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UNITED STATES  SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

For the fiscal year ended December 29, 2002

OR

For the transition period from _______________ to _______________

Commission file number: 0-29811

NEW FOCUS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (408) 919-1500

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

Preferred Share Purchase Rights, $.001 par value

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) 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.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes  x    No  ¨

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive Proxy Statement for its 2003 Annual Meeting of Stockholders, are incorporated by reference into Part III of this Form 10-K.

On March 10, 2003, 63,613,393 shares of the Registrant’s common stock, $0.001 par value, were issued and outstanding.

The aggregate market value of the voting stock held by non-affiliates based on the closing price ($2.97), as reported on the Nasdaq National Market as of June 28, 2002, the last business day of registrant’s most recently completed second quarter, and assuming that the holdings of non-affiliates were the same on June 28, 2002 as they were on April 1, 2002, was approximately $127,016,000.

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NEW FOCUS, INC.

INDEX

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PART I

Item 1.    Business

New Focus was incorporated in California in April 1990. We reincorporated in Delaware in May 2000. In addition to historical information, this Annual Report on Form 10-K (Annual Report) contains predictions, estimates and other forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 that relate to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under “Risk Factors” and elsewhere in this Annual Report, and some of which we may not know. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. In addition, these forward-looking statements include, but are not limited to, statements regarding the following:

These statements are only predictions and are subject to risks and uncertainties, including the following:

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In evaluating these statements, you should specifically consider various factors, including the risks outlined under “Risk Factors.” Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

Overview

We develop and manufacture photonics and microwave solutions for both commercial and research applications. Our products include tunable lasers for test and measurement applications, high-speed radio-frequency (RF) amplifiers, and advanced photonics tools. Our photonics tools products include instruments and tools used for sourcing, measuring, moving, manipulating, modulating and detecting optical signals in commercial and research applications across a wide variety of industries. Our tunable lasers are based on an external-cavity diode laser design and are used in telecom test and measurement instrumentation, biomedical applications, spectroscopic applications, and research laboratories worldwide. Our RF amplifier products, which use state-of-the-art thin-film hybrid microwave technology, cover a wide range of frequencies and are available with either standard or customized performance characteristics. Our products serve a broad range of diversified markets within the semiconductor, industrial, biomedical, defense and telecommunications industries. In an effort to expand our OEM sales content, we intend to pursue new and emerging applications for modules and subsystems within these markets, in particular modules and subsystems that would use our photonics tools and tunable lasers. Given the difficulty in accurately assessing the size and growth rates of these market opportunities, we will need to constantly balance new product development expenses against future revenue expectations in order to show continuing improvement in our financial results. For a breakdown of our revenues, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In fiscal years 2000 and 2001, our product focus was primarily on the telecommunications industry as we developed and manufactured optical and RF components for next-generation communication networks. Historically, we reported revenues in two segments: telecom and photonics tools, with sales of telecom products accounting for approximately 67% and 71% of our revenues during fiscal year 2000 and fiscal year 2001, respectively. Our telecom products included passive optical components, such as circulators and polarization beam combiners, for wavelength management as well as active components, such as tunable laser modules for network as well as test and measurement applications and high-speed RF amplifiers for telecom networks and defense applications.

In the second quarter of 2001 we experienced a sharp sequential decline in our quarterly net revenues relative to the first quarter of 2001 due to an unexpected deterioration of the telecommunications industry. In response to this change in industry conditions, we began restructuring our operations in the second quarter of 2001 with the impairment of acquisition-related goodwill and a restructuring charge related to planned work force reductions and two facility closures—a small facility in China and another in the U.S. Our net revenues declined sharply again between the second and third quarters of 2001. After the end of the third quarter of 2001 we significantly expanded our expense reduction target through a planned 35% reduction of our worldwide work force, which was to be completed by the end of 2002, and announced our intention to consolidate our U.S. manufacturing operations. In response to a further decline in our net revenues between the third and fourth quarter of 2001 and a continuing weak outlook for our acquired businesses, we impaired the remaining

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acquisition-related goodwill on our balance sheet and announced the planned closure of a second U.S. manufacturing facility by the third quarter of 2002.

During the first quarter of 2002 we concluded that difficult conditions within the telecommunications industry would persist into 2003, and possibly into 2004, and therefore decided to take additional steps to reduce our dependence on this industry. In March 2002 we announced our intention to divest our passive optical product line and cease operations at our large China manufacturing facility. To reflect these decisions we recorded a $24.0 million restructuring charge in our first quarter 2002 financial results. We also indicated that these actions would further reduce our expense structure and lower the quarterly net revenue required to reach profitability.

During the second quarter of 2002 we sold our passive component product line to Finisar Corporation and, in addition, completed the sale of our network tunable laser technology to Intel Corporation. These sales generated a net gain of $41.3 million. During the second quarter of 2002 we also decided to cease development of next-generation high-speed RF products for telecom applications. This action, combined with the prior divestitures of our passive product line and network tunable laser technology, represented the final step in our plan to eliminate our telecom-related component product lines. The $11.6 million restructuring charge recorded in the second quarter reflected the decision to cease development of our telecom RF products as well as final work force reductions at our large China facility. Additionally, we wrote off $7.7 million of intangible assets related to our RF telecom product line. In conjunction with our second quarter results we also announced the planned closure of two additional U.S. facilities in 2002.

In the third quarter of 2002 we completed, as scheduled, our facility consolidation program with the closure of three U.S. facilities, which generated a restructuring charge of $36.6 million. In total, the facility consolidation program resulted in the closure of four U.S. and two China facilities. By the end of the third quarter of 2002 we had completed our planned restructuring activities.

As a result of our restructuring efforts over the six-quarter period between the second quarter of 2001 and the end of the third quarter of 2002, we had:

In the process of restructuring our operations we recorded restructuring charges of $72.2 million and $17.8 million in fiscal years 2002 and 2001, respectively. These totals included charges for the impairment of tangible assets, facility closure costs and severance-related payments. We also recorded impairment charges against goodwill and other intangible assets of $7.7 million and $289.3 million in fiscal years 2002 and 2001, respectively. Accordingly, our quarterly depreciation expense has declined to $0.7 million in the fourth quarter of 2002 from $3.1 million in the second quarter of 2001. In the same timeframe, the amortization for intangibles has

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declined to $0.2 million from $22.5 million per quarter, while deferred compensation expense has declined to $1.2 million from $16.1 million per quarter.

The composition of our quarterly net revenues also changed as a result of the sharp decline in the telecommunications market, our decision to eliminate component product lines related to telecom networks, and general economic conditions. The following table shows the composition of our net revenues (i) for the three months ended April 1, 2001, near the height of the telecommunications market; (ii) for the three months ended March 31, 2002, at the time we decided to eliminate our telecom-related component product lines, and (iii) for the three months ended December 29, 2002, our most recent quarter:

Net Revenues

(in millions)

Under our new strategic direction, we plan to focus our business on providing photonics and microwave solutions to the semiconductor, industrial, biomedical, defense and telecommunications industries. A main area of focus will remain test and measurement applications, including telecom test and measurement, which accounted for the majority of tunable laser net revenues in 2001. With the elimination of our telecom-related component product lines we will operate in one segment and report our financial results accordingly.

Company Strategy

In 2002, we reduced our exposure to the telecommunications market through the sale of our passive component product line, the sale of our network tunable laser technology and the cessation of development of next-generation high-speed RF products for telecom applications. We also took strategic restructuring actions that reduced expenses and improved our financial performance. Our business strategy now focuses on providing photonics and microwave solutions to diversified markets within the semiconductor, industrial, biomedical, defense and telecommunications industries. Currently, the majority of our net revenues come through the sale of photonics and microwave components, either through our catalog channel or on an OEM basis through our direct sales force and network of resellers.

Our plan to increase stockholder value focuses on three major elements: organic growth of our current business, supplemental growth through acquisitions and partnerships, and the repurchase of shares of our common stock. We believe that a balanced mixture of these elements, combined with proper execution of each element, will improve the market value of our stock over the long term.

In regard to our current business, our objective is to increase our OEM focus and offer a higher level of design and integration services to customers, particularly in the photonics area, based on our core competencies in electronics, firmware, software, and optics. Additionally, we plan to expand product offerings, make investments in new product platforms, improve operating efficiencies, and explore new market areas in an effort to grow our current product lines—photonics tools, tunable lasers and high-speed RF amplifiers.

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More specifically, in order to grow our existing photonics and microwave solutions business in 2003, we plan to:

While we believe we can grow revenues from existing product lines through internal actions, the rate of internal growth will not allow us to achieve our breakeven quarterly revenues level in a timely manner, thus delaying our return to profitability. Therefore, we continue to evaluate business combinations and partnering arrangements in our core business areas that would improve our market share position, increase our revenues and improve on our net loss position. In evaluating potential strategic combinations, we focus on companies beyond the development stage with established photonics and microwave products that serve customers in multiple end-markets outside of telecommunications.

The utilization of a portion of our cash balance to repurchase shares of our common stock is another key element of our plan. Since shares of our common stock have traded, and continue to trade, at a discount to the actual cash value per share, we believe that the use of some of our cash resources to repurchase shares of our common stock will enhance long-term stockholder value. In February 2003 we announced the completion of a $45 million share repurchase program, which resulted in the repurchase of approximately 13.1 million common shares between late October 2002 and early February 2003. During the fourth quarter of 2002 we repurchased approximately 8.25 million common shares for $28.5 million (before commissions) at a discount to the then-existing cash value per share. As a result of these purchases, the company’s cash value per share was $4.09 at the end of fiscal year 2002, up from $3.88 per share at the end of fiscal year 2001. The company’s net losses per share for the fourth quarter and fiscal year of 2002, however, were negatively affected by the lower average shares outstanding for these periods resulting from the share repurchases. Conversely, if we return to profitability in the future, we will report a higher net profit per share due to the lower average outstanding share count. We may repurchase additional shares in the future.

Products and Technology

We develop innovative photonics and microwave solutions for both commercial and research applications. We sell three primary families of products: advanced photonics tools, tunable lasers for test and measurement applications, and high-speed RF products.

Photonics Tools

New Focus was founded in 1990 with the goal of making “Simply Better Photonics Tools” for research and academic laboratories. Photonics tools are instruments and tools principally used for sourcing, measuring, moving, manipulating, modulating and detecting optical signals. In addition to research and academic laboratories, our photonics tools are now used in commercial and OEM applications, thus increasing the available market for our products. We currently offer a wide range of photonics tools for advanced research,

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development and manufacturing. These products leverage our core competencies in photonics and are used in applications for the semiconductor, industrial, biomedical and telecommunications industries.

Our photonics tools line includes lasers and instruments, electro-optical components, precision opto-mechanical components and motion control devices. Our electro-optical components include laser sources, modulators, photodetectors and photoreceivers (photodetectors with built-in amplifiers) used for general-purpose light and fluorescence detection, light modulation, and component test and characterization. Our precision opto-mechanical components—such as optical mounts, fiber aligners, translation stages and Picomotor^™ actuators, among others—provide superior stability, high resolution and precision adjustment capability for use in both manufacturing and laboratory environments. Supplementing the precision opto-mechanical component family is a motion control product line that includes motorized optical mounts, stages and Picomotor^™ drivers. When used with our precision opto-mechanical products, these tools provide high-resolution positioning and precise alignment.

For example, our precision opto-mechanical components and Picomotor^™ products are used for semiconductor manufacturing, advanced manufacturing of fiber optic components and for research and development of high-speed network products. Our photodetectors, which are devices that convert optical signals to electrical signals faster than the products being measured, are needed to accurately characterize the optical performance of the tested device.

Tunable Laser Products

Our tunable laser product family includes swept-wavelength and step-and-measure lasers available in either benchtop system or OEM module configurations. First introduced in 1992, our tunable lasers are based on an external-cavity diode laser design and are used in telecom test and measurement instrumentation, biomedical applications, spectroscopic applications, and research laboratories worldwide. Our tunable laser product line has grown to include wavelengths from 400 nanometers (nm) to 1630 nm and offers performance characteristics such as rapid, precise, and wide tuning or wavelength scanning for efficient testing. We have received numerous industry awards for the development and commercialization of external cavity tunable diode lasers.

Some applications in which our high performance test and measurement tunable lasers are used include: (1) testing and measuring fiber optic components and systems in manufacturing, development and research environments, (2) improving the accuracy of complex surface profiling instruments for the semiconductor industry, (3) testing and stabilizing particular transitions of atomic cesium, enabling the production of a new generation of highly accurate atomic clocks, and (4) testing and monitoring pressure, temperature and strain in various industrial environments.

Our tunable laser capabilities include advanced laser design, development and manufacturing, advanced laser packaging for high reliability, dynamic filter technology for wide tuning, advanced thin films for extremely low optical reflections, and integrated wavelength locking technology that results in minimal error in the laser wavelength from the desired channel. These capabilities have resulted in tunable laser products with high output power and wide wavelength coverage.

High-Speed RadioFrequency (RF) Microwave Products

Our high-speed RF microwave product family is designed for use in military, air traffic management, avionics, navigation systems, satellite communications and commercial wireless telephony applications. Our RF amplifiers operate at frequencies from 10 kiloHertz up to 40 gigaHertz and provide power up to 5 Watts, while keeping noise figure below 1 dB. Our designs use state-of-the-art thin-film hybrid microwave technology to achieve maximum RF performance. We have a comprehensive product line of standard microwave amplifiers as well as built-to-order custom amplifiers and subsystems. Our flexible design methodology allows our products to be readily customized to meet the specialized requirements of a given customer application.

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Our high-speed RF microwave product offerings include, but are not limited to, radar and communications band amplifiers, power amplifiers and tri-band amplifiers. Radar and communications band amplifiers, in particular, account for a high percentage of revenues derived from this product family. These amplifiers use high electron mobility transistors (HEMT) and gallium arsenide field effect transistors (GaAs FETs) to satisfy the low noise requirements in the common radar and communications bands and operate over the full military temperature ranges.

Customers

We sell our products to customers in the semiconductor, industrial, biomedical, defense and telecommunications industries. Our customers also include commercial, academic and governmental research institutions that engage in advanced research and development activities.

During the past few years, when a significant portion of our net revenues was derived from the telecommunications industry, our major customers tended to be large, public companies in the telecommunications industry. As a result of the downturn in the telecommunications industry and, more specifically, our restructuring actions in 2002, we have reduced our dependence on the telecommunications industry and diversified the composition of our customer base. During fiscal year 2000 and the first half of 2001 our top five customers typically accounted for 50-60% of our quarterly net revenues. Typically, two customers would account for 25-30% of our quarterly net revenues. Representative top customers during this time period included Agilent, Alcatel, Ciena, Corning, Corvis, and Nortel. During the second half of 2001 and fiscal year 2002 our top five customers typically accounted for 20-35% of our quarterly net revenues. Top customers during this time period included resellers of our photonics tools products, defense contractors, and semiconductor companies. For the year ended December 30, 2001, Agilent Technologies and Alcatel S.A. accounted for 13.4% and 11.3% of our net revenues, respectively. For the year ended December 29, 2002, no customer accounted for more than 10% of our net revenues.

Sales, Marketing and Customer Support

We sell and market our tunable lasers, high-speed RF products, and photonics tools primarily through a combination of direct sales, catalog sales and international sales representatives and resellers. We currently focus our direct sales and marketing efforts on OEM customers with photonics subsystem integration requirements and on defense contractors that use our high-speed RF amplifiers. Our direct sales account managers for our photonics tools and tunable laser product lines generally cover specific geographic regions and call on current and potential customers within their assigned regions. Our direct sales account managers for our high-speed RF products cover the market on an assigned account basis. We take a collaborative approach with our customers and establish relationships at all levels—engineering, procurement, and senior management. This approach allows us to rapidly respond to customer needs and helps us to stay at the forefront of the technology required for photonics and microwave applications.

We believe that support services are essential to the successful installation and ongoing support of our products. Our support services include customer service and technical support. Our customer service representatives assist customers with orders, warranty returns and other administrative functions. Our technical support engineers provide customers with answers to technical and product-related questions as well as application support relating to the use of our products in the customer’s applications. These engineers also help to define the features that are required for our products to be successful in specific applications.

Manufacturing

We manufacture the majority of our products. We do, however, outsource on a limited basis manufacturing of selected subcomponents, primarily for a subset of our photonics tools products. Our manufacturing operations are in San Jose, California. As part of our restructuring actions in 2002, we ceased operations at our large

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Shenzhen, China manufacturing facility, decreased the square footage occupied under our Wisconsin facility, and closed and consolidated our Camarillo, California production facility and our larger San Jose facility into our smaller San Jose facility.

We are committed to designing and manufacturing high quality products that have been thoroughly tested for reliability and performance. Our manufacturing processes utilize stringent quality controls, including incoming material inspection, in-process testing and final test. We perform in-house thermal, shock and environmental testing, including testing to industry accepted practices. Our products are designed to be fully compliant with standards for quality and interoperability with existing installation and maintenance systems. As a result of our continuing commitment to manufacturing high quality products, our operation in San Jose, California is ISO 9001 certified.

Research and Development

We have assembled a team of engineers, technicians and operators with significant experience in highly specialized manufacturing industries such as semiconductor capital equipment, optical storage and networking, and communications. Our product development efforts have historically focused on our telecom products. In particular, development of our network tunable laser technology and high-speed RF telecom products, prior to the sale of the network tunable laser technology to Intel and the cessation of product development for next-generation RF telecom products in the second quarter of 2002, accounted for a significant portion of our research and development expenses.

Our total research and development expenses, excluding reimbursement for engineering development work, totaled $22.2 million for the fiscal year ended December 29, 2002, $50.8 million for the fiscal year ended December 30, 2001, and $27.2 million for the fiscal year ended December 31, 2000.

During 2002, research and development expenses declined from $7.4 million in the first quarter to $2.4 million, or approximately 32% of net revenues, in the fourth quarter. Due to the separate and distinct product development efforts for our three product lines, we anticipate that research and development will remain flat, or increase slightly, over the course of 2003 as we execute our business strategy, particularly with respect to our OEM product direction for photonics tools and tunable lasers, where development costs are higher due to the required integration of electronics, optics and software.

Competition

In the photonics tools market we face competition from a number of companies, including Linos AG, Melles Griot, Inc. (a Barloworld Scientific company), Newport Corporation, Thermo Oriel (a unit of the Thermo Photonics Division of Thermo Electron Corporation), and Thorlabs, Inc. Our competitors in the tunable laser market include Agilent Technologies and NetTest (formerly Photonetics). In the high-speed RF products market, we face competition from M/A-Com (a subsidiary of Tyco International), Miteq Inc., REMEC Microwave, Inc. (a subsidiary of REMEC, Inc.) and several smaller private companies.

Our competitors consist of both public and private companies. Some of our competitors have longer operating histories and significantly greater financial, technical, marketing and other resources than we have. As a result, these competitors are able to devote greater resources than we can to the development, promotion, sale and support of their products. In addition, some of our competitors have larger market capitalizations or cash reserves and are better positioned than we are to acquire other companies in order to gain new technologies or products that may displace our product lines. Some of our potential competitors have significantly more established sales and customer support organizations, more extensive customer bases, better developed distribution channels, more sophisticated e-commerce sites, broader product offerings and greater manufacturing capacity than we have. These companies can leverage their customer bases and their broader product offerings and adopt aggressive pricing policies to gain market share. Additional competitors may enter the market and we

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may compete with new companies in the future. Our industry is also consolidating, and we believe it will continue to consolidate in the future as companies attempt to strengthen or hold market positions. We expect to encounter potential customers that, due to existing relationships with our competitors, are committed to the products offered by these competitors.

The principal factors upon which we compete are: product features and performance, product reliability, responsive customer service and support, and price. We believe we compete favorably on each of these factors.

Intellectual Property

Our success and ability to compete depend substantially upon our technology. We pursue patent protection in the United States and abroad, and as of December 29, 2002 we have been granted 47 U.S. patents and 4 European patents. The expiration dates of our patents range from May 28, 2008 to December 13, 2020.

While we rely on patent, copyright, trade secret and trademark law to protect our technology, we also believe that factors such as the technological and creative skills of our personnel, new product developments, timely product enhancements and reliable product maintenance are essential to establishing and maintaining a technology leadership position.

We generally enter into confidentiality or license agreements with our employees, consultants and corporate partners, and generally control access to and distribution of our proprietary information. Our confidentiality agreements generally prohibit the disclosure or use of the technology being evaluated or licensed. From time to time we license our technology to various third parties pursuant to non-exclusive license agreements that prohibit the disclosure or use of the technology except as set forth in the agreements. Despite these efforts to protect our proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Policing unauthorized use of our products is difficult, and there can be no assurance that the steps taken by us will prevent misappropriation of our technology, particularly in foreign countries where the laws may not protect our proprietary rights as fully as do the laws of the United States. We cannot assure you that others will not develop technologies that are similar or superior to our technologies.

Substantial litigation regarding intellectual property rights exists in the markets in which we compete. We expect that the telecommunications and photonics industries may be increasingly subject to third-party infringement claims as the number of competitors grows and the functionality of products in different industry segments overlaps. In addition, we believe that many of our competitors have filed or intend to file patent applications covering aspects of their technology on which they may claim our technology infringes.

In January 2003 we announced the settlement of a pending patent infringement lawsuit related to the design of tunable lasers filed against us by Photonetics, Inc. and Photonetics, S.A. in July 2001. In response to this lawsuit, we filed counterclaims against Photonetics, Inc. and Photonetics, S.A. in September 2001 that charged Photonetics with the infringement of two U.S. patents related to New Focus’ proprietary external cavity laser technology. Under the terms of the settlement we obtained a license to two patents held by Photonetics and Photonetics obtained a license to two patents held by us. We cannot make any assurances that other third parties in the future will not claim infringement by us with respect to our products and our associated technology.

Other claims of this kind in the future, with or without merit, could be time-consuming to defend, result in costly litigation, divert management’s attention and resources, result in injunctions against us, cause product shipment delays or require us to enter into royalty or licensing agreements. Royalty or licensing agreements of this kind, if required, may not be available on terms acceptable to us, if at all. A successful claim of product infringement against us and failure or inability by us to license the infringed or similar technology could harm our business.

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Employees

At December 29, 2002, we had a total of 253 employees located primarily in the United States, down from the peak employment level of approximately 2,100 people in February 2001. Of the 253 total employees, 128 were in manufacturing, 61 were in research and development, 33 were in sales and marketing, and 31 were in administration. None of our employees are subject to a collective bargaining agreement.

As of March 10, 2003, we had approximately 250 employees.

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RISK FACTORS

You should carefully consider the risks described below and all of the information contained in this annual report on Form 10-K. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following risks actually occur, our business, financial condition and results of operations could be harmed, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. This section should be read in conjunction with the Audited Consolidated Financial Statements and Notes thereto, and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this annual report on Form 10-K.

Risks Related to Our Financial Results

We have a history of losses and such net losses will likely continue if we are unable to increase our revenues and contain our costs or complete an accretive acquisition.

We incurred net losses of approximately $104.8 million (excluding a one-time gain of $41.3 million related to the sale of our network tunable laser technology and the divestiture of our passive component product line) for the fiscal year ended December 29, 2002, $495.4 million for the fiscal year ended December 30, 2001, and $36.0 million for the fiscal year ended December 31, 2000. As of December 29, 2002, we had an accumulated deficit of approximately $651.7 million. We have estimated that in order to achieve profitability on a pro forma basis (excluding amortization of deferred compensation and acquired intangibles), we need to increase our revenues on a quarterly basis to approximately $13 million and reduce our quarterly cost structure, defined as operating expenses plus manufacturing overhead, to approximately $9 million. To increase our quarterly revenues, we must increase sales of our existing products and introduce new products that we have either developed internally or acquired through other arrangements. While we believe we can grow our revenues from existing product lines through internal actions, the rate of growth will most likely not allow us to achieve our breakeven quarterly revenue level in a timely manner. Therefore, we continue to evaluate business combinations and partnering arrangements in our core business areas that would improve our market share position, increase our revenue, improve on our net loss position and accelerate our ability to reach profitability. While we are seeking acquisitions that we believe would improve our financial results, a completed acquisition may not provide the anticipated financial results, thus leading to continuing net losses. Even if we achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our future revenues are inherently unpredictable, and as a result, we may fail to meet the expectations of securities analysts or investors, which could cause our stock price to decline.

We have experienced reduced order volumes of current products and slow market adoption of new products and these factors have, and will continue to have, an adverse effect on our revenues and operating results. We have only recently begun targeting some of the diversified markets that we serve, and certain of the markets we serve are new and emerging and require us to continually assess new product development. As a result, we are unable to predict future revenues accurately or provide meaningful long-term guidance for our future financial performance. Many of our expenses are fixed in the short term, and the steps we have taken to reduce spending may not be adequate if our revenues are lower than we project. If we are unable to accurately forecast our revenues, we will incur charges that will harm our operating results. Any new product introductions will also result in increased operating expenses in advance of generating revenues, if any. Therefore, our quarterly net losses could be greater than expected. Additional factors contributing to the difficulty in predicting future operating results include:

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Due to these and other factors, we believe that quarter-to-quarter comparisons of our operating results may not be meaningful. You should not rely on our results from one quarter as any indication of our future performance. It is possible that in future quarters, our operating results may be below the expectations of public market analysts or investors, which may result in volatility or a decline in our stock price.

The long sales cycles for sales of our products to OEM customers may cause operating results to vary from quarter to quarter, which could continue to cause volatility in our stock price and may delay our return to profitability.

The period of time between our initial contact with certain of our customers, particularly our OEM customers, and the receipt of an actual purchase order may span a time period of 6-18 months. During this time, customers may perform, or require us to perform, extensive and lengthy evaluation and testing of our products and our manufacturing processes before purchasing our products and using them in their equipment. The length of these qualification processes also may vary substantially by product and customer, and, thus, inhibit our ability to predict our results of operations. In addition, during the qualification process, we may incur substantial sales and marketing expenses and expend significant management effort. Even after incurring such costs we ultimately may not sell any products to such potential customers. These qualification processes often make it difficult to obtain new customers, as customers are reluctant to expend the resources necessary to qualify a new supplier if they have one or more existing qualified sources. Further, even after we have received purchase orders or entered into contracts to supply such customers, changes in the markets for their products may result in negotiations to cancel or alter such purchase orders or contracts. For example, in the fourth quarter of 2002, we recorded approximately $1.2 million in revenues from cancellation fees from two OEM customers due to contract cancellations. The long sales cycles may restrict our ability to increase our revenues in a timely manner, thus delaying a return to profitability on a pro forma basis. The long sales cycles have caused and may continue to cause, our revenues and operating results to vary significantly and unexpectedly from quarter to quarter, which could continue to cause volatility in our stock price.

We are increasing our efforts to sell modules and subsystems to OEM customers and must face the challenge of supporting the distinct needs of each of the markets we intend to serve.

We are expanding our efforts in the development and sale of photonics components and modules to diversified markets within the semiconductor, industrial, biomedical and defense industries, in addition to the telecommunications industry. While we sell standard and customized components to these markets, we have not focused on the development and sale of modules and subsystems for these markets, except for the test and measurement market within the telecommunications industry. As a result, we do not have established sales channels, brand recognition or an installed customer base in these markets and we have only limited information regarding customer requirements. Some of these markets are only beginning to adopt photonics technologies and it is therefore difficult to assess the potential of these markets based on historical market information. Due to these factors, among others, we cannot assure you that our entry into these markets will be successful or result in increased revenues. Our decision to continue to offer products to a given market or to penetrate new markets is based in part on our judgment of the size, growth rate and other factors that contribute to the attractiveness of a particular market. If our product offerings in any particular market are not competitive or our analyses of targeted markets are incorrect, our business and results of operations would be harmed. In addition, the restructuring actions we have implemented to date could adversely affect our ability to market our products, introduce new and improved products and increase our revenues, which could adversely affect our business and cause the price of our stock to decline.

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Accounting treatment of our acquisitions has harmed our operating results.

Our operating results have in the past been and may in the future be adversely affected by purchase accounting treatment, primarily due to the effect of in-process research and development charges and the amortization of and impairment charges relating to goodwill and other intangibles originating from acquisitions. For fiscal year 2001, we recorded acquisition-related amortization expenses of approximately $54.5 million. During 2001, under applicable accounting rules, we periodically evaluated the carrying value of our goodwill and other intangible assets. As a result of these evaluations, we recorded charges totaling approximately $289.3 million for impairment of goodwill and other intangible assets in 2001. At December 30, 2001, all of the remaining goodwill associated with our acquisitions had been written off through impairment charges. At June 30, 2002, we recorded an impairment charge of $7.7 million against remaining intangibles associated with our acquisitions of JCA Technology, Inc. (JCA) and Globe Y. Technology, Inc. (Globe Y). As of December 29, 2002, the net book value of other intangible assets arising from our acquisitions of JCA and Globe Y was approximately $1.4 million. Purchase accounting treatment of future mergers and acquisitions or the write-down of goodwill and other long-lived assets could result in a reduction in net income or an increase in expenses, which could have a material and adverse effect on our results of operations.

Risks Related to Our Business

Our acquisition and partnering strategy may be unsuccessful, which may harm our ability to grow revenues.

We believe that our future success depends on our ability to introduce and market new products that we have either developed internally or acquired through strategic combinations or partnering relationships. We regularly review acquisition and partnering prospects that would complement our existing product offerings, augment our market coverage, secure supplies of critical materials or enhance our technological capabilities. Our acquisition and partnering strategy is subject to inherent risks associated with the potential integration of additional operations, the extent of management time and attention required, and related costs and expenses associated with the execution of this strategy.

We will face technical, operational and strategic challenges that may prevent us from successfully integrating businesses we may acquire in the future.

Execution of our acquisition and partnering strategy could result in a number of financial consequences, including without limitation:

Furthermore, acquisitions involve numerous operational risks, including:

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The integration of businesses that we have acquired into our business has been and will continue to be a complex, time consuming and expensive process. We must operate as a combined organization utilizing common information and communication systems, operating procedures, financial controls and human resources practices to be successful. We have recorded significant impairment charges with respect to our acquisitions of JCA and Globe Y. In the second quarter of 2002, we discontinued development of JCA’s next-generation high-speed RF telecom products and consolidated its remaining business into our San Jose facility. We also ceased our Globe Y operations in the third quarter of 2002. We cannot guarantee that any future acquisitions will result in sufficient revenues or earnings to recover our investment in, or expenses related to, these acquisitions or that any synergies will develop. If we are not successful in integrating acquired businesses or if expected earnings or synergies do not materialize, we could be forced to attempt to resell or cease operations of acquired businesses. In either event, we would likely incur significant expenses as well as non-cash charges to write-off acquired assets, which could seriously harm our financial condition and operating results.

Our future success depends on our ability to develop and successfully introduce new and enhanced products that meet the needs of our customers in a timely manner.

The markets for our products are characterized by rapid technological change, frequent new product introductions, changes in customer requirements and evolving industry standards. Our future performance will depend on the successful development, introduction and market acceptance of new and enhanced products that address these changes as well as current and potential customer requirements. We may not be able to develop the underlying core technologies necessary to create new or enhanced products, or to license or otherwise acquire these technologies from third parties. Product development delays may result from numerous factors, including:

The development of new, technologically advanced products is a complex and uncertain process requiring high levels of innovation and highly skilled engineering and development personnel, as well as the accurate anticipation of technological and market trends. We cannot assure you that we will be able to identify, develop, manufacture, market or support new or enhanced products successfully, if at all, or on a timely basis. In addition, the introduction of new and enhanced products may cause our customers to defer or cancel orders for existing products. A slowdown in demand for existing products ahead of a new product introduction could result in a write-down in the value of inventory on hand related to existing products. We have experienced in the past and are continuing to experience a slowdown in demand for certain existing products. To the extent customers defer or cancel orders for existing products due to a slowdown in demand or in the expectation of a new product release or if there is any delay in development or introduction of our new products or enhancements of our products, our operating results would suffer. Further, we cannot assure you that our new products will gain

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market acceptance or that we will be able to respond effectively to product announcements by competitors, technological changes or emerging industry standards. Any failure to respond to technological change would significantly harm our business.

The complexity of our business necessitates an infrastructure that our current revenues do not support. If we are unable to grow revenues to support the complexity of our business structure, our results of operations will continue to be adversely affected.

We have three distinct product lines that require separate development, manufacturing and sales and marketing resources. Through recent product line divestitures and plant closures, we have taken steps to reduce the complexity of our business but multiple acquisition and business-related legal structures still remain in place. Such legal entities require separate accounting and tax records and until such legal entities can be dissolved in accordance with the applicable laws our administrative costs will be adversely affected. In addition, as a public company we are subject to the reporting and other requirements under the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission. Compliance with these rules and regulations has become more complex, time-consuming and costly. Our business infrastructure is more complex than our revenues can currently support. If we are unable to grow our revenues sufficiently to support our business infrastructure, our results of operations will continue to be adversely affected.

We expect competition to increase, which could reduce our sales and gross margins, or cause us to lose market share.

The markets for our products are intensely competitive, and we believe that competition from both new and existing competitors will increase in the future. We compete in several specialized markets against a limited number of companies. Many of our existing and potential competitors are more established, have greater name recognition and possess greater financial, technological and marketing resources than we do. Other competitors are small and highly specialized firms that are able to focus on only one aspect of a market.

Consolidation among suppliers of photonics and microwave products could intensify the competitive pressures that we face. A consolidated company could offer more integrated products, making our products less competitive. Our customers may prefer to purchase products from our competitors who offer broader product lines, which would negatively affect our sales and operating results.

Some existing customers and potential future customers are also our competitors. These customers may develop or acquire additional competitive products or technologies in the future, which may cause them to reduce or cease their purchases from us. Further, these customers may reduce or discontinue purchasing our products if they perceive us as a serious competitive threat with regard to sales of products to their customers. As a result of these factors, we expect that competitive pressures will intensify and may result in price reductions, loss of market share and reduced margins.

We compete on the basis of product features, quality, reliability and price and on our ability to manufacture and deliver our products on a timely basis. We may not be able to compete successfully in the future against existing or new competitors. In addition, competitive pressures may force us to reduce our prices, which could negatively affect our operating results. If we do not respond adequately to competitive challenges, our business and results of operations will be harmed.

We may in the future, and we have in the past, become involved in costly and time-consuming litigation that may substantially increase our costs and harm our business.

We may from time to time become involved in various lawsuits and legal proceedings. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters that may arise from time to time could have a material adverse effect on our business, results of operations or financial condition. Any litigation to

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which we are subject may be costly and further, could require significant involvement of our senior management and may divert management’s attention from our business and operations. For more information about current legal proceedings, see “Part I, Item 3—Legal Proceedings.”

We depend on key personnel to manage our business effectively. If we are unable to retain key personnel, or if our senior management and key personnel are unable to work together effectively, our business and operations may be harmed.

Our future success depends in part upon the continued services of our executive officers and other key engineering, sales, marketing, manufacturing and support personnel. Our officers and key employees are not bound by employment agreements that require them to work for us for any specific term. In addition, our current management team has not worked together for a significant length of time and may not be able to work together effectively to successfully implement our business strategies. If the management team is unable to accomplish our business objectives, our ability to stabilize and then grow our business could be severely impaired.

We have reduced our work force from a peak of approximately 2,100 employees in the first quarter of 2001 to approximately 250 employees at the end of December 2002. Our ability to continue to retain highly skilled personnel in light of these reductions in force and other factors will be a critical factor in determining whether we will be successful. Despite the economic downturn, competition for highly skilled personnel continues to be intense. We may not be successful in retaining qualified personnel to fulfill our current or future needs, which could adversely affect our ability to develop and sell our products. Furthermore, government regulations and immigration controls may adversely affect the residence status of non-U.S. engineers and other key technical employees in our U.S. facilities or our ability to hire new non-U.S. employees in such facilities.

We face risks associated with our international sales that could harm our financial condition and results of operations.

For the fiscal year ended December 29, 2002, approximately 33% of our net revenues were from international sales. For the fiscal year ended December 30, 2001, approximately 36% of our net revenues were from international sales. Sales to customers outside North America have decreased as a percentage of our net revenues due to the divestiture of our passive component product line and cessation of development of certain high-speed RF telecommunication products, but international sales continue to be significant.

Since a significant portion of our foreign sales are denominated in U.S. dollars, our products may become less price competitive in countries in which local currencies decline in value relative to the U.S. dollar. Lower sales levels that typically occur during the summer months in Europe and some other overseas markets may also materially and adversely affect our business.

Our international sales are subject to risks including the following:

While we expect our international revenues to be denominated predominantly in U.S. dollars, a portion of our international revenues may be denominated in foreign currencies in the future. Accordingly, we could experience the risks of fluctuating currencies and may choose to engage in currency hedging activities to reduce these risks.

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Our business and future operating results may be adversely affected by events outside of our control.

Our business and operating results are vulnerable to interruption by events outside of our control, such as earthquakes, fire, power loss, telecommunications failures and uncertainties arising out of the terrorist attacks on the United States, including the continuation or potential worsening of the current global economic slowdown, the economic consequences of additional military action or additional terrorist activities and associated political instability, and the effect of heightened security concerns on domestic and international travel and commerce.

Risks Related to Manufacturing Our Products

Delays, disruptions or quality control problems in manufacturing could result in delays in shipments of products to customers and adversely affect our business.

We may experience delays, disruptions or quality control problems in our manufacturing operations or the manufacturing operations of our subcontractors, and, as a result, product shipments to our customers could be delayed beyond the shipment schedules requested by our customers, which would negatively affect our revenues, competitive position and reputation. Furthermore, even if we are able to timely deliver product to our customers, we may be unable to recognize revenue based on our revenue recognition policies. We recently restructured our operations, consolidating manufacturing from our Camarillo, California and our larger San Jose, California facilities into our remaining facility in San Jose. In addition, the sale and manufacture of certain products require continued compliance with governmental security and import/export regulations. In the past, we have experienced disruptions in the manufacture of some of our products due to changes in our manufacturing processes, which resulted in reduced manufacturing yields, delays in the shipment of our products and deferral of revenue recognition. Any disruptions in the future, including disruptions as a result of the consolidation of facilities or failure to maintain compliance with governmental regulations, could adversely affect our revenues, gross margins and results of operations. In addition, we may experience manufacturing delays and reduced manufacturing yields upon introducing new products to our manufacturing lines or when integrating acquired products. We have in the past experienced lower-than-targeted product yields, which have resulted in delays of customer shipments, lost revenues and impaired gross margins.

If we are unable to accurately forecast component and material requirements, our results of operations will be adversely affected.

We use rolling forecasts based on anticipated product orders to determine our component and material requirements. It is very important that we predict both the demand for our products and the lead times required to obtain the necessary components and materials. It is very difficult to develop accurate forecasts of product demand, especially in the current uncertain conditions in our served markets and the economy in general. Order cancellations and lower order volumes by our customers have in the past created excess inventories. Further, in order to avoid additional excess material inventories we have incurred cancellation charges associated with modifying existing purchase orders with our vendors. In fiscal year 2001, we recorded approximately $36.6 million in excess inventory and related order cancellation fees, primarily related to telecom products, which negatively affected our operating results. If we fail to accurately predict both the demand for our products and the lead times required to obtain the necessary components and materials in the future, we could incur additional inventory write-downs or cancellation charges. If we underestimate our component and material requirements, we may have inadequate inventory, which could interrupt our manufacturing and delay delivery of our products to our customers. Any of these occurrences would negatively affect our results of operations.

We depend on single or limited source suppliers for some of the key components in our products, which may make us susceptible to supply shortages or price fluctuations if demand for our products increases.

We currently purchase several key components used in the manufacture of our products from single or limited source suppliers. We do not have long-term or volume purchase agreements with any of these suppliers

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and these components may not in the future be available in the quantities or at the prices required by us. We may fail to obtain required components in a timely manner in the future, or could experience further delays from evaluating and testing the products of these potential alternative suppliers. Current difficult economic conditions could adversely affect the financial condition of our suppliers, many of whom have limited financial resources. We have in the past, and may in the future, be required to provide advance payments in order to secure key components from financially limited suppliers. Financial or other difficulties faced by these suppliers could limit the availability of key components or impair our ability to recover advances made to these suppliers. Any interruption or delay in the supply of any of these components, or the inability to obtain these components from alternate sources at acceptable prices and within a reasonable amount of time, would impair our ability to meet scheduled product deliveries to our customers and could cause customers to cancel orders.

If our customers do not qualify our manufacturing lines or the manufacturing lines of our subcontractors for volume shipments, our operating results could suffer.

Certain of our OEM customers do not purchase our products, other than limited numbers of evaluation units, prior to qualification of the manufacturing line for volume production. Our existing manufacturing lines, as well as each new manufacturing line, must pass through varying levels of qualification with our customers. These OEM customers may also require that we, and any subcontractors that we may use, be registered under international quality standards, such as ISO 9001. We have recently consolidated our worldwide manufacturing operations. Manufacturing lines relocated to our remaining San Jose facility from our other manufacturing facilities must undergo qualification by our customers before commercial production on these lines can recommence. The qualification process, whether for new products or in connection with the relocation of manufacturing lines for current products, determines whether the manufacturing line meets the quality, performance and reliability standards of our customers. We may experience delays in obtaining customer qualification of our manufacturing lines and, as a consequence, our operating results and customer relationships would be harmed.

Risks Related to Our Intellectual Property

We may not be able to protect our proprietary technology, which would seriously harm our ability to compete effectively, and harm our ability to generate revenues.

We rely on a combination of patent, copyright, trademark and trade secret laws and restrictions on disclosure to protect our intellectual property rights. We also rely on confidentiality procedures and contractual provisions with our employees, consultants and corporate partners. We cannot assure you that the steps we have taken will prevent the misappropriation of our intellectual property, particularly in foreign countries where the laws may not protect our proprietary rights as fully as in the United States. Other parties may independently develop similar or competing technology or design around any patents that may be issued to us. It may be necessary to litigate to enforce our patents, copyrights, and other intellectual property rights, to protect our trade secrets, to determine the validity of and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation can be time consuming, distracting to management, expensive and difficult to predict. Our failure to protect or enforce our intellectual property could have an adverse effect on our business, financial condition, prospects and results of operations.

If we are unsuccessful in defending intellectual property claims, we may have to expend a substantial amount of resources to make our products non-infringing and may have to pay a substantial amount in damages.

On January 7, 2003, we settled intellectual property litigation with Photonetics, Inc. and Photonetics, S.A. Under the terms of the settlement, we obtained a license to two patents held by Photonetics and Photonetics has obtained a license to two of our patents. The settlement did not have a material effect on our results of operations. However, any future claims by others and resulting lawsuits, if successful, could subject us to significant liability

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for damages and invalidate our proprietary rights. We anticipate, based on the size and sophistication of our competitors and the history of rapid technological advances in our targeted industries, that several competitors may have existing patents or patent applications in progress in the United States or in foreign countries that, if issued, could relate to our product and result in litigation. The holders of such existing or pending patents or licensees may assert infringement claims against us or claim that we have violated other intellectual property rights. The lawsuits, regardless of their merits, could be time-consuming and expensive to defend or resolve and would divert management time and attention. As a result of any future intellectual property litigation, we may be forced to do one or more of the following, any of which could harm our business:

For more information about current legal proceedings, see “Part I, Item 3—Legal Proceedings.”

Risks Related to Our Corporate Governance

Our ability to issue preferred stock could harm the rights of our common stockholders.

In July 2001, we adopted a stockholder rights agreement and declared a dividend distribution of one right per share of common stock for stockholders of record as of August 31, 2001. Each right entitles stockholders to purchase 1/1000 share of our Series A Participating Preferred Stock at an exercise price of $40. The rights only become exercisable in certain limited circumstances following the tenth day after a person or group announces acquisitions of or tender offers for 15 percent or more of our common stock. For a limited period of time following the announcement of any such acquisition or offer, the rights are redeemable by us at a price of $0.001 per right. For a limited period of time after the exercisability of the rights, each right, at the discretion of our board of directors, may be exchanged for either 1/1000th share of Series A Participating Preferred Stock or one share of common stock per right. The rights expire on August 31, 2011, if not earlier redeemed or exchanged.

Some provisions contained in the rights plan may have the effect of discouraging a third party from making an acquisition proposal for us and may thereby inhibit a change in control. For example, such provisions may deter tender offers for shares of common stock or exchangeable shares which offers may be attractive to the stockholders, or deter purchases of large blocks of common stock or exchangeable shares, thereby limiting the opportunity for stockholders to receive a premium for their shares of common stock or exchangeable shares over the then-prevailing market prices. The issuance of Series A Participating Preferred Stock or any preferred stock subsequently issued by our board of directors, under some circumstances, could have the effect of delaying, deferring or preventing a change in control.

Provisions of our charter documents and Delaware law may have anti-takeover effects that could prevent a change in our control.

Provisions of our amended and restated certificate of incorporation, bylaws, stockholder rights agreement, Delaware law and other corporate governance documents could make it more difficult for a third party to acquire us, which could hinder stockholders’ ability to receive a premium for our stock over the then-prevailing market prices. These provisions include:

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In addition, amending any of the above provisions will require the vote of the holders of 66 2/3% of our outstanding common stock.

Item 2.    Properties

We currently operate the following facilities:

We consolidated our manufacturing facilities into one facility in San Jose, California. We also lease an unoccupied facility of 145,000 square feet in Camarillo, CA that we have subleased, and certain unoccupied facilities that we are seeking to sublease. The facilities which we are seeking to sublease include a 55,000 square foot manufacturing facility in Santa Clara, CA and a 130,000 square foot manufacturing, R&D and administrative facility in San Jose, CA. Further, we own a 243,000 square foot unoccupied facility in Shenzhen, China that we are seeking to sell. We believe that the facilities we currently occupy are adequate for our current and planned manufacturing needs.

Item 3.    Legal Proceedings

On February 13, 2002, a lawsuit was filed purportedly on behalf of both Howard Yue and Globe Y Technology, a company acquired by New Focus, in Alameda County Superior Court. The action was subsequently transferred to Santa Clara County Superior Court. The action was captioned Globe Y Technology, Inc. v. New Focus, Inc. et al., and asserted claims against the company and several of its officers and directors. The original complaint alleged eight causes of action, including fraud and deceit by active concealment, fraud and deceit based upon omissions of material facts, negligent misrepresentation, and breach of contract. The claims stemmed from the acquisition of Globe Y Technology, Inc. by the company completed February 15, 2001. The complaint sought unspecified economic, punitive, and exemplary damages, prejudgment interest, costs, and equitable and general relief. On September 10, 2002, the Santa Clara County Superior Court entered an order dismissing without prejudice the claims against the company and its officers and directors with leave to amend. On November 15, 2002 Howard Yue filed an amended complaint on behalf of himself. Globe Y Technology, Inc. is not named as a plaintiff in the amended complaint. The amended complaint is captioned Howard Yue v. New Focus, Inc., et al. and asserts claims against the company and several of its officers and directors. The amended complaint alleges eight causes of action similar to those alleged in the original complaint. As with the original complaint, the claims asserted in the amended complaint stem from the acquisition of Globe Y Technology, Inc. by the company completed February 15, 2001. The amended complaint seeks unspecified economic, punitive, and exemplary damages, prejudgment interest, costs, and equitable and general relief. On March 11, 2003, the court granted the company’s motion to dismiss several causes of action in the amended complaint for failure to state a claim. The court, however, gave the plaintiff thirty days to amend his causes of action. We believe that the claims in the amended complaint are without merit and intend to defend against them vigorously. Discovery in this matter is ongoing. An unfavorable resolution of any of this lawsuit could have a material adverse effect on our business, results of operations or financial condition.

On July 20, 2001, Photonetics, Inc. and Photonetics, S.A. filed a complaint against the company for patent infringement in the United States District Court for the District of Delaware. Photonetics, Inc. and Photonetics, S.A. claimed that the company infringed U.S. Patent No. 5,594,744 and sought preliminary and injunctive relief

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and damages. Photonetics, Inc. and Photonetics, S.A. alleged that the company’s infringement was willful and sought enhanced damages and attorneys’ fees. The company filed its answer and counterclaims on September 10, 2001. In the answer, the company denied infringement of U.S. Patent No. 5,594,744 and asserted that the patent was invalid and unenforceable. In a declaratory judgment counterclaim, the company claimed that U.S. Patent No. 5,594,744 is invalid, unenforceable and not infringed. The company also counterclaimed for patent infringement of U.S. Patent Nos. 5,995,521 and 5,319,668 and sought preliminary and injunctive relief and damages. Additionally, the company claimed that Photonetics, Inc. and Photonetics, S.A.’s infringement of the patents was willful and sought enhanced damages and attorneys’ fees. On October 9, 2001, Photonetics, Inc. and Photonetics, S.A. filed its reply to the company’s counterclaims. Photonetics, Inc. and Photonetics, S.A. denied infringement of U.S. Patent Nos. 5,995,521 and 5,319,668 and alleged that the patents were invalid. On January 7, 2003, the parties settled their claims and counterclaims. Under the terms of the settlement, the company has obtained a license to two patents held by Photonetics and Photonetics has obtained a license to two patents held by the company. The settlement did not have a material effect on our results of operations or financial condition.

On June 26, 2001, a putative securities class action captioned Lanter v. New Focus, Inc. et al., Civil Action No. 01-CV-5822, was filed against the company and several of its officers and directors (the “Individual Defendants”) in the United States District Court for the Southern District of New York. Also named as defendants were Credit Suisse First Boston Corporation, Chase Securities, Inc., U.S. Bancorp Piper Jaffray, Inc. and CIBC World Markets Corp. (collectively the “Underwriter Defendants”), the underwriters in the company’s initial public offering. Three subsequent lawsuits were filed containing substantially similar allegations. These complaints have been consolidated. On April 19, 2002, plaintiffs filed a consolidated amended complaint. The amended complaint alleges violations of Section 11 of the Securities Act of 1933 against all defendants related to the Initial Public Offering and the Secondary Offering, violations of Section 15 of the Securities Act of 1933 and Section 20(a) of the Securities Act of 1934 against the Individual Defendants, violations of Section 10(b) and Rule 10b-5 against the company and violations of Section 12(a)(2) of the Securities Act of 1933 and Section 10(b), and Rule 10b-5 promulgated thereunder, of the Securities Act of 1934 against the Underwriter Defendants. The amended complaint seeks unspecified damages on behalf of a purported class of purchasers of the company’s common stock between May 18, 2000 and December 6, 2000.

Various plaintiffs have filed similar actions in the United States District Court for the Southern District of New York asserting virtually identical allegations concerning the offerings of more than 300 other issuers. These cases have all been assigned to the Hon. Shira A. Scheindlin for coordination and decisions on pretrial motions, discovery, and related matters other than trial. On or about July 15, 2002, defendants filed an omnibus motion to dismiss in the coordinated proceedings on common pleadings issues. On or about October 9, 2002, the court entered as an order a stipulation dismissing the Individual Defendants from the litigation without prejudice. On February 19, 2003, the omnibus motion to dismiss was denied by the court as to the claims against New Focus.

On or about February 28, 2003, a similar purported class action complaint entitled Liu v. Credit Suisse First Boston Corporation et al. was filed in the United States District Court for the Southern District of Florida against Credit Suisse First Boston Corporation, approximately 50 issuers, including New Focus, and various individuals of the issuer defendants, including William L. Potts, Jr., our Chief Financial Officer. As against New Focus, the complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 as well as claims for common law fraud, negligent misrepresentation, and violations of the Florida Blue Sky Law arising out of the initial public offering of our common stock. As against Mr. Potts, the complaint alleges violations of Sections 10(b) and 15 of the Securities Exchange Act of 1934 and Rule 10b-5 as well as claims for common law fraud, negligent misrepresentation, and violations of the Florida Blue Sky Law, also arising out of the initial public offering of our common stock.

In addition, the Company is subject to various claims that arise in the normal course of business.

Item 4.    Submission of Matters to a Vote of Securities Holders

None.

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PART II

Item 5.    Market for the Registrant’s Common Stock and Related Stockholder Matters

Market Information, Holders and Dividends

Our common stock is quoted on the Nasdaq National Market under the symbol “NUFO.” The following table sets forth, for the period indicated, the high and low closing prices per share of the common stock as reported on the Nasdaq National Market.

On March 10, 2003 the reported last sale price of the common stock on the Nasdaq National Market was $3.24. As of March 10, 2003 there were in excess of 375 stockholders of record.

We have never declared or paid any dividends on our capital stock. Currently, we expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends for the foreseeable future.

Securities Authorized for Issuance Under Equity Compensation Plans

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Item 6.    Selected Consolidated Financial Data

The following table sets forth our selected consolidated financial data and other operating information. The financial data and operating information is derived from our consolidated financial statements and should be read in conjunction with the consolidated financial statements, related notes and other financial information included herein.

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The following is a summary of our unaudited quarterly results for the fiscal years ended December 29, 2002 and December 30, 2001: