

   Non-IT systems include, but are not limited to, those systems that are not
commonly thought of as IT systems, such as telephone/PBX systems; fax machines;
facilities systems regulating alarms, building access and sprinklers;
manufacturing, assembly and test equipment; and other miscellaneous systems and
processes.  The

                                       26
<PAGE>

Company's Y2K dedicated project manager has developed a comprehensive process to
assure a structured and standardized methodology to organize, plan and implement
the Y2K readiness.

   The Company's newly introduced products are Y2K compliant and most of the
Company's existing products do not contain any reference to a date nor do they
access or manipulate a date.  However, certain hardware products, specifically
Repeater products, currently installed at customer sites will require upgrade or
other remediation.  Approximately 85 percent of the Company's revenue are
products with no Y2K implications. The Y2K project manager has been charged with
the development and implementation of plans to identify, test, develop
remediation methods and the communication of the status and necessary customer
actions for all non-compliant products delivered since January 1, 1997.  Where
applicable, Y2K compliance of individual software applications is contingent on
the use of Y2K compliant hardware platforms.  The Company is aware of the
potential for legal claims against it and other companies for damages arising
from products that are not Y2K compliant.  Management believes that reasonable
communication and customer satisfaction steps are under way so that any such
claims against the Company would be without merit or would not otherwise result
in material liability for the Company.

   The Company has developed a Y2K process for dealing with its key suppliers,
contract manufacturers, distributors, vendors and partners.  The process
generally involves the following steps: (1) initial supplier survey, (2) risk
assessment and contingency planning, (3) follow-up supplier reviews and
escalation, if necessary, and where relevant, (4) testing.  To date, the Company
has received formal responses from all of its critical suppliers.  Most of them
have responded that they expect to address all their significant Y2K issues on a
timely basis.

   The Company, however, continues to review and monitor the suppliers' Y2K
readiness plans and performance to identify and analyze the most reasonably
likely worst-case scenarios for third-party relationships affected by Y2K.
These scenarios could include possible infrastructure collapse, the failure of
power and water supplies, major transportation disruptions, unforeseen product
shortages due to hoarding of products and sub-assemblies and failures of
communications and financial systems.  Any one of these scenarios could have a
major and material effect on the Company's ability to build its products and
deliver services to its customers.  While the Company is developing contingency
plans to address most issues under its control, an infrastructure problem
outside of its control or some combination of several of these problems could
result in a delay in product shipments depending on the nature and severity of
the problems.


Costs

   The costs associated with the Company's readiness actions are a combination
of incremental external spending and use of existing internal resources.  The
Company estimates spending to date has been less than $300,000 which includes
the cost of replacement hardware and software as well as internal labor costs.
Based upon current estimates, the Company does not believe that additional costs
associated with the remaining actions to be taken will have a material effect on
the results of operations or financial condition.  However, the costs of such
actions may vary from quarter to quarter.  There can be no assurance that there
will not be a delay in, or increased costs associated with the implementation of
such changes.

   Although the Company is dedicating substantial resources towards attaining
Y2K readiness, there is no assurance it will be successful in its efforts to
identify and address all Y2K issues.  Even if the Company acts in a timely
manner to complete all of its assessments, identifies, develops and implements
remediation plans believed to be adequate, and develops contingency plans
believed to be adequate, some problems may not be identified or corrected in
time to prevent material adverse consequences to the Company.

   The discussion above regarding estimated completion dates, costs, risks and
other forward-looking statements regarding Y2K is based on the Company's best
estimates given information that is currently available and is subject to
change. As the Company continues to progress with its Y2K initiatives, it may
discover that actual results will differ materially from these estimates.

                                       27
<PAGE>

CHANGE IN MANAGEMENT

   In February 1999, the Company announced that Wim H. J. Selders, President and
Chief Executive Officer, intended to retire from the Company after thirteen
years of service and that the board of directors began a search for his
replacement.  In June 1999, Stephen R. Rizzone was hired as President, Chief
Executive Officer and Chairman of the Board.  In the latter position Mr. Rizzone
replaces Amnon Yariv, who continues as a member of the board of directors.  Mr.
Rizzone's most recent position was with NetVantage, Inc., as President and Chief
Executive Officer.  NetVantage merged with Cabletron Systems in September 1998.


RECENT ACCOUNTING PRONOUNCEMENTS

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."  The Company is
required to adopt SFAS No. 133 for all fiscal quarters of fiscal years beginning
after June 15, 2000.  Based on the information currently available, management
has determined that the disclosure requirements from this statement will not
impact the financial statements of the Company.

   In March 1998, the AICPA Accounting Standard Executive Committee issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use."  This SOP requires
capitalization of certain costs related to computer software developed or
obtained for internal use.  The Company will adopt SOP 98-1 effective in fiscal
2000.  Based on the information currently available, the Company does not expect
the adoption of SOP 98-1 to have a significant impact on its financial position
or results of operations.

   In April 1998, the AICPA Accounting Standard Executive Committee issued
Statement of Position 98-5, (SOP 98-5) "Reporting on the Cost of Start-up
Activities."  SOP 98-5 requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred.  SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of SOP 98-5 should be as of the beginning of the fiscal year
in which SOP 98-5 is first adopted and should be reported as a cumulative effect
of a change in accounting principle.  SOP 98-5 will be adopted in the first
quarter of fiscal 2000 at which time the Company will record a cumulative effect
of a change in accounting principle of approximately $1 million in the
consolidated statement of operations for the period ending July 31, 1999.

Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   The Company is exposed to the impact of interest rate changes and changes in
the market values of its investments. The Company's exposure to market rate risk
for changes in interest rates relates primarily to its investment portfolio. The
Company has not used derivative financial instruments in its investment
portfolio. The Company invests its excess cash in debt instruments of the U.S.
Government and its agencies, and in high-quality corporate issuers and, by
policy, limits the amount of credit exposure to any one issuer. The Company
protects and preserves its invested funds by limiting default, market and
reinvestment risk. Investments in both fixed rate and floating rate interest
earning instruments carry a degree of interest rate risk. Fixed rate securities
may have their fair market value adversely impacted due to a rise in interest
rates, while floating rate securities may produce less income than expected if
interest rates fall. Due in part to these factors, the Company's future
investment income may fall short of expectations due to changes in interest
rates or the Company may suffer losses in principal if forced to sell securities
which have declined in market value due to changes in interest rates.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   The response to this item is filed as a separate part of this Report (see
page 31).

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

   None.

                                       28
<PAGE>

                                   PART III


Item 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   There is hereby incorporated herein by reference the information appearing
under the caption "Proposal 1--Election of Directors" and under the caption
"Executive Officers of the Company" of the registrant's definitive Proxy
Statement for its 1999 Annual Meeting to be filed with the Securities and
Exchange Commission on or before August 27, 1999.


Item 11.  EXECUTIVE COMPENSATION

   There is hereby incorporated herein by reference the information appearing
under the caption "Executive Compensation" of the registrant's definitive Proxy
Statement for its 1999 Annual Meeting to be filed with the Securities and
Exchange Commission on or before August 27, 1999.


Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

   There is hereby incorporated herein by reference the information appearing
under the caption "Voting Securities and Certain Holders Thereof" of the
registrant's definitive Proxy Statement for its 1999 Annual Meeting to be filed
with the Securities and Exchange Commission on or before August 27, 1999.


Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   There is hereby incorporated herein by reference the information appearing
under the caption "Certain Transactions" of the registrant's definitive Proxy
Statement for its 1999 Annual Meeting to be filed with the Securities and
Exchange Commission on or before August 27, 1999.


                                    PART IV


Item 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)  Financial Statements

   1.  The list of financial statements contained in the accompanying Index to
   Consolidated Financial Statements covered by Independent Auditors' Report are
   filed as part of this Report (see page 31).

   2.  Financial Statement Schedule

   The financial statement schedule contained in the accompanying Index to
   Consolidated Financial Statements covered by Independent Auditors' Report are
   filed as part of this Report (see page 31).

   3.  Exhibits

   The list of exhibits contained in the Index to Exhibits are filed as part of
   this Report (see page 56).

(b)  Reports on Form 8-K

   A Form 8-K report was filed during the third quarter of fiscal year 1999
   which reported the discontinuance of the 980nm pump laser product.

                                       29
<PAGE>

                                  SIGNATURES

   Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on July 28, 1999.

                         Ortel Corporation,
                         a Delaware corporation



                         By:/s/Stephen R. Rizzone
                            ---------------------
                         Stephen R. Rizzone
                         President, Chief Executive Officer and Chairman of the
                         Board

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

<TABLE>
<CAPTION>
                    Signature                                        Title                           Date
--------------------------------------------------   --------------------------------------   -------------------
<S>                                                  <C>                                      <C>
/s/Stephen R. Rizzone                                Director, President, Chief Executive        July 28, 1999
--------------------------------------------------   Officer and Chairman of the Board
            Stephen R. Rizzone                       (Principal Executive Officer)
            ------------------

/s/Roger Hay                                         Vice President, Finance and Chief           July 28, 1999
--------------------------------------------------   Financial Officer (Principal
                   Roger Hay                         Financial and Accounting Officer)
                   ---------

/s/Israel Ury                                        Director and Chief Technology Officer       July 28, 1999
--------------------------------------------------
                   Israel Ury

/s/Nadav Bar-Chaim                                   Director, Senior Vice President and         July 28, 1999
--------------------------------------------------   Secretary
                Nadav Bar-Chaim

/s/John Gaulding                                     Director                                    July 28, 1999
--------------------------------------------------
                John Gaulding

/s/Tatsutoku Honda                                   Director                                    July 28, 1999
--------------------------------------------------
                Tatsutoku Honda

/s/Anthony J. Iorillo                                Director                                    July 28, 1999
--------------------------------------------------
                Anthony J. Iorillo

/s/Luther Nussbaum                                   Director                                    July 28, 1999
--------------------------------------------------
                Luther Nussbaum

/s/Wayne L. Tyler                                    Director                                    July 28, 1999
--------------------------------------------------
                Wayne L. Tyler

/s/Ronald L. Young                                   Director                                    July 28, 1999
--------------------------------------------------
                Ronald L. Young
</TABLE>

                                       30
<PAGE>

                               ORTEL CORPORATION

            Index to Consolidated Financial Statements and Schedule
                    Covered by Independent Auditors' Report

<TABLE>
<CAPTION>
                                                                                                       Page
                                                                                                       ----
<S>                                                                                                   <C>
Consolidated Financial Statements

Independent Auditors' Report.....................................................................       32

Consolidated Balance Sheets as of April 30, 1999 and 1998........................................       33

Consolidated Statements of Operations for the years ended
  April 30, 1999, 1998 and 1997..................................................................       34

Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years
 ended April 30, 1999, 1998 and 1997.............................................................       35

Consolidated Statements of Cash Flows for the years ended
 April 30, 1999, 1998 and 1997...................................................................       36

Notes to Consolidated Financial Statements.......................................................       37

Consolidated Financial Statement Schedule

Schedule II:  Valuation and Qualifying Accounts..................................................       55
</TABLE>

  All other schedules are omitted because the required information is not
applicable or the information is presented in the consolidated financial
statements or notes thereto.

                                       31
<PAGE>

                         INDEPENDENT AUDITORS' REPORT


The Board of Directors
Ortel Corporation:

We have audited the consolidated financial statements of Ortel Corporation and
subsidiaries as listed in the accompanying index.  In connection with our audits
of the consolidated financial statements, we also have audited the consolidated
financial statement schedule as listed in the accompanying index.  These
consolidated financial statements and consolidated financial statement schedule
are the responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements and consolidated
financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ortel Corporation
and subsidiaries as of April 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1999, in conformity with generally accepted accounting
principles.  Also, in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.



/s/ KPMG  LLP

Los Angeles, California
May 26, 1999, except Note 12 which is as of June 2, 1999

                                       32
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES
                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                                                           April 30,
                                                                                                -------------------------------
                                                                                                    1999             1998 (1)
                                                                                                -------------     -------------
<S>                                                                                               <C>                <C>
ASSETS
Current assets:
  Cash and equivalents.......................................................................     $ 12,705          $ 12,656
  Short term investments.....................................................................       11,066            16,012
  Trade receivables less allowance for doubtful accounts of $973 and $307 at
    April 30, 1999 and 1998, respectively....................................................       14,549            12,819
  Billed contract costs and fees and other receivables (net).................................          684             1,415
  Inventories................................................................................       13,443            10,492
  Income taxes receivable....................................................................        2,900                71
  Deferred tax assets........................................................................        2,574             2,775
  Prepaid expenses and other current assets..................................................        1,042             1,281
  Current assets, discontinued operations....................................................           --               936
                                                                                                  --------          --------
    Total current assets.....................................................................       58,963            58,457
Property, equipment and improvements, at cost:
  Property...................................................................................        1,796             1,796
  Equipment..................................................................................       29,615            27,511
  Office furniture and fixtures..............................................................        5,688             4,813
  Leasehold improvements.....................................................................        6,484             4,932
                                                                                                  --------          --------
  Total property, equipment and improvements.................................................       43,583            39,052
  Less accumulated depreciation and amortization.............................................      (25,159)          (19,560)
                                                                                                  --------          --------
    Net property, equipment and improvements.................................................       18,424            19,492
Intangible assets, net.......................................................................        2,123             2,581
Other assets.................................................................................        9,718             8,802
Long-term assets, discontinued operations....................................................           --             1,009
                                                                                                  --------          --------
    Total assets.............................................................................     $ 89,228          $ 90,341
                                                                                                  ========          ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable...........................................................................     $  7,168          $  3,685
  Accrued payroll and related costs..........................................................        1,794             2,899
  Other accrued liabilities..................................................................        2,166             2,538
  Discontinued operations reserve............................................................        1,646                --
  Income taxes payable.......................................................................          188               172
                                                                                                  --------          --------
    Total current liabilities................................................................       12,962             9,294
Deferred income..............................................................................           --               400
Deferred income taxes........................................................................          817             1,598
                                                                                                  --------          --------
Total liabilities............................................................................       13,779            11,292
Minority interest in subsidiaries............................................................          261               265
Stockholders' equity:
  Preferred stock, $.001 par value; 5,000,000 shares authorized;
    none issued and outstanding..............................................................           --                --
  Common Stock, $.001 par value; 25,000,000 shares authorized; issued
    and outstanding: 11,969,644 and 11,713,371 in 1999 and 1998..............................           12                12
  Additional paid in capital.................................................................       55,422            53,101
  Retained earnings..........................................................................       21,421            27,449
  Loans receivable...........................................................................       (1,064)           (1,460)
  Accumulated other comprehensive loss.......................................................         (603)             (318)
                                                                                                  --------          --------
    Net stockholders' equity.................................................................       75,188            78,784
                                                                                                  --------          --------
Commitments and contingencies (note 7)
    Total liabilities and stockholders' equity...............................................     $ 89,228          $ 90,341
                                                                                                  ========          ========
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified to
    conform to current year presentation.
         See accompanying notes to consolidated financial statements.

                                       33
<PAGE>

                       ORTEL CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                        Year Ended April 30,
                                                                  ------------------------------------------------------------
                                                                          1999               1998 (1)             1997 (1)
                                                                  ----------------       ---------------       ---------------

<S>                                                                  <C>                    <C>                   <C>
Revenues..........................................................         $72,059               $75,927               $82,363
Cost of revenues..................................................          44,091                44,065                42,746
                                                                           -------               -------               -------
  Gross profit....................................................          27,968                31,862                39,617
Operating expenses:
  Research and development........................................          12,374                11,662                12,875
  Sales and marketing.............................................          11,840                10,251                10,605
  General and administrative......................................           6,889                 6,157                 5,968
                                                                           -------               -------               -------
      Total operating expenses....................................          31,103                28,070                29,448
                                                                           -------               -------               -------
  Operating income (loss).........................................          (3,135)                3,792                10,169
Other:
  Interest income, net............................................           1,291                 1,278                 1,458
  Other income (expense), net.....................................             179                   584                   743
                                                                           -------               -------               -------
Income (loss) from continuing operations before income taxes......          (1,665)                5,654                12,370
Provision (credit) for income taxes...............................            (995)                1,517                 3,801
                                                                           -------               -------               -------
Income (loss) from continuing operations..........................            (670)                4,137                 8,569
Loss from discontinued operations, net of tax benefits of
 $360 in 1999, $794 in 1998 and $113 in 1997......................          (1,439)               (1,400)                 (254)
Loss from disposal of discontinued operations, net of income tax
 benefit of $980..................................................          (3,919)                   --                    --
                                                                           -------               -------               -------
Net income (loss).................................................         $(6,028)              $ 2,737               $ 8,315
                                                                           =======               =======               =======
Income (loss) per common share - Basic
  Income (loss ) from continuing operations.......................         $  (.06)              $   .36               $   .75
  Discontinued operations.........................................            (.45)                 (.12)                 (.02)
                                                                           -------               -------               -------
  Net income (loss) per share - Basic.............................         $  (.51)              $   .24               $   .73
                                                                           =======               =======               =======
Income (loss) per common share - Diluted (2)
  Income (loss ) from continuing operations (2)...................         $  (.06)              $   .33               $   .68
  Discontinued operations (2).....................................            (.45)                 (.11)                 (.02)
                                                                           -------               -------               -------
  Net income (loss) per share - Diluted (2).......................         $  (.51)              $   .22               $   .66
                                                                           =======               =======               =======
Shares used in per share computation:
  Basic...........................................................          11,876                11,634                11,463
  Diluted (2).....................................................          11,876                12,639                12,609
</TABLE>

(1)  Certain amounts related to discontinued operations have been reclassified
     to conform to current year presentation.
(2)  Options to purchase 652,000 shares at or below the average price of the
     common shares were outstanding at April 30, 1999, but were excluded from
     the computation of diluted earnings per share as the Company reported a
     loss position and the effect would be antidilutive.

          See accompanying notes to consolidated financial statements.

                                       34
<PAGE>

                       ORTEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
               (in thousands, except share and per share amounts)
<TABLE>
<CAPTION>

                                                                                                               Accum
                                                                      Additional                              Compre-       Stock-
                                                           Common      Paid in     Retained      Loans        hensive      holders'
                                                Shares      Stock      Capital     Earnings    Receivable    Inc (loss)     Equity
                                              ---------- ---------- ------------- ----------  ------------  ------------  ----------
<S>                                           <C>          <C>       <C>           <C>         <C>            <C>           <C>
Balance at April 30, 1996..................   11,359,110     $11       $51,369     $16,397      $(1,506)        $   3       $66,274
Net income.................................                                          8,315                                    8,315
Effect of foreign translation..............                                                                      (428)         (428)
Unrealized losses on investments...........                                                                        (4)           (4)
                                                                                                                            -------
Comprehensive income (loss)................                                                                                 $ 7,883
Exercise of stock options for shares of
 common stock at $1.10 to $17.25 per share.      190,633                   873                                                  873
Tax benefits arising from exercise of
 non-qualified stock options...............                                241                                                  241
Repurchase of shares of stock at an
 average price of $12.08 per share.........      (50,000)                 (604)                                                (604)
Compensation expense related to issuance
 of stock options to Photon employees......                                 51                                                   51
Loans from exercise of stock options due
 2000-2001 at 6.36%-6.6% per year, net of
  repayments...............................                                                         165                         165
                                              ----------     ---       -------     -------      -------         -----       -------
Balance at April 30, 1997..................   11,499,743     $11       $51,930     $24,712      $(1,341)        $(429)      $74,883
Net income.................................                                          2,737                                    2,737
Effect of foreign translation..............                                                                        83            83
Unrealized losses on investments...........                                                                        28            28
                                                                                                                            -------
Comprehensive income (loss)................                                                                                   2,848
Exercise of stock options for shares of
 common stock at $1.33 to $17.26 per share.      238,628                 1,226                                                1,226
Tax benefits arising from exercise of
 non-qualified stock options...............                                250                                                  250
Repurchase of  shares of stock at an
 average price of $16.52 per share.........      (25,000)      1          (413)                                                (412)
Compensation expense related to issuance
 of stock option to Photon.................                                108                                                  108
Loans from exercise of stock options due
 2000-2001 at 5.7%-6.85% per year, net of
 repayments................................                                                        (119)                       (119)
                                              ----------     ---       -------     -------      -------         -----       -------
Balance at April 30, 1998..................   11,713,371     $12       $53,101     $27,449      $(1,460)        $(318)      $78,784
Net  loss..................................                                         (6,028)                                  (6,028)
Effect of foreign translation..............                                                                      (224)         (224)
Unrealized losses on investments...........                                                                       (61)          (61)
                                                                                                                            -------
Comprehensive income (loss)................                                                                                  (6,313)
Exercise of stock options for shares of
 common stock at $4.00 to $23.25 per share.      321,846                 2,194                                                2,194

Tax benefits arising from exercise of
 non-qualified stock options..............                                 133                                                  133
Repurchase of  shares of stock at an
 average price of $7.67 per share..........      (63,600)                 (488)                                                (488)
Compensation expense related to
 remeasurement of stock options for
 non-employee directors....................                                375                                                  375
Compensation expense related to issuance
 of stock option to Photon.................                                107                                                  107
Loans from exercise of stock options due
 2000-2002 at 4.71%-5.69%, net of
 repayments................................       (1,973)                                           396                         396
                                              ----------     ---       -------     -------      -------         -----       -------
Balance at April 30, 1999..................   11,969,644     $12       $55,422     $21,421      $(1,064)        $(603)      $75,188
                                              ==========     ===       =======     =======      =======         ======      =======
</TABLE>
          See accompanying notes to consolidated financial statements.

                                       35
<PAGE>

                       ORTEL CORPORATION AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>
                                                                                                   Year Ended April 30,
                                                                                        ---------------------------------------
                                                                                             1999        1998 (1)       1997 (1)
                                                                                        ---------------------------------------
<S>                                                                                        <C>           <C>            <C>
Cash flows from operating activities:
   Net income (loss)....................................................................   $(6,028)      $  2,737       $ 8,315
   Adjustments to reconcile net income to net cash provided by operating activities:
     Loss from discontinued operations net of income taxes..............................     1,439          1,400           254
     Loss from disposal of discontinued operations net of income taxes..................     3,919             --            --
     Stock compensation expense on remeasurement........................................       375             --            --
     Depreciation and amortization......................................................     6,265          5,480         4,117
     Increase (decrease) in minority interest in subsidiaries...........................        (4)            20            68
     Gain/loss on disposal of equipment.................................................        21             77            --
     Other..............................................................................       128             --            --
     Compensation expense related to Photon stock options...............................       107            108            51
   Change in assets and liabilities (net of effects of acquired company):
   Receivables and billed contract costs and fees.......................................      (999)           638        (5,180)
   Inventories..........................................................................    (2,951)         3,115        (3,871)
   Income tax receivable................................................................    (1,490)           (72)           --
   Prepaid expenses and other assets....................................................       700           (621)         (255)
   Intangible assets....................................................................        --            311          (779)
   Accounts payable.....................................................................     3,483         (1,889)        2,104
   Accrued payroll and related costs....................................................    (1,105)        (1,391)          638
   Increase (decrease) in discontinued operations reserve...............................    (1,208)            --            --
   Other accrued liabilities............................................................      (372)          (264)          914
   Deferred income......................................................................      (400)             5           (61)
   Deferred income taxes................................................................      (580)          (132)         (435)
   Income taxes payable.................................................................        15         (1,456)        1,125
                                                                                           -------       --------       -------
        Net cash provided by continuing operating activities............................     1,315          8,066         7,005
        Net cash used by discontinued operating activities..............................    (1,308)        (2,322)       (1,278)
                                                                                           -------       --------       -------
   Net cash provided by operating activities............................................         7         5,744         5,727
Cash flows from investing activities:
   Capital expenditures.................................................................    (5,225)        (6,680)       (8,142)
   Investment in subsidiaries and affiliates (net of cash acquired).....................    (1,500)        (5,753)       (2,428)
   Short term investments...............................................................     4,885           (315)        7,598
                                                                                           -------       --------       -------
   Net cash used in investing activities................................................    (1,840)       (12,748)       (2,972)
                                                                                           -------       --------       -------
Cash flows from financing activities:
   Proceeds from issuance of common stock, net..........................................     1,346            861           288
   Proceeds from repayment of stockholder loans.........................................       760            112           387
   Alternative minimum tax related-party loans for stock option exercises...............        --           (262)          296
   Notes payable........................................................................        --             --            (6)
                                                                                           -------       --------       -------
        Net cash (used in) provided by financing activities.............................     2,106            711           965

Effect of exchange rate changes on cash and cash equivalents............................      (224)            84          (428)
                                                                                           -------       --------       -------
        Net increase (decrease) in cash and equivalents.................................        49         (6,209)        3,292
Cash and equivalents at beginning of year...............................................    12,656         18,865        15,573
                                                                                           -------       --------       -------
Cash and equivalents at end of year.....................................................   $12,705       $ 12,656       $18,865
                                                                                           =======       ========       =======

Supplemental disclosure of cash flow information:
   Cash paid during the year for:
     Interest...........................................................................   $    48       $     11       $     4
     Income taxes.......................................................................       574          2,611         3,227
Supplemental disclosure of non-cash financing activities:
   Loans to related parties for stock option exercises..................................   $   385       $    231       $   222
</TABLE>

(1)  Certain amounts related to discontinued operations have been reclassified
     to conform to current year presentation.


          See accompanying notes to consolidated financial statements.

                                      36
<PAGE>


ORTEL CORPORATION AND SUBSIDIARIES

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.  Description of Operations (unaudited)

   Ortel Corporation ("Ortel" or the "Company") pioneered the development of
"linear fiberoptic" technology  that enables the transmission of digital,
digitally compressed or analog information via radio frequency ("RF") signals on
fiberoptic cable. By utilizing this technology, users do not need to convert RF
signals into a digital format or transform them to individual channels at low
frequencies. The Company's linear fiberoptic technology has contributed to the
development of a network architecture called "hybrid fiber/coax," combining the
best features of fiberoptics and coaxial cable. Today, linear fiberoptics
enables CATV system operators to transform their traditional one-way, video-only
systems to interactive, two-way, video, voice and data delivery systems and
provides telephone companies with the means to cost effectively transform their
traditional telephone networks to deliver interactive video and data services.

   Other applications for this technology are satellite earth stations, cellular
and personal communications systems ("PCS") and certain government communication
projects, all of which capitalize on the inherent ability of this technology to
enable longer transmission distances, improve signal quality, higher bandwidth,
and provide immunity to interfering signals and operating cost savings as
compared to most other solutions. The Company's intellectual know-how with
respect to developing and manufacturing optoelectronic devices has recently been
applied to developing products for digital telecommunications applications.
Building on its knowledge of RF electronics, the Company has also positioned
itself as a leading supplier of wireless repeaters which enhance the coverage of
base stations for cellular, PCS and other wireless services.


2.  Summary of Significant Accounting Policies

Principles of Consolidation

   The consolidated financial statements include the accounts of the Company and
Ortel Vertriebs GmbH, a 75% owned subsidiary, Ortel SARL, a 90% owned
subsidiary, Avitec AB, and Ortel Asia Private Limited both wholly-owned
subsidiaries. All significant intercompany transactions and balances have been
eliminated in consolidation.

Investment in Affiliated Companies

   During fiscal 1999 the Company increased its investment in Tellium, Inc. by
$1.5 million to a total of $6.7 million.  This investment is accounted for by
the cost method and, accordingly, there is no recognition of the losses to date
incurred by Tellium in the Company's financial results. As of April 30, 1999 the
Company owns approximately 18% of the equity of Tellium with a portion in excess
of 2% held in the form of non-voting preferred stock. Therefore, the Company
believes the accounting of the investment meets the criteria required under the
cost method.

   The Company has a $3.6 million investment in Photon Technology Co., Ltd.
based in Shenzhen, China. The investment includes the Company's share of net
assets valued at $2.4 million. The balance of the investment represents goodwill
and organization costs amortized on a straight line basis over ten years. As of
April 30, 1999, the Company owns approximately 38% of Photon.  During fiscal
year 1999, the Company recognized its equity interest in earnings of Photon of
$304,000 which has been included in other income.  There were no amounts
recognized in fiscal years 1998 and 1997.

   The Company purchased 100% of Avitec AB of Sweden on March 14, 1996 for $6.7
million in cash with an additional amount not to exceed approximately $2.5
million to be paid in the year 2001 depending on levels of profitability
achieved until that time. Of the amount paid, $6.0 million was in excess of the
net asset value of Avitec of which $4.8 million was charged as an expense for
research and development in-process. The remainder

                                      37
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2.  Summary of Significant Accounting Policies--Continued

is being amortized over a period of five to ten years.  Avitec AB is included as
part of the wireless operations which the Company announced is for sale.

Product Revenue Recognition

   Revenue on products shipped to customers is recognized upon shipment from the
Company's facilities, net of allowance for returns.

Contract Revenue Recognition

   Revenue from research and development contracts are netted against research
and development expenses. Revenue from cost reimbursable contracts are
recognized based on the ratio of total costs incurred to total estimated costs.
Revenue from fixed price contracts are recognized on the percentage of
completion method; however, no income is recognized until such time as a
reasonable profit estimation can be made. Provisions for estimated losses on
uncompleted contracts are made when such losses become determinable. Contract
revenue aggregated approximately $195,000, $730,000 and $1,489,000 in fiscal
years 1999, 1998 and 1997, respectively.

Warranty Reserves

   The Company estimates warranty reserves required by applying historical
experience with regard to probabilities of failure and cost to product sales
covered by warranty terms.  Warranty reserve amounts included in other accrued
liabilities were approximately $900,000 and $1.2 million at April 30, 1999 and
April 30, 1998, respectively.

Use of Estimates

   The preparation of financial statements in conformity with Generally Accepted
Accounting Principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses in the reporting period.  Actual results
could differ from these estimates.

Depreciation and Amortization

   Equipment, office furniture and fixtures are depreciated using the straight-
line method over estimated useful lives of three to seven years.  Leasehold
improvements are amortized over the estimated useful life of the asset or the
length of the lease, whichever is less.

Concentration of Credit Risk

   The Company sells its products to customers throughout the world. Management
performs regular evaluations concerning the ability of its customers to satisfy
their obligations and records a provision for doubtful accounts based upon these
evaluations. The Company's credit losses for the periods presented were
insignificant and have not exceeded management's estimates to date.

Fair Value of Financial Instruments

   The carrying amounts of short-term investments approximate fair value due to
the relatively short maturity of such instruments.

                                       38
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2.  Summary of Significant Accounting Policies--Continued

Research and Development

   Company-sponsored research and development costs are expensed as incurred.

Inventories

   Inventories are shown below and are stated at the lower of cost (first-in,
first-out method) or market and for continuing operations are summarized below.
Prior years amounts have been reclassified to conform to current year
presentation.  (in thousands)

<TABLE>
<CAPTION>
                                                                                       Year Ended April 30
                                                                            -------------------------------------------
                                                                                  1999                     1998
                                                                            ------------------       ------------------
<S>                                                                              <C>                      <C>
Raw materials.........................................................           $ 6,618                  $ 4,498
Work-in-process.......................................................             5,066                    4,993
Finished goods........................................................             1,759                    1,001
                                                                                 -------                  -------
      Total inventories...............................................           $13,443                  $10,492
                                                                                 =======                  =======
</TABLE>

Cash Equivalents

   Cash equivalents include short-term commercial paper, money market funds and
municipal securities managed by banking institutions totaling $10.3 million and
$7.8 million as of April 30, 1999 and 1998, respectively. Cash equivalents being
managed by these banking institutions includes securities with maturities of 90
days or less which can be liquidated in a manner that is equivalent to cash.

Short-term Investments

   Short-term investments consist of interest bearing securities with maturities
greater than 90 days and consist of U.S. treasuries and municipal securities.
The Company adopted the provisions of Statement of Financial Accounting Standard
No. 115, "Accounting for Certain Investments in Debt and Equity Securities (SFAS
115)" at May 1, 1994.  Under SFAS 115, the Company has classified its short-term
investments as available-for-sale.  Available-for-sale securities are stated at
market value and unrealized holding gains and losses, net of the related tax
effect, are excluded from earnings and are reported as a separate component of
stockholders' equity until realized.  A decline in the market value of the
security below cost that is deemed other than temporary is charged to earnings,
resulting in the establishment of a new cost basis for the security.  At April
30, 1999 and 1998, the Company's marketable investment securities consisted
principally of highly liquid investments in tax free municipal obligations with
various maturity dates through February 1, 2022.  The difference between market
value and cost of these securities at April 30, 1999 and 1998 was immaterial.

Foreign Currency Translation

   Under the provisions of Statement of Financial Accounting Standard No. 52,
"Foreign Currency Translation," all assets and liabilities in the balance sheets
of foreign subsidiaries whose functional currency is other than the U.S. dollar
are translated at year-end exchange rates.  The effects of translation gains and
losses are not included in determining net income but are accumulated in a
separate component of stockholders' equity.  Gains (losses) from foreign
currency transactions were $9,000, $109,000 and ($89,000) for the fiscal years
1999, 1998 and 1997, respectively.

                                       39
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2.  Summary of Significant Accounting Policies--Continued

Impairment of Long-lived Assets and Long-lived Assets to be Disposed Of

   The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of, on May 1, 1996.  This statement requires
that long-lived assets and certain identifiable intangibles including goodwill
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.  Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future operating cash flows (undiscounted and without interest)
expected to be generated by the asset.  If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceed the fair value of the assets.  Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.  Adoption of this statement did not have a material impact on the
Company's financial position, results of operations, or liquidity.

Accounting for Stock Options

   Prior to May 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
Under APB Opinion No. 25, compensation expense is recorded on the date of grant
only if the current market price of the underlying stock exceeded the exercise
price.  On May 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant.  Alternatively, SFAS No.
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma earnings per share disclosure
for employee stock option grants made in fiscal year 1996 and future years as if
the fair-value-based method defined in SFAS No. 123 had been applied.  The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.

                                       40
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2.  Summary of Significant Accounting Policies--Continued

   Net Income (Loss) Per Share

   Basic earnings per share is based on the weighted average number of shares
outstanding and excludes the dilutive effect of unexercised Common Stock
equivalents.  Diluted earnings per share is based on the weighted average number
of shares outstanding and includes the dilutive effect of unexercised Common
Stock equivalents. Net income (loss) per share from continuing operations for
all years presented is summarized as shown below: (in thousands, except per
share data)

<TABLE>
<CAPTION>
                                                                                        Year Ended April 30,
                                                                               --------------------------------------
Basic and diluted computations                                                    1999         1998          1997
                                                                               --------------------------------------
<S>                                                                             <C>           <C>           <C>
Income (loss) from continuing operations.....................................   $  (670)      $ 4,137       $ 8,569
                                                                                =======       =======       =======

Net income (loss)............................................................   $(6,028)      $ 2,737       $ 8,315
                                                                                =======       =======       =======

Shares used for basic per share computations:
  Weighted average shares outstanding........................................    11,876        11,634        11,463
  Effect of dilutive securities - stock options..............................        --         1,005         1,146
                                                                                -------       -------       -------
  Shares used for diluted per share computations.............................    11,876        12,639        12,609
                                                                                =======       =======       =======

Net income (loss) per share:
Net income (loss) per share - Basic:
  Income (loss) from continuing operations...................................   $  (.06)      $   .36       $   .75
  Discontinued operations....................................................      (.45)         (.12)         (.02)
                                                                                -------       -------       -------
Net income (loss) per share - Basic..........................................   $  (.51)      $   .24       $   .73
                                                                                =======       =======       =======

Net income (loss) per share - Diluted (1):
  Income (loss) from continuing operations (1)...............................   $  (.06)      $   .33       $   .68
  Discontinued operations (1)................................................      (.45)         (.11)         (.02)
                                                                                -------       -------       -------
Net income(loss) per share  diluted (1)......................................   $  (.51)      $   .22       $   .66
                                                                                =======       =======       =======
</TABLE>


(1)  Options to purchase 652,000 shares at or below the average price of the
common shares were outstanding at April 30, 1999, but were excluded from the
computation of diluted earnings per share for fiscal 1999 as the Company
reported a loss position and the effect would be antidilutive.

Options to purchase 1,813,876, 824,349 and 622,505 shares at weighted average
exercise price of $15.26, $20.28 and $23.75 were outstanding at April 30, 1999,
1998 and 1997 respectively, but were not included in the computation of diluted
net income per share because the exercise price of the options was greater than
the average market price of the common shares and, therefore, the effect would
be antidilutive for all periods presented..

                                       41
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2. Summary of Significant Accounting Policies--Continued

Recent Accounting Pronouncements

   In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities."  The Company is
required to adopt SFAS No. 133 for all fiscal quarters of fiscal years beginning
after June 15, 2000.  Based on the information currently available, management
has determined that the disclosure requirements from this statement will not
impact the financial statements of the Company.

   In March 1998, the AICPA Accounting Standard Executive Committee issued
Statement of Position 98-1 (SOP 98-1), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use."  This SOP requires
capitalization of certain costs related to computer software developed or
obtained for internal use.  The Company will adopt SOP 98-1 effective in fiscal
2000.  Based on the information currently available, the Company does not expect
the adoption of SOP 98-1 to have a significant impact on its financial position
or results of operations.

   In April 1998, the AICPA Accounting Standard Executive Committee issued
Statement of Position 98-5, (SOP 98-5) "Reporting on the Cost of Start-up
Activities."  SOP 98-5 requires that costs incurred during start-up activities,
including organization costs, be expensed as incurred.  SOP 98-5 is effective
for financial statements for fiscal years beginning after December 15, 1998.
Initial application of SOP 98-5 should be as of the beginning of the fiscal year
in which SOP 98-5 is first adopted and should be reported as a cumulative effect
of a change in accounting principle.  SOP 98-5 will be adopted in the first
quarter of fiscal 2000 at which time the Company will record a cumulative effect
of a change in accounting principle of approximately $1 million in the
consolidated statement of operations for the period ending July 31, 1999.

Discontinued Operations

  In the second quarter of fiscal 1999, the Company adopted a plan of disposal
for its 980nm pump laser product.  In light of the dependence of this business
on a common proprietary technology and its dissimilarity to the continuing
operations of the Company, these operations have been separately reported as
discontinued operations in the accompanying consolidated financial statements
for all periods presented.

  The results of the discontinued business has been reported separately as a
component of discontinued operations on the accompanying consolidated statements
of operations.  Summarized results of the discontinued business for the years
ended April 30, 1999, 1998 and 1997, were as follows (in thousands):


<TABLE>
<CAPTION>
                                                                             ----------------------------------------------------
                                                                                             Year Ended April 30
                                                                             ----------------------------------------------------
                                                                                  1999                 1998                1997
                                                                             ------------         ------------        -----------
<S>                                                                             <C>                   <C>                 <C>
Revenues..............................................................          $   795               $   943             $ 191

Loss before income taxes..............................................           (1,799)               (2,194)             (367)
Income tax benefit....................................................             (360)               (  794)             (113)
                                                                                -------               -------             -----
Loss after tax  benefit...............................................          $(1,439)              $(1,400)            $(254)
                                                                                =======               =======             =====
</TABLE>

     During fiscal year 1999, the Company incurred a loss of $3,919,000, net of
income tax benefit of $980,000 from the disposal of assets related to the
discontinued business.

                                       42
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


2. Summary of Significant Accounting Policies--Continued

Reclassifications

   Certain prior year balances in the accompanying consolidated financial
statements have been reclassified to conform to the current year presentation.

3.  Bank Line of Credit

   The Company had an unsecured revolving line of credit for $5 million which
carried an interest rate of 7.06%.  The line of credit was never used and the
Company allowed it to expire in September 1998.

4.  Stockholders' Equity

Stock Repurchases

   In November 1995, the Company announced a plan to repurchase up to one-
million shares of Common Stock from time to time as market conditions dictate.
Repurchases of 63,600, 25,000 and 50,000 shares were made at a total cost of
$488,000, $413,000 and $604,000 in the fiscal years 1999, 1998 and 1997
respectively.

   On March 3, 1995, the Company's Board of Directors adopted a Stockholders
Rights Plan that is intended to protect Stockholder interests in the event the
Company is confronted with coercive takeover tactics. Pursuant to the Plan, the
Company distributed Rights to purchase shares of a newly created series of Ortel
Preferred Stock. Under certain circumstances these Rights become the rights to
purchase shares of Common Stock of the Company or securities of an acquiring
entity at one-half market value. The Rights may be exercised only if certain
events occur. The Rights are not intended to prevent a takeover of Ortel. They
are designed to deal with the possibility of unilateral actions by hostile
acquirers that could deprive the Board of Directors and stockholders of Ortel of
their ability to determine the Company's destiny and obtain the highest price
for the Company's Common Stock.

                                       43
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.   Stockholders' Equity--Continued

Stock Option Plans

     During calendar year 1990, the stockholders of the Company approved the
1990 Stock Option Plan (the "1990 Plan") which replaced the previous 1981
Incentive Stock Option Plan. Under the 1990 Plan, the Company reserved up to
2,400,000 shares of its Common Stock for issuance to eligible employees,
officers and directors upon exercise of options granted. Upon completion of the
Company's initial public offering in October 1994 no further options were
granted under the 1990 Plan.

     During fiscal year 1995, the stockholders of the Company approved the 1994
Equity Participation Plan, pursuant to which 240,000 shares of Common Stock were
initially reserved for issuance.  The shares of Common Stock authorized to be
issued under this plan increases annually by 6% of the total common shares
outstanding at the beginning of the following fiscal year.

     On December 14, 1998 the board of directors determined that in order to
incentivize the Company's employees, it would be in the best interest of the
Company and its stockholders to reprice approximately 1,332,000 options then
outstanding with an exercise price in excess of $13.00 per share.  The repricing
was accomplished through the exchange of old options for new options granted at
the fair market value of the Company's stock on the date of grant, December 14,
1998 of $9.625.  The vesting schedule for the repriced options is delayed one
year from the original vesting schedule, provided, however, that no options may
be exercised prior to December 14, 1999, except in the case of death, disability
or retirement.

     In June 1999, the Company approved a modification to the vesting period of
stock options held by non-employee directors and certain options held by
employee directors whereby such options would become fully vested and have
extended exercise periods under certain conditions such as retirement from the
board and a change in control.  Related to this remeasurement, compensation
expense of $375,000 was recorded in fiscal 1999.

     This table summarizes all activity under the stock option plans for the
fiscal years 1997, 1998 and 1999.

<TABLE>


                                                                                                            Wtd. Avg.
                                      1981        1990        1994           Non-           Total       Exercise Price
                                      Plan        Plan        Plan(1)      Qualified       Shares         per Share      Exercisable
                                    --------   ----------   -----------   ------------   ----------     ---------------  -----------
<S>                                 <C>        <C>          <C>           <C>            <C>            <C>              <C>
Outstanding at April 30, 1996         6,358     1,573,400       778,878        21,450     2,380,086         $ 9.15          855,408
   Granted......................         --            --       686,571            --       686,571         $21.38
   Exercised....................     (6,358)     (177,600)       (4,925)       (1,750)     (190,633)        $ 4.56
   Canceled.....................        (--)      (27,000)      (30,466)          (--)      (57,466)        $11.10
                                     ------     ---------    ----------       -------     ----------
Outstanding at April 30, 1997            --     1,368,800     1,430,058        19,700      2,818,558        $12.40        1,180,690
   Granted......................         --            --     1,301,276            --      1,301,276        $14.65
   Exercised....................         --      (197,175)      (21,753)      (19,700)      (238,628)       $ 5.14
   Canceled.....................        (--)      (23,650)     (674,713)          (--)      (698,363)       $19.73
                                     ------     ---------    ----------       -------     ----------
Outstanding at April 30, 1998            --     1,147,975     2,034,868            --      3,182,843        $12.25        1,379,055
   Granted......................         --            --     2,407,225            --      2,407,225        $10.28
   Exercised....................         --      (257,325)      (64,521)           --       (321,846)       $ 6.88
   Canceled.....................        (--)      (19,200)   (1,866,867)          (--)    (1,886,067)       $16.21
                                     ------     ---------    ----------       -------     ----------
Outstanding at April 30, 1999            --       871,450     2,510,705            --      3,382,155        $ 9.12        1,003,340
                                     ======     =========    ==========       =======     ==========

Total authorized................         --       871,450     2,887,133            --      3,758,583
Options available for grant.....         --            --       376,428            --        376,428
Exercisable (2).................         --       842,350       160,990            --      1,003,340        $ 6.24

</TABLE>

(1)  Effective May 1, 1999, the number of options authorized to be granted
     increased to 3,696,511
(2)  As a result of the December 14, 1998 option repricing, shares totaling
     451,388 become exercisable on December 15, 1999.

                                      44
<PAGE>

                       ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.   Stockholders' Equity--Continued

     The weighted average fair market value of options granted in fiscal years
1999, 1998 and 1997 was $10.28, $7.86 and $12.27 respectively, on the date of
grant using Black-Sholes option-pricing model with the assumptions tabled below.
The following table summarized information regarding options outstanding and
options exercisable at April 30, 1999.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                Number of        Weighted-Average                                          Weighted-
          Range                  Options            Remaining           Weighted-         Number of     Average Price of
           of                Outstanding at      Contractual Life        Average           Options        Exercisable
     Exercise Prices         April 30, 1999           (years)        Exercise Price      Exercisable        Options
-------------------------------------------------------------------------------------------------------------------------
<S>                          <C>                 <C>                 <C>                 <C>            <C>
    $ 4.00 - $ 4.00             657,850                 3.22              $ 4.00            657,850          $ 4.00
    $ 7.00 - $ 7.75             421,962                 9.83              $ 7.28                 --          $   --
    $ 8.00 - $ 8.50             296,390                 6.43              $ 8.06            184,500          $ 8.00
    $ 9.63 - $ 9.63           1,022,030                 9.62              $ 9.63              1,428          $ 9.63
    $10.44 - $12.88             708,497                 8.84              $12.59             90,535          $12.19
    $13.25 - $17.50             258,176                 8.03              $13.95             62,567          $14.09
    $23.13 - $23.25              17,250                 7.91              $23.19              6,460          $23.21
                              ---------                 ----              ------          ---------          ------
    $ 4.00 - $23.25           3,382,155                 7.83              $ 9.12          1,003,340          $ 6.24
                              =========                 ====              ======          =========          ======
</TABLE>

     During fiscal 1997 approximately 70,000 stock option shares were granted to
key employees of Photon at an option price of $20.75 which was the fair market
value on the date of grant.  These options vest over a five-year period.  During
fiscal 1998, in return for the cancellation of this prior stock option, a new
grant of 70,000 option shares were granted to the employees of Photon at an
option price of $13.25 which was the fair market value on that new date of
grant.  During fiscal years, 1998 and 1997, approximately $108,000 and $51,000,
respectively was recorded as expense related to these options.  No expense was
recorded in fiscal year 1999.  The amount of expense was determined using the
Black-Sholes option-pricing model with the same assumptions tabled below.

     For financial reporting purposes, the Company recognizes compensation
expense for the difference between the estimated fair market value of the Common
Stock and the stock option exercise price at date of grant, if any, over the
vesting period. Further, to the extent the Company derives a tax benefit from
non-qualified options exercised by employees, such benefit is credited to
additional paid in capital when realized on the Company's income tax return. Tax
benefits realized totaling $133,000, $250,000 and $241,000 were credited to
additional paid in capital in 1999, 1998 and 1997, respectively.

Stock-based Compensation

     The Company applies APB Opinion No. 25 in accounting for stock-based
compensation.  Because options were granted at fair market value, no
compensation cost has been recognized for its stock options except as related to
those given to key employees of Photon and certain modifications made to options
to non-employee directors.  Had the Company determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Company's income (loss) from continuing operations would have been reduced
to the pro forma amounts indicated below and the next page.  Prior years amounts
have been reclassified to conform to current year presentation.

<TABLE>
<CAPTION>
                                                    Year Ended April 30,
                                                 ---------------------------
          Assumptions                              1999      1998      1997
                                                 --------  --------  -------
<S>                                                <C>       <C>       <C>
Expected dividend yield.....................         --%       --%       --%
Risk-free interest rate.....................       5.16%     6.19%     6.50%
Expected volatility.........................         50%       50%       50%
Expected life (years).......................       5.5       5.5       6.2
</TABLE>

                                       45
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


4.   Stockholders' Equity--Continued
     (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                             Year Ended April 30
                                                                          ---------------------------------------------------------
Pro forma net income (loss) per share                                         1999                  1998                   1997
                                                                          -------------         -------------          ------------
<S>                                                                           <C>                   <C>                   <C>
Income (loss) from continuing operations:
   As reported....................................................            $(670)                $4,137                $8,569
   Pro forma......................................................            $(874)                $2,710                $6,695
Income (loss) per share
   As reported:
      Basic.......................................................            $(.06)                $  .36                $  .75
      Diluted.....................................................            $(.06)                $  .33                $  .68
   Pro forma:
      Basic.......................................................            $(.06)                $  .21                $  .56
      Diluted.....................................................            $(.06)                $  .20                $  .51
</TABLE>

     The full impact of calculating compensation cost for stock options under
SFAS No. 123 is not reflected in the above pro forma disclosures because
compensation cost is reflected over the options vesting periods and compensation
costs for options granted prior to fiscal year 1996 is not considered. Because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of pro forma effects of reported net income
for future years.

5.   Income Taxes

     The provision (credit) for income taxes for continuing operations is
comprised of the following.  Prior years amounts have been reclassified to
conform to current year presentation. (in thousands).

<TABLE>
<CAPTION>
                                                                                             Year Ended April 30
                                                                          ---------------------------------------------------------
                                                                              1999                  1998                   1997
                                                                          -------------         -------------          ------------
<S>                                                                        <C>                     <C>                    <C>
Federal:
   Current........................................................          $(1,241)                $  915                 $3,386
   Deferred.......................................................              (66)                   (35)                   (79)
                                                                            -------                 ------                 ------
   Total..........................................................           (1,307)                   880                  3,307
State:
   Current........................................................               79                    305                     52
   Deferred.......................................................              (33)                   (12)                   178
                                                                            -------                 ------                 ------
   Total..........................................................               46                    293                    230
Foreign:
   Current........................................................              413                    456                    520
   Deferred.......................................................             (147)                  (112)                  (256)
                                                                            -------                 ------                 ------
   Total..........................................................              266                    344                    264
                                                                            -------                 ------                 ------

Total.............................................................          $  (995)                $1,517                 $3,801
                                                                            =======                 ======                 ======
</TABLE>

     Total income tax credits related to losses on discontinued operations are
not included in the above table. Such credits were $360,000, $794,000 and
$113,000 in the fiscal years 1999, 1998 and 1997, respectively.

                                       46
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)


5.   Income Taxes--Continued

     Temporary differences which give rise to deferred tax assets and
liabilities are shown in the table below. Prior year amounts have been
reclassified to conform to current year presentation (in thousands).

<TABLE>
<CAPTION>
                                                                                       Year Ended April 30,
                                                     -------------------------------------------------------------------------------
                                                                         1999                                         1998
                                                     -----------------------------------------      --------------------------------
                                                            Asset                 Liability              Asset            Liability
                                                     ------------------       ----------------      ----------------      ----------
<S>                                                 <C>                      <C>                   <C>                   <C>
Inventory reserves...................................           $   854                     --                $1,141             --
Accrued vacation.....................................               395                     --                   387             --
Warranty accrual.....................................               361                     --                   494             --
Bad debt reserve.....................................               199                     --                   123             --
Goodwill, net of amortization........................                --                   $156                    --         $  216
Depreciation.........................................                --                    356                    --            821
Tax credits..........................................             2,343                     --                    --             --
Tax loss carryforwards...............................               694                     --                    --             --
Other................................................               271                    305                   630            561
                                                                -------                   ----                ------         ------
   Sub total.........................................             5,117                    817                 2,775          1,598
Less valuation allowance.............................            (2,543)                    --                    --             --
                                                                -------                   ----                ------          ------
   Total.............................................           $ 2,574                   $817                $2,775         $1,598
                                                                =======                   ====                ======         ======
</TABLE>

     In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized.  The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income.  The Company has
recorded a valuation allowance of $2,543,000 to reflect the estimated amount of
deferred tax assets which may not be realized.

     At April 30, 1999, the Company had a federal research and development
credit carryforward of $518,000 that will expire in the fiscal year ending April
30, 2019. The Company also had a federal minimum tax carryforward of $914,000
that does not expire. In addition, the Company had a California research and
development credit carryforward of $971,000 and a minimum tax credit
carryforward of $45,000 neither of which expires. The Company also had a
California manufacturers' investment credit of $189,000 that will begin to
expire in the fiscal year ending April 30, 2006. At April 30, 1999, the Company
had a California net operating loss carryforward of $3.5 million which expires
in the fiscal year ending April 30, 2004.

                                       47
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


5.   Income Taxes--Continued

     The consolidated effective income tax rate on income before income taxes
differs from the United States statutory income tax rate for the reasons set
forth in the table below.  The tax rate shown is for taxes paid on income or
loss from continuing operations.  Fiscal 1999 includes the effective use of tax
credits which it was previously unable to apply.

<TABLE>
<CAPTION>
                                                                                                 Year Ended April 30,
                                                                             -------------------------------------------------------
                                                                                1999                   1998                 1997
                                                                             ------------          ------------         ------------
<S>                                                                             <C>                    <C>                  <C>
    U.S. statutory tax rate..............................................        34.0%                  34.0%               34.0%
    Benefits of tax credits..............................................        76.1                  (10.2)               (2.8)
    Tax effect of permanent differences..................................         7.3                   (2.3)               (2.7)
    Tax rate differential on foreign earnings............................       (10.6)                   2.4                 1.0
    State income taxes...................................................        46.5                    3.8                 2.3
    Change in valuation allowance........................................       (95.8)                    --                  --
    Other................................................................         2.2                    (.9)               (1.1)
                                                                                -----                  -----                ----
Effective rate.......................................................            59.7%                  26.8%               30.7%
                                                                                =====                  =====                ====
</TABLE>

     During fiscal year 1999, the U.S. Internal Revenue Service completed its
audit of the Company's income tax return for the fiscal year ended April 30,
1996.  The resolution of the audit did not result in a material effect on the
Company's financial condition or results of operations.

6.   Related Party Transactions

Loans to Related Parties

     From time to time the Company makes loans to certain officers and key
employees related to the exercise of stock options.  These loans are full
recourse and secured by the shares of Common Stock issued upon such exercise.
Interest is payable annually at rates specified below in accordance with
Internal Revenue Service (IRS) guidelines on such loans.  In addition, the
Company extends loans related to the alternative minimum tax on the exercise of
these stock options and on similar terms and conditions as the underlying loans
based on the amount exercised.  Loans extended for the exercise of incentive
stock options are netted against equity while those loans extended to cover
alternative minimum taxes resulting from such exercises are classified as other
assets (in thousands, except share and option price data.)


<TABLE>
<CAPTION>

                                        No. of
                                         Stock                     Stock                                           AMT
Loan Total                              Option        Option       Loan                              Interest      Loan      Amount
                                        Shares        Price       Amount         Maturity Dates       Rates       Amount      Total
                                     -----------------------------------------------------------------------------------------------
<S>                                     <C>           <C>           <C>           <C>               <C>         <C>          <C>
Balance at April 30, 1997                                         $1,341                                         $  978     $ 2,319
  New Loans.........................    45,750     $4.00-8.00        231      5/06/2000-8/08/2001    5.70-6.85%     262         493
  Payments..........................                                (112)                                           (--)       (112)
                                                                  ------                                         ------     -------
Balance at April 30, 1998                                         $1,460                                         $1,240     $ 2,700
  New Loans.........................    85,500     $4.00-4.53        385      9/05/2000-7/01/2002    4.71-5.69%      --         385
  Payments..........................                                (781)                                          (854)     (1,635)
                                                                  ------                                         ------     -------
Balance at April 30, 1999...........                              $1,064                                         $  386     $ 1,450
                                                                  ======                                         ======     =======
</TABLE>

     Subsequent to year end, the Board of Directors approved a two-year
extension of all pre-existing loans to all officers and key personnel employed
as of June 5, 1999.

                                       48
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


6.   Related Party Transactions--Continued

Purchases from and Sales to Related Parties

     The Company purchases from and sells to Sumitomo Osaka Cement Co., Ltd.
(Sumitomo) which owns approximately 20% of the Company's Common Stock.  The
Company also purchases from and sells to Photon in which the Company owns
approximately 38%.  Sales and purchases to related parties are made at prices
and with payment terms comparable to unrelated parties.  The amount of sales and
purchases to related parties is tabled below.

<TABLE>
<CAPTION>
                                               Sumitomo                                    Photon
                                ------------------------------------       ------------------------------------
                                        Purchases                                 Purchases
                                          From          Sales To                     From            Sales To
                                ------------------------------------       ------------------------------------
<S>                                <C>               <C>                      <C>               <C>
              1997                      $  828,000        $2,156,000          $            --   $            --
              1998                      $  650,000        $1,860,000               $  823,000        $  622,000
              1999                      $1,003,000        $2,721,000               $1,480,000        $2,266,000
</TABLE>

     At April 30, 1999 accounts payable to Sumitomo and Photon were
approximately $172,000 and $500,000, respectively. At April 30, 1999 accounts
receivable from Sumitomo and Photon were approximately $309,000 and $955,000,
respectively.

7.   Commitments and Contingencies

Leases

     As of April 30, 1999, the Company leased its operating facilities
consisting of nine buildings, numerous trailers and parking space in Alhambra,
California. These agreements typically provide that the Company is responsible
for maintenance costs and for property taxes over a predetermined base amount.
Some leases are subject to an annual increase based on the Consumer Price Index
("CPI"). The annual cost of these leases was approximately $1,010,000, $910,000
and $725,000 in the fiscal years 1999, 1998 and 1997, respectively.

     During fiscal 1999, the Company entered into a two-year lease for building
six combining the space it previously leased in two separate increments.  The
Company also exercised an option period for building seven extending the lease
term for two years.

     Summarized below are total future minimum lease commitments for the
Alhambra, California facilities, parking, field sales offices and other
equipment (including the next option to renew under all leases but excluding
adjustments for CPI increases):

<TABLE>
       --------------------------------------      ------------
            Fiscal Year Ending April 30               $  000
       --------------------------------------      ------------
                  <S>                                 <C>
                   2000                               $  915
                   2001                               $  985
                   2002                               $1,226
                   2003                               $1,231
                   2004                               $1,117
                   2005                               $1,098
</TABLE>

                                       49
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


7.   Commitments and Contingencies--Continued

Patents

     As early as January, 1990, the Company received notices from Rockwell
International Corporation ("Rockwell") alleging that a process used by Ortel for
growing epitaxial layers infringes certain broad patent rights that Rockwell
holds. In August 1993, Rockwell sued the U.S. government alleging infringement
of these patent rights with respect to the contracts the U.S. government has had
with at least 15 companies, including Ortel. During fiscal 1997, this patent was
held invalid in a court action brought by Rockwell.  A subsequent ruling of the
Court of Appeals for the federal circuit sent the case back to trial.  The U.S.
government settled the lawsuit and in April 1999, Rockwell once again approached
the Company asserting its rights to the patent.  The Company has requested
information regarding terms of a possible license.

     If the Company were found to be infringing on any patent holder's rights,
the Company could be subject to liabilities for such infringement, which could
be material, and could be required to seek licenses from other companies or to
refrain from manufacturing certain products. Although patent holders commonly
offer licenses to their patent or other intellectual property rights, no
assurance can be given that the licenses would be offered, or that the terms of
any offered license would be acceptable to the Company or that failure to obtain
a license would not adversely affect the Company's operating results.

     From time to time, the Company receives letters claiming infringement of
certain patent rights purportedly owned by potential claimants.  Certain of such
letters propose prospective royalty arrangements and indeterminate claims for
prior patent use. While in the opinion of management such assertions are without
merit, based in part upon advice of counsel, management believes the ultimate
outcome of such matters will not materially affect the Company's financial
position or results of operations.

Legal Proceedings

     The Company is, from time to time, involved in routine legal matters
incidental to its business. In the opinion of Company management, the resolution
of such matters will not have a material effect on its financial condition or
results of operations.

     The Company purchased 100% of Avitec AB of Sweden on March 14, 1996 for
$6.7 million in cash with an additional amount not to exceed approximately $2.5
million to be paid in the year 2001 depending on levels of profitability
achieved until that time. No liability currently exists related to this
additional payment.

8.   Significant Customers and Concentration of Risk

     During the fiscal years ended April 30, 1999, 1998 and 1997, revenues from
General Instrument and Antec Corporation represented 46%, 26% and 42%,
respectively. There were no other customers which accounted for more than 10% of
revenues during any of these periods.

     The Company sells its products generally to large CATV equipment
manufacturers and telecommunications companies. Accounts receivable from General
Instruments and Antec Corporation total $6.2 million, $5.2 million and $4.1
million or 42%, 39% and 30% of total accounts receivable at April 30, 1999, 1998
and 1997, respectively.

                                       50
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


9.   Supplemental Information and International Operations

     For continuing operations, revenues, pretax income/(loss) and net
income/(loss) from foreign and domestic operations reflect results on the basis
of the country in which operations are conducted.  These results are summarized
as shown below.  Prior years amounts have been reclassified to conform to
current year presentation. (in thousands)

<TABLE>
<CAPTION>
                                                                                             Year Ended April 30
                                                                      -------------------------------------------------------------

                                                                              1999                 1998(1)               1997(1)
                                                                      -----------------      ----------------      ----------------
<S>                                                                      <C>                    <C>                   <C>
Revenue
Domestic operations...................................................          $63,333               $67,459               $74,323
International operations..............................................           14,194                13,437                15,474
Intercompany eliminations.............................................           (5,468)               (4,969)               (7,434)

                                                                                -------               -------               -------
      Total revenues..................................................          $72,059               $75,927               $82,363
                                                                                =======               =======               =======

Pretax income (loss) from continuing operations
Domestic operations...................................................          $  (720)              $ 4,559               $13,549
International operations..............................................             (761)                   55                   (67)

Intercompany eliminations.............................................             (184)                1,040                (1,112)

                                                                                -------               -------               -------
      Pretax income (loss)............................................          $(1,665)              $ 5,654               $12,370
                                                                                =======               =======               =======

Net income (loss) from continuing operations
Domestic operations...................................................          $   541               $ 3,385               $10,011
International operations..............................................           (1,028)                 (288)                 (330)

Intercompany eliminations.............................................             (183)                1,040                (1,112)

                                                                                -------               -------               -------
      Net income (loss)...............................................          $  (670)              $ 4,137               $ 8,569
                                                                                =======               =======               =======
</TABLE>

(1)  Certain amounts related to discontinued operations have been reclassified
     to conform to current year presentation.

     Identifiable assets attributable to foreign operations, which principally
consist of trade receivables from European customers and inventories, totaled
$7.5 million, $7.7 million and $8.4 million at April 30, 1999, 1998 and 1997,
respectively.


10.  401(k) Plan

     The Company has a 401(k) benefit plan ("401(k) Plan") allowing each
employee to contribute up to a maximum of 17% of gross salary or $10,000,
whichever is less. The Company will match the employee's contributions based on
certain percentages of the employee's contributions, as defined, up to Internal
Revenue Service applicable limits. The Company made contributions of $386,000,
$445,000 and $407,000 to the 401(k) Plan during the years ended April 30, 1999,
1998 and 1997, respectively.

                                       51
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


11.  Comprehensive Income

     In fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income.  The statement required that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.  Accumulated other comprehensive income of the Company
consists of net unrealized gains (losses) on available for sale investment and
cumulative effect of foreign currency translation.

     The change in the components of other accumulated comprehensive income
(losses) net of taxes are as follows:   (in thousands)

<TABLE>
<CAPTION>
                                                                                       Cumulative
                                                          Unrealized Gain           Effect of Foreign              Accumulated
                                                        (Loss) on Available             Currency                      Other
                                                             for Sale               Translation Gain              Comprehensive
                                                            Investments                  (Loss)                   Income/(Loss)
                                                      ------------------------------------------------------------------------------
<S>                                                      <C>                           <C>                        <C>
Beginning balance.....................................       $  24                      $(342)                    $(318)
Current period change.................................         (61)                      (224)                     (285)
                                                             -----                      -----                     -----
Ending balance........................................       $ (37)                     $(566)                    $(603)
                                                             =====                      =====                     =====
</TABLE>


     The related tax effects allocated to each component of other comprehensive
income.

<TABLE>
<CAPTION>
                                                                                         Tax
                                                            Before Tax                (Expense)               Net-of-Tax
                                                              Amount                  Or Benefit                Amount
                                                           -----------------------------------------------------------------
<S>                                                           <C>                       <C>                       <C>
Unrealized gains (losses) on securities...............         (61)                     $  36                     $ (25)
Foreign currency translation adjustments..............        (224)                       134                       (90)
                                                             -----                      -----                     -----
Other comprehensive income............................       $(285)                     $ 170                     $(115)
                                                             =====                      =====                     =====
</TABLE>

12.  Segment Reporting

     On April 30, 1999 the Company adopted FASB Statement No. 131, "Disclosures
About Segments of an Enterprise and Related Information" (SFAS 131).  The new
rules establish revised standards for public companies relating to the reporting
of financial and descriptive information about their operating segments in
financial statements.  The adoption of SFAS 131 did not have a material effect
on the Company's primary financial statements and did not effect the disclosure
of segment information contained herein.  The method of determining what
information to report is based on the way management organizes the operating
segments within the Company for making operational decisions and assessments of
financial performance. The Company's chief operating decision maker is
considered to be the Company's Chief Executive Officer ("CEO"). The CEO reviews
financial information presented on a consolidated basis accompanied by
disaggregated information about revenues by product lines for purposes of making
operating decisions and assessing financial performance.

     The fiber optics segment consists of broadband, satellite communications
and telecommunications products. The wireless segment is comprised of products
for cellular telephone systems and includes repeater products designed and
manufactured both in the U.S. and in the Swedish subsidiary, Avitec AB. In June
1999, the Company announced its intention to sell its wireless operations in
order to focus on its fiber optic business.

                                       52
<PAGE>

                      ORTEL CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

12.  Segment Reporting--Continued

     Information about the Company's operations by business segments for the
fiscal years ended April 30, 1999, 1998 and 1997 is presented below:

     Revenues of the fiber optics segment increased 2% in 1999 compared to 1998.
Fiber optics revenues decreased 14% in 1998 compared to 1997 and reflected a
dramatic slowdown in domestic broadband industry offset somewhat by an increase
in revenues from satellite communications products. Wireless segment revenues
for fiscal 1999 decreased 43% when compared to fiscal 1998 which included a
multi-million dollar single sale of in-building product to an Asian customer.


<TABLE>
<CAPTION>
                                                                  REVENUE BY SEGMENT
                                                                 Year Ended April 30
                                       -----------------------  -----------------------  -----------------------
                                               1999                    1998 (1)                  1997 (1)
                                       -----------------------  -----------------------  -----------------------
                                                      Percent                  Percent                  Percent
                                       $  (000)       of Total  $  (000)       of Total  $  (000)       of Total
                                       -------        --------  -------        --------  -------        --------
<S>                                    <C>            <C>       <C>            <C>       <C>            <C>
Segments
  Fiber Optics......................    $65,028          90%     $63,558          84%     $73,943          90%
  Wireless..........................      7,031          10%      12,369          16%       8,420          10%
                                        -------         ---      -------         ---      -------         ---
Total Sales.........................    $72,059         100%     $75,927         100%     $82,363         100%
                                        =======         ===      =======         ===      =======         ===
</TABLE>

(1)  Certain amounts related to discontinued operations have been reclassified
     to conform to current year presentation.

     Gross margins in fiber optics have decreased each year. Losses in the
wireless segment reflect substantial research and development spending in
repeater products. Increased G&A spending negatively impacted both segments.

<TABLE>
<CAPTION>
                                                              OPERATING INCOME (LOSS) BY SEGMENT
                                                                     Year Ended April 30,
                                       --------------------     -----------------------  -----------------------
                                              1999                       1998 (1)                     1997 (1)
                                       --------------------     -----------------------  -----------------------
                                                  Percent                     Percent                  Percent
                                       $  (000)  of Revenue     $  (000)    of Revenue   $  (000)    of Revenue
                                       -------   ----------     ----------  -----------  -------     ----------
<S>                                    <C>       <C>            <C>         <C>          <C>         <C>
Segments
  Fiber Optics......................    $   186      --          $ 8,044         13%      $18,357         25%
  Wireless..........................     (3,321)    (47%)         (4,252)       (34%)      (8,188)       (97%)
                                        -------     ---          -------        ---       -------        ---
Total Operating Income (Loss).......    $(3,135)     (4%)        $ 3,792          5%      $10,169         12%
                                        =======     ===          =======        ===       =======        ===
</TABLE>

(1)  Certain amounts related to discontinued operations have been reclassified
     to conform to current year presentation.

     In addition to evaluating the segments on the basis of their profit or
loss, two significant assets are tracked and measured: accounts receivable and
inventory. Identification of accounts receivable to a specific segment is
generally on the basis of the customer. Inventory can also be linked to a
specific segment; however, there are cases where components are shared across
segments and a reasonable method of allocating such inventory was adopted.
Reserves for accounts receivable and inventory are not separated by segments.
The following tables compare accounts receivable and inventory levels at the
past two fiscal years ended April 30, (in thousands):

<TABLE>
<CAPTION>
                 Accounts Receivable                                                      Inventory
          -------------------------------                                      ------------------------------
                 Year ended April 30,                                                Year ended April 30,
          -------------------------------                                      ------------------------------
             1999                 1998                                            1999                1998
          -------------------------------                                      ------------------------------
          <S>                <C>                      <C>                      <C>                 <C>
           $13,382            $11,007                 Fiber Optics              $12,196             $ 8,985
             2,140              2,119                 Wireless                    3,727               4,276
           -------            -------                                           -------             -------
           $15,522            $13,126                 Total Gross               $15,923             $13,261
              (973)              (307)                 Reserves                  (2,480)             (2,769)
           -------            -------                                           -------             -------
           $14,549            $12,819                 Total Net                 $13,443             $10,492
           =======            =======                                           =======             =======
</TABLE>

                                       53
<PAGE>

                       ORTEL CORPORATION AND SUBSIDIARIES
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

13. Quarterly Information (unaudited)

   Set forth below is selected quarterly consolidated financial data with
respect to the Company for the two years ended April 30, 1999 and 1998. Certain
amounts related to discontinued operations have been reclassified to conform to
current year presentation. This data should be read in conjunction with the
consolidated financial statements and notes thereto set forth elsewhere herein.
<TABLE>
<CAPTION>
                             Year Ended April 30, 1999           Year Ended April 30, 1998
                                     (in thousands, except per share amounts)
                          ----------------------------------  ----------------------------------
                          Q1 (1)   Q2 (1)   Q3 (1)   Q4 (1)   Q1 (1)   Q2 (1)   Q3 (1)   Q4 (1)
                          -------  -------  -------  -------  -------  -------  -------  -------
<S>                       <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Consolidated Statement
 of Operations Data:
Revenues................  $18,444  $19,765  $16,915  $16,935  $19,620  $21,701  $18,589  $16,017
Cost of revenues........   10,511   11,830   11,447   10,303   10,771   11,908   11,378   10,008
                          -------  -------  -------  -------  -------  -------  -------  -------
 Gross profit...........    7,933    7,935    5,468    6,632    8,849    9,793    7,211    6,009
Operating expenses:
 Research and
  development...........    3,116    3,004    3,017    3,237    2,710    3,189    2,780    2,983
 Sales and marketing....    2,665    3,444    2,729    3,002    2,434    2,571    2,290    2,956
 General and
  administrative........    1,541    1,772    1,416    2,160    1,337    1,491    1,604    1,725
                          -------  -------  -------  -------  -------  -------  -------  -------
   Total operating
    expenses............    7,322    8,220    7,162    8,399    6,481    7,251    6,674    7,664
                          -------  -------  -------  -------  -------  -------  -------  -------
 Operating Income
  (loss)................      611     (285)  (1,694)  (1,767)   2,368    2,542      537   (1,655)
Other:
 Interest income, net...      259      430      212      390      284      340      367      287
 Other income
  (expense), net........       44      119       73      (57)     (97)      28     (111)     764
                          -------  -------  -------  -------  -------  -------  -------  -------
Income (loss) from
 continuing operations
 before income taxes....  $   914  $   264  $(1,409) $(1,434) $ 2,555  $ 2,910  $   793  $  (604)
Provision (credit) for
 income taxes...........      190       53     (289)    (949)     731      737      188     (139)
                          -------  -------  -------  -------  -------  -------  -------  -------
Income (loss) from
 continuing operations
 before income taxes....  $   724  $   211  $(1,120) $  (485) $ 1,824  $ 2,173  $   605  $  (465)
Loss from disposal of
 discontinued
 operations, net of
 taxes..................     (518)  (4,840)      --       --     (329)    (262)    (234)    (575)
                          -------  -------  -------  -------  -------  -------  -------  -------
Net income (loss).......  $   206  $(4,629) $(1,120) $  (485) $ 1,495  $ 1,911  $   371  $(1,040)
                          =======  =======  =======  =======  =======  =======  =======  =======
Income (loss) per common
 share - Basic (3)
 Income (loss) from
  continuing
  operations............  $   .06  $   .02  $  (.09) $  (.04) $   .16  $   .18  $   .05  $  (.04)
 Discontinued
  operations............     (.04)    (.41)      --       --     (.03)    (.02)    (.02)    (.05)
                          -------  -------  -------  -------  -------  -------  -------  -------
   Income (loss) per
    share - Basic.......  $   .02  $  (.39) $  (.09) $  (.04) $   .13  $   .16  $   .03  $  (.09)
                          =======  =======  =======  =======  =======  =======  =======  =======
Income (loss) per common
 share - Diluted (2,3)..
 Income (loss) from
  continuing
  operations............  $   .06  $   .02  $  (.09) $  (.04) $   .15  $   .17  $   .05  $  (.04)
 Discontinued
  operations............     (.04)    (.41)      --       --     (.03)    (.02)    (.02)    (.05)
                          -------  -------  -------  -------  -------  -------  -------  -------
   Income (loss) per
    share - Diluted.....  $   .02  $  (.39) $  (.09) $  (.04) $   .12  $   .15  $   .03  $  (.09)
                          =======  =======  =======  =======  =======  =======  =======  =======
Shares used in per share
 computation:
 Basic..................   11,751   11,860   11,920   11,976   11,524   11,624   11,684   11,707
 Diluted................   12,629   11,860   11,920   11,976   12,559   12,963   12,654   11,707
</TABLE>

(1)Certain amounts related to discontinued operations have been reclassified to
 conform to current year presentation.
(2)Computed using basic shares; diluted share computation would be
 antidilutive.
(3)Quarterly per share amounts may not aggregate to total per share amounts for
 the year.

                                       54
<PAGE>


                      ORTEL CORPORATION AND SUBSIDIARIES
                                  SCHEDULE II


                       VALUATION AND QUALIFYING ACCOUNTS

                   Years Ended April 30, 1999, 1998 and 1997
                                (in thousands)

<TABLE>
<CAPTION>
                                                                 Balance at
                                                                Beginning of                                           Balance at
                       Description                                 Year             Additions      Deductions          End of Year
----------------------------------------------------------      ------------------------------------------------------------------
<S>                                                                <C>                <C>           <C>                   <C>
Year ended April 30, 1997:
   Allowance for doubtful accounts.........................        $  325             $   60        $   38 (1)             $  347
   Inventory reserve.......................................        $1,066             $  912        $    2 (2)             $1,976

Year ended April 30, 1998
   Allowance for doubtful accounts.........................        $  347             $   61        $  101 (1)             $  307
   Inventory reserve.......................................        $1,976             $2,475        $1,682 (2)             $2,769

Year ended April 30, 1999
   Allowance for doubtful accounts.........................        $  307             $  671        $    5 (1)             $  973
   Inventory reserve.......................................        $2,769             $1,882        $2,171 (2)             $2,480
</TABLE>

(1)  Write-off of uncollectible accounts
(2)  Write-off of obsolete materials

                                       55
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
 Exhibit No.                                Document Description                    Page No.
------------                                --------------------                    --------
<S>            <C>                                                                  <C>
   3.1         Certificate of Incorporation.                                         (Note 1)
   3.2         Bylaws of Ortel Corporation.                                          (Note 1)
   4.1         Rights Agreement between Ortel Corporation and First Interstate       (Note 2)
               Bank of California dated March 3, 1995
  10.1         Employment Agreement, dated September 14, 1990, between Ortel         (Note 1)
               Corporation and Israel Ury.
  10.2         Employment Agreement, dated September 14, 1990, between Ortel         (Note 1)
               Corporation and Nadav Bar-Chaim.
  10.3         1990 Stock Option Plan of Ortel Corporation.                          (Note 1)
  10.4         Form of Indemnification Agreement.                                    (Note 1)
  10.5         Key Shareholders Agreement, dated as of March 26, 1990, among Wim     (Note 1)
               H.J. Selders, Dr. Ury, Dr. Yariv, Dr. Bar-Chaim, Sumitomo Cement
               Co., Ltd., The Ury Family Trust and Ortel Corporation.
  10.6         Agreement Concerning Certain Financial and Business Arrangements,     (Note 1)
               dated as of March 26, 1990 between Sumitomo Cement Co., Ltd. and
               Ortel Corporation.
  10.7         1994 Equity Participation Plan of Ortel Corporation.                  (Note 1)
  10.8         Stock Purchase Agreement dated March 12, 1996 between Hakan           (Note 3)
               Samuelsson and Ortel Corporation.
  10.9         Loan Agreement, dated June 2, 1995 between Ortel Corporation and      (Note 4)
               Bank of America.
  10.10        Amendment No. 2 dated September 9, 1997 to Loan Agreement dated       (Note 5)
               June 2, 1995 between Ortel Corporation and Bank of America.
  10.11        Severance Agreement, dated December 1, 1997, between Ortel            (Note 6)
               Corporation and Douglas H. Morais.
  10.12        Severance Agreement, dated March 6, 1998, between Ortel               (Note 7)
               Corporation and Lyle B. Boarts.
  10.13        Amendment No. 3 dated August 20, 1998, to Loan Agreement dated        (Note 8)
               June 2, 1995, between Ortel Corporation and Bank of America NT &
               SA
  10.14        Severance Agreement dated November 6, 1998, between Ortel             (Note 8)
               Corporation and William J. Moore.
  10.15        Severance Agreement, dated November 9, 1998, between Ortel            (Note 8)
               Corporation and George B. Holmes.
  10.16        Amendment dated November 9, 1998, to Severance Agreement, dated       (Note 8)
               March 6, 1998, between Ortel Corporation and Lyle B. Boarts.
  10.17        Severance Agreement dated March 5, 1999, between Ortel                (Note 9)
               Corporation and Roger Hay.
  10.18        Amendment No. 1 dated September 19, 1997, and Amendment No. 2 to      Page 59
               the 1994 Equity Participation Plan of Ortel Corporation
  10.19        Severance Agreement dated March 2, 1999, between Ortel                Page 62
               Corporation and Stephen K. Workman
  10.20        Employment Agreement dated June 18, 1999, between Ortel               Page 67
               Corporation and Stephen R. Rizzone
  10.21        Severance Agreement dated June 19, 1999, between Ortel                Page 72
               Corporation and George Pontiakos
  10.22        Agreement dated June 25, 1999, between Ortel Corporation and Wim      Page 75
               J. H. Selders
  21.1         Subsidiaries of Ortel Corporation.                                   Exhibit 21
  23.1         Consent of KPMG LLP.                                                 Exhibit 23
  27.0         Financial Data Schedule
</TABLE>

                                      56
<PAGE>

EXHIBIT INDEX--Continued

  Note 1       Previously filed by the Registrant in Registration No. 33-79188
               and incorporated by reference herein pursuant to Rule 12b-32 of
               the Exchange Act.
  Note 2       Previously filed by the Registrant in its 10-Q filing for the
               quarter ended January 21, 1995.
  Note 3       Previously filed by the Registrant in its 8K filing dated March
               26, 1996.
  Note 4       Previously filed by the Registrant in its 10-K filing for the
               year ended April 30, 1996.
  Note 5       Previously filed by the Registrant in its 10-Q filing for the
               quarter ended October 31, 1997.
  Note 6       Previously filed by the Registrant in its 10-Q filing for the
               quarter ended January 31, 1998.
  Note 7       Previously filed by the Registrant in its 10-K filing for the
               year ended April 30, 1998.
  Note 8       Previously filed by the Registrant in its 10-Q filing for the
               quarter ended October 31, 1998.
  Note 9       Previously filed by the Registrant in its 10-Q filing for the
               quarter ended January 31, 1999.

                                       57