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                                 UNITED STATES
                       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

                     for fiscal year ended December 30, 2000

                                       OR

|_|         TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

       for the transition period from ________________ to _______________

                             Commission file number: 0-30989

                               Corvis Corporation
             (Exact name of registrant as specified in its charter)

               Delaware                              52-2041343
    (State or other jurisdiction of                (I.R.S. Employer
    incorporation or organization)                Identification No.)

 7015 Albert Einstein Drive, Columbia, Maryland       21046-9400
    (Address of principal executive offices)          (Zip code)

Registrant's telephone number, including area code: (443) 259-4000

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

           Securities registered pursuant to Section 12(g) of the Act
                     Common Stock, $.01 par value per share

      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 report(s)), and (2) has been subject to
such filing requirements for the last 90 days. Yes |X| No |_|

      Indicate by check mark if the disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.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. |X|

      As of March 16, 2001, the aggregate market value of the Common Stock held
by non-affiliates was $2,310,113,429.

      As of March 16, 2001, there were 365,143,323 shares of Common Stock
outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Part III of this Report on Form 10-K incorporates by reference information
from the registrant's definitive Proxy Statement which will be furnished to
stockholders in connection with the Annual Meeting of Stockholders of the
registrant scheduled to be held on May 11, 2001.

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                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----
PART I

Item 1. Business.............................................................  3

Item 2. Properties........................................................... 19

Item 3. Legal Proceedings.................................................... 19

Item 4. Submission of Matters to a Vote of Security Holders.................. 20

PART II

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

Item 6. Selected Financial Data.............................................. 25

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................ 27

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.......... 46

Item 8. Financial Statements and Supplementary Data.......................... 48

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure......................................................... 68

PART III

Item 10. Directors and Executive Officers of the Registrant.................. 68

Item 11. Executive Compensation.............................................. 68

Item 12. Security Ownership of Certain Beneficial Owners and Management...... 68

Item 13. Certain Relationships and Related Transactions...................... 68

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.... 68

SIGNATURES................................................................... 72

EXHIBIT INDEX................................................................ 73


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                                     PART I

      Our prospects are subject to uncertainties and risks. This Annual Report
on Form 10-K contains forward-looking statements under the headings "Item 1.
Business," "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere, within the meaning of the federal
securities laws that also involve substantial uncertainties and risks. Our
future results may differ materially from our historical results and actual
results could differ materially from those projected in the forward-looking
statements as a result of various risk factors. Readers should pay particular
attention to the considerations described under the heading "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Factors that May Affect Future Results." Readers should also
carefully review the risk factors described in the other documents that we file
from time to time with the Securities and Exchange Commission.

Item 1. Business.

      We were incorporated under the laws of the State of Delaware on June 2,
1997 under the name NOVA Telecommunications, Inc. On February 5, 1999, we
changed our name to Corvis Corporation. From inception through July 2000, we
were a development stage company. During that time, our operations consisted
primarily of research and development, product design, manufacturing and
testing. Additionally, we recruited and retained our administrative, financial,
marketing and customer support organizations, and we established a direct sales
force. We completed our initial public offering on July 27, 2000. Our principal
executive offices are located at 7015 Albert Einstein Drive, Columbia, Maryland
21046; and our telephone number is (443) 259-4000.

Overview

      We design, manufacture and market high performance optical communications
systems that lower the overall cost of network ownership for service providers.
Our all-optical products enable a fundamental shift in the design and efficiency
of backbone networks by allowing for the transmission, switching and management
of communications traffic entirely in the optical domain. These products include
ultra-long distance optical signal transmission, reception and amplification
equipment, all-optical switching equipment and software that enable the creation
of all-optical backbone networks. By deploying our products, service providers
eliminate the need for expensive and bandwidth-limiting electrical regeneration
and switching equipment, significantly reducing costs, increasing network
capacity and allowing them to more quickly and efficiently provide new services.
Our products also open new market opportunities for service providers by
enabling a migration path from existing point-to-point and ring networks to
all-optical mesh networks. Our regional and repeaterless products allow service
providers to use their existing networks more efficiently, enabling the
transmission of optical signals in greater capacity over longer distances than
existing technology. Each of our product lines is designed to eliminate
electrical equipment from the backbone network. This is because we believe that
service providers will increasingly turn to optical technologies because
traditional electrical and electrical/optical technologies and the existing
network infrastructure does not adequately address service providers' rapidly
increasing capacity and reliability requirements in a cost effective manner.

      We have made three acquisitions since our inception:


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      Corvis Canada

      On July 6, 1999, we purchased all of the outstanding common stock of
Corvis Canada, Inc., a Canadian company formerly known as Kromafibre, Inc., for
211,928 shares of Series D convertible preferred stock valued at approximately
$1.9 million. Corvis Canada develops fiber optic technology that we use in some
of our products. We accounted for the acquisition as a purchase. Accordingly,
the operating results of Corvis Canada have been included in our results since
the date of our acquisition of Corvis Canada.

      Baylight Networks, Inc.

      On May 19, 2000, we acquired Baylight Networks, Inc., a company that
designs optical network access systems and subsystems. Baylight was formed in
February 2000 and was a development stage company with no revenue. In
consideration for all of the outstanding shares of Baylight, we assumed $0.1
million of Baylight liabilities and placed in escrow 2,400,012 shares of common
stock for release over the term of three-year employment agreements with the
former Baylight shareholders. We have accounted for the acquisition using the
purchase method. Accordingly, the operating results of Baylight are included in
our financial results from the date of acquisition.

      Algety Telecom S.A.

      On July 1, 2000, we acquired Algety Telecom S.A., a French company that
develops and markets high capacity, high speed optical transmission equipment.
Algety, based in Lannion, France, was formed in April 1999, and was a
development stage company with no revenue. At the initial closing on July 1,
2000, we delivered to the Algety shareholders 1,301,822 shares of our Series I
convertible preferred stock, which converted into 15,621,858 shares of common
stock upon the closing of our initial public offering. We also delivered 348,402
shares of Series I convertible preferred stock to our escrow agent to secure
potential warranty claims, which converted into 4,180,824 shares of common stock
upon the closing of our initial public offering. In addition, we placed into
escrow 2,275,032 shares of common stock that will be released contingent upon
satisfaction of certain minimum employment terms for certain Algety employees.
On November 3, 2000, consistent with the terms of the acquisition agreement, the
Company completed a second closing in which an additional 11,385,358 shares of
common stock were delivered to the former Algety shareholders. We have accounted
for the acquisition using the purchase method. Accordingly, the operating
results of Algety are included in our financial results from the date of
acquisition.

Industry Background

      Increase in Data Traffic on Service Provider Networks

      Over the past decade, the volume of data traffic across communications
networks has grown rapidly and is expected to exceed the volume of voice
traffic. Data-intensive applications such as electronic commerce, Internet
access, e-mail, streaming audio and video, remote access, data storage and other
new applications place significant strains on the capacity of existing network
infrastructures.

      To handle the increasing volume of data traffic, both established and
emerging service providers continue to build networks and add capacity to
existing networks using electrical/optical transmission and


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electrical switching equipment. The electrical/optical transmission equipment
provides higher capacity and greater network reliability than older electrical
transmission equipment.

      In order to remain competitive, service providers must continue to install
transmission and switching equipment that maximizes the value of their networks
while still maintaining or improving network reliability. Service providers are
currently having difficulty cost-effectively increasing and managing network
capacity using existing equipment and network infrastructures. This difficulty
has constrained service providers' attempts to manage their growth effectively.

      The Existing Network Infrastructure

      Backbone networks are the long distance, or national and/or regional,
transport networks that connect local, or metro, networks. The existing backbone
network infrastructure is based on an electrically interconnected network of
optical fibers.

      As an optical signal travels along an optical fiber, the signal strength
and quality degrade. Optical amplifiers are placed at 60 to 100 kilometer
intervals to strengthen the signal. Despite this amplification, the signal
quality continues to degrade as it travels along the optical fiber. In existing
backbone networks, the signal must be regenerated every 400 to 600 kilometers in
order for the signal to be successfully received at its destination. At each
regeneration point, the signal quality is restored through the use of
transmission equipment consisting of a receiver and a transmitter which are both
required for each optical signal. The receiver converts the optical signal to an
electrical signal and regenerates it. The transmitter then converts the
regenerated electrical signal back into an optical signal and transmits it along
the optical fiber.

      At network intersections, traffic can enter, exit or continue along the
network. At each network intersection, all traffic must be converted from an
optical signal into an electrical signal and processed by electrical switching
equipment. The traffic that does not exit the backbone must then be converted
back into an optical signal and transmitted further along the optical fiber. At
a network intersection, a receiver is required for each optical signal entering
the intersection and a transmitter is required for each optical signal
continuing along the backbone as well as for new signals entering the backbone.
Depending on the number and type of signals, one or more electrical switches is
required.

      Today's existing backbone networks are comprised of electrical network
intersections linked together with optical fiber to form a series of
interconnected rings. Long distance routes spanning substantial geographic
lengths are established by linking several rings together. Each ring carries
traffic around the ring and between connected rings. The ring architecture
provides two independent fiber paths between any two points on a ring. A working
path carries traffic while a protection path provides a redundant route in the
event of failure along the working path. To establish full working and
protection path capacity, each ring must be provisioned with sufficient
transmission and switching equipment to handle all traffic on the working and
protection paths around and between rings.

      Limitations of the Existing Backbone Network Infrastructure

      Existing backbone network infrastructures limit service providers' ability
to cost-effectively and efficiently meet increasing capacity and service
demands. The limitations result from substantial expenditures and complexities
associated with installing equipment, performing multiple
optical-to-electrical-to-optical conversions, transporting, switching and
regenerating traffic, adding network


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capacity, maintaining unused capacity for network protection and managing the
network to provision new services.

      o     Significant capital expenditures. At every network intersection and
            regeneration point in the existing backbone network, all of the
            optical signals, regardless of their ultimate destination, must
            undergo costly and time-consuming optical-to-electrical-to-optical
            conversions. As a result, costly transmission equipment must
            currently be placed every 400 to 600 kilometers to perform
            optical-to-electrical-to-optical conversions to regenerate degraded
            optical signals. Additionally, at each network intersection various
            types of electrical switching equipment and transmission equipment
            must be installed to switch all signals on every fiber as well as
            perform optical-to-electrical-to-optical conversions. The amount of
            the equipment along with the associated network management
            infrastructure increases the capital costs and complexity of the
            network. The transmission equipment required merely to pass signals
            to the same fiber at electrical switching sites can be in excess of
            50% of total transmission equipment at each network intersection.

      o     Slow and costly to deploy and increase capacity. Equipment
            installation in today's backbone network is time-consuming, manually
            intensive and typically requires multiple "truck rolls". This
            process involves dispatching teams of technicians to deploy
            equipment at every network intersection and regeneration point
            across a network backbone. Furthermore, the installation process
            results in a configuration specifically tailored to provision
            services between two points. Increasing network capacity in existing
            networks requires that the truck roll installation process be
            repeated, which can take several months and presents an obstacle to
            the service providers' ability to deploy new services.

      o     Slow and costly to provision services. Service providers have
            attempted to reduce the length of time and number of truck rolls
            required to provision new services in the existing network by
            installing excess transmission and switching equipment. The
            installation of excessive equipment, or pre-provisioning, requires
            service providers to accurately project when, where, how much and
            what type of capacity will be needed in their networks. Today's
            backbone network architecture lacks the flexibility to re-configure
            capacity after deployment and requires significant manual
            intervention. If capacity demands vary from the projections, unused
            transmission and switching equipment must be removed and deployed
            elsewhere in the network by performing another truck roll or else
            the equipment will be stranded in the network. As a result, service
            providers may be limited in their ability to respond to new and
            changing demands for services.

      o     Significant operating expenses. The complexities of existing network
            infrastructures require service providers to incur substantial
            operating expenses. The extensive amount of equipment in existing
            backbone networks must be maintained, spare equipment must be
            stocked and electrical power and facilities must be sufficient to
            accommodate all of the installed equipment. Management of existing
            backbone networks requires an experienced team of operators to
            provision services. These operating expenses will continue to
            increase as capacity is added to existing network infrastructures.

      As a result of the limitations and the high costs associated with the
technologies and equipment utilized in existing backbone networks, a significant
market opportunity exists for more cost-effective backbone solutions.


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The Corvis Solution

      We design, manufacture and market high performance optical communications
systems that lower the overall cost of network ownership for service providers.
Our all-optical products enable a fundamental shift in the design and efficiency
of backbone networks by allowing for the transmission, switching and management
of communications traffic entirely in the optical domain. Our products enable
the creation of, and migration to, long distance, all-optical transmission paths
by eliminating expensive and bandwidth-limiting electrical regeneration and
switching equipment in the backbone network. Additionally, our products offer a
flexible migration path from existing networks to all-optical networks. Our
products integrate key technologies that enable the effective deployment of
all-optical backbone networks: ultra-long distance optical transmission,
all-optical switching and integrated network management. Our products offer
service providers several key competitive advantages and benefits, including the
following:

      Reduced Capital Expenditures

      By deploying our products in their networks, service providers are able to
dramatically reduce their capital expenditures. Our all-optical network products
eliminate the need for costly electrical regeneration and switching equipment in
the backbone network, reducing the amount of equipment required for network
deployment and expansion. Our all-optical products support transmission of
optical signals without electrical regeneration up to 3,200 kilometers, and have
transmitted signals as long as 6,400 kilometers, compared to 400 to 600
kilometers for traditional equipment, which reduces the number of transmitters
and receivers and associated equipment by up to a factor of eight, resulting in
reduced capital expenditures. Our regional products and repeaterless products
(no in-line amplifiers), also reduce capital expenditures by enabling
transmission over longer distances with greater capacity using less equipment.
These new repeaterless products currently enable carriers to transmit up to 400
gigabits per second in each direction, upgradeable to 800 gigabits per second in
each direction in the near future, for distances up to 350 kilometers without
the use of in-line amplifiers. This significantly reduces the initial expense of
installing these products as well as costs associated with upgrading and
monitoring the network.

      Our all-optical switches enable optical signals to pass through a network
intersection without optical-to-electrical-to-optical conversions, eliminating
the need for one transmitter and one receiver for each signal passing through a
network intersection, potentially eliminating hundreds of transmitters and
receivers. It also eliminates the need for electrical switches at the network
intersection for these signals.

      Our products enable all-optical mesh architectures, which allow for
transmission between any two points using any path in the network without
electrical conversions. The mesh architecture eliminates the need for multiple
rings and the deployment of costly electrical transmission and switching
equipment required to support redundant capacity in each of those rings.

      Compatibility with Existing Networks

      Our products include standard hardware and software interfaces, which
provide compatibility with existing network equipment and enables the migration
path to an all-optical network. This addresses service providers' needs to
enhance their transport and switching capacity, while introducing new levels of
network and service management. As a service provider's network evolves, Corvis
products allow


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service providers to migrate to an all-optical backbone mesh network, while
increasing the efficiency of their existing networks.

      Speed to Deploy and Increase Capacity

      Service providers can deploy and increase capacity in a network more
rapidly using our equipment than with existing network equipment. Backbone
networks constructed using our products require significantly less equipment
than used in existing networks, reducing network complexity as well as the
number of tasks that must be performed to install our products. Our regional and
repeaterless products also require significantly less equipment due to their
long reach and high capacity transmission capabilities.

      Once installed, our optical network products simplify and accelerate
network expansion, enabling service providers to respond quickly to
unpredictable demand for services and to take advantage of revenue
opportunities. Additional transmission capacity can be added to our all-optical
network products simply by inserting transmitters and receivers at the end
points of a desired transmission path of up to 3,200 kilometers. No additional
equipment is required along a transmission path, eliminating the need for truck
rolls. The resulting cost and time savings give service providers a distinct
advantage in responding to capacity demands.

      Rapid Delivery of Services

      Using our products, service providers can respond to changing demands and
opportunities and rapidly and cost-effectively deliver services to their
customers. The delivery of services along a transmission path can be performed
in hours from a service provider's network operations center using our network
management software, eliminating the months and expense required for service
provider personnel to manually install and/or modify electrical transmission and
switching equipment along a transmission path.

      Reduced Operating Expenses

      Our products reduce operating expenses by dramatically reducing the amount
of equipment in backbone networks, costs associated with maintaining equipment
and spare parts inventory and electrical power and facilities required to
operate and house the equipment. Our all-optical networking products can reduce
the number of transmitters and receivers and associated equipment in a service
provider's network by up to a factor of eight and the cost associated with this
equipment in the network. Our regional products eliminate the need for
regenerators in regional networks and our repeaterless products eliminate the
need for in-line amplifiers in terrestrial and festoon network links. This
results in a more efficient, less complex network with fewer parts to track,
control, maintain and manage.

Corvis Strategy

      Our goal is to be the leading provider of optical network products. Key
elements of our strategy include the following:


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      Develop and Introduce Leading Optical Network Products

      We intend to develop and provide products that enable service providers to
deploy faster, more flexible and more cost-effective networks than those using
existing equipment. Our products enable service providers to significantly
reduce equipment purchases and operating expenses and simplify network
management. Our all-optical network products also offer a flexible migration
path from existing networks to next generation all-optical networks. Each of our
product lines is designed to eliminate electrical equipment from the backbone
network. This is because we believe that service providers will increasingly
turn to optical technologies because existing electrical and hybrid
electrical/optical technologies and ring architectures can no longer adequately
address service providers' rapidly increasing capacity, cost and reliability
requirements for their networks.

      Maintain and Extend Technology Leadership

      We believe that we are currently the leader in developing all-optical
backbone network technology. We intend to maintain and extend our technological
advantage by continuing to define next-generation optical networks. To further
this objective, we will continue investing in research and development efforts
focusing on innovative optical and networking technology. We will also continue
to recruit and retain talented engineers for our research and development
activities.

      Penetrate and Expand Customer Base

      We intend to sell our products to established and emerging service
providers, initially focusing our sales efforts on the North American and
European markets. We will work closely with prospective customers, analyzing
their existing networks and developing customized plans for increasing their
network capacity and functionality. To further develop and expand our customer
base, we intend to leverage our sales force and customer support capabilities to
address both domestic and international service providers. We intend to increase
our visibility as a leader in developing optical network products and services
and believe this increased visibility will generate additional sales. We believe
that providing ongoing support is critical to successful long-term relationships
with, and follow-on sales to, our customers. In this regard, we are committed to
providing our customers with the highest levels of support and service.

      Optimize Manufacturing Capabilities

      We are expanding our internal manufacturing capabilities through the
addition of new manufacturing personnel, facilities and equipment. Manufacturing
our own products allows us to avoid risks related to fully-outsourced
manufacturing, including increased access by third parties to our technology,
shipment delays and decreased quality control. We develop our manufacturing
processes concurrently with the design and development of our optical network
products, to ensure that the resulting product design can be manufactured more
efficiently and cost effectively. We seek to outsource manufacturing whenever it
is cost-effective to do so and there is minimal risk of compromising our
proprietary technologies and processes. Over time, we intend to selectively
increase our use of contract manufacturers to reduce cost and increase
manufacturing capacity, flexibility and speed to market.


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      Pursue Strategic Relationships and Acquisitions

      We intend to pursue strategic relationships and acquisitions with
companies that have innovative technologies. We believe that through
acquisitions we will be able to gain access to new technologies and additional
skilled employees. For example, we acquired Algety, a company that develops and
markets high-capacity, high-speed optical transmission equipment, and Baylight,
a designer of optical access systems and subsystems. Both of these acquisitions
have enabled us to further develop leading optical network technologies and
products. We have also made investments in certain of our vendors as well as
other technology leading companies, enabling mutually beneficial strategic
relationships and providing us with continued access to additional next
generation technologies.

Corvis Technology and Products

      Our optical networking products are designed to lower a service provider's
total cost of network ownership. By transmitting and switching signals entirely
in the optical domain, our CorWave ON all-optical network products eliminate the
need for electrical conversions resulting from unnecessary electrical
regeneration and switching in backbone networks. In addition, we have introduced
the CorWave LR and CorWave XL/XF systems, which provide high capacity, long
distance transmission performance for existing network and new backbone
applications. These products provide high capacity transport, while reducing the
amount of equipment that service providers must deploy in their networks.

      Our CorWave ON all-optical network products integrate key technologies to
enable the effective deployment of all-optical backbone networks: ultra-long
distance optical transmission, all-optical switching and integrated network
management. Our integration of these technologies allows service providers who
use our equipment to build higher capacity, more flexible and more
cost-effective networks.

      Currently, our CorWave ON system supports transmission of up to 400
gigabits per second in each direction for up to 3,200 kilometers without
electrical regeneration compared to traditional products that require
regeneration every 400 to 600 kilometers. This can reduce the number of
transmitters and receivers needed in the network by up to a factor of eight. Our
CorWave ON system also switches up to 2.4 terabits per second entirely in the
optical domain, thereby eliminating optical-to-electrical conversions and the
need for equipment merely to switch traffic between fibers.

      Our CorManager Network Management System controls our transmission and
switching products to create and provision long distance transmission paths
through a service provider's network. This product is integrated with the
CorWave ON, CorWave LR, CorWave XL/XF systems to enable fast and efficient
administration of network planning, provisioning, configuration, performance and
fault management.

      Our Optical Protector system enables carriers to insure network
reliability against major failures such as transmitter and receiver failures and
fiber cuts, allowing for a wide spectrum of protection and restoration schemes
by providing protection at the optical layer. The Optical Protector meets the
industry benchmark of 50 milliseconds protection switch time to insure
carrier-grade performance. It also provides bit-rate transparent and
protocol-independent open interfaces, which means that it can support various
bit-rates, such as 2.5 and 10 gigabits per second applications, and various
protocols, such as SONET/SDH, Ethernet, IP, and ATM. The Optical Protector can
be deployed with CorWave ON,


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CorWave LR, CorWave XL/XF systems, as well as interoperate with existing vendor
equipment deployed in a service provider's network.

      Our CorWave LR products are designed to transport up to 3.2 terabits per
second of traffic over distances of up to 2,000 kilometers. The CorWave LR will
be deployable over existing fiber plants and network architectures and virtually
eliminate the need for dedicated regenerators in these networks. The CorWave LR
will allow service providers to increase the efficiency of their existing
networks, while increasing their overall transport capacity.

      Our CorWave XL products for terrestrial links and CorWave XF products for
undersea festoon links will allow service providers to deploy high capacity,
repeaterless systems that address a broader range of applications in existing
networks and to develop new market opportunities. The CorWave XL/ XF products
will enable service providers to transmit up to 800 gigabits per second in each
direction for distances up to 350 kilometers without the use of in-line
amplifiers (also referred to as a repeaterless link). The elimination of in-line
amplifiers in regional networks cuts operational costs dramatically, speeds
regional network deployment and helps service providers to generate revenue more
rapidly. The CorWave XL system will enable high capacity links in portions of
the network where in-line amplifiers can not be installed and operated cost
effectively, as well as links spanning inaccessible areas. The CorWave XF system
will enable high capacity links for mainland-to-island and island-to-island
spans as well as multiple links along coastlines.

      The following table provides a brief overview of our product lines
followed by a brief description of each of the products in the product line:

                                                         Performance
Corvis Product Line           Application                Specifications
-------------------           -----------                --------------
CorWave ON:               In an All-Optical          Up to 400 Gbs in each
                          Network: All-optical       direction for up to
                          networking including       3,200 km
                          ultra-long distance        160 OC-48/OC-48c channels
                          transport, all-optical     40 OC-192/OC-192c
                          switching and integrated   channels
                          network management.
                          In an Existing Network:
                          High capacity,
                          ultra-long reach
                          transmission and
                          migration to all-optical
                          networks.

CorManager                Comprehensive network      Network planning,
                          management applications.   provisioning,
                                                     configuration, fault,
                                                     performance and security
                                                     management


Optical Protector         Optical layer protection   50 millisecond switch
                          and restoration.           time, Optical switching

CorWave LR                Ultra-high capacity,       Up to 320 OC-192
                          long reach transmission    channels in each
                          system for existing        direction for up to
                          networks.                  2,000 km

CorWave XL/XF             Terrestrial and undersea   Up to 800 gigabits per
                          festoon transmission       second in each direction
                          system for repeaterless    for up to 350 km
                          applications.


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CorWave ON - All-Optical Network and Ultra-Long Distance Transmission Systems

      Optical Network Gateway--provides access to an all-optical network from
other networks. The Optical Network Gateway currently provides up to 400
gigabits per second in each direction that can be transmitted up to 3,200
kilometers without electrical regeneration over diverse fiber types including
NDSF, NZDSF, and DSF. Capacity can be added incrementally by inserting
transmitters and receivers into the Optical Network Gateway. Our Optical Network
Gateway can be integrated with our Optical Add/Drop Multiplexer or Optical
Switch, which can provide flexible traffic management, high network efficiency
and rapid restoration of services in the event of a fiber cut. This product is
commercially available.

      Optical Amplifier--employs various amplification technologies to support
high capacity transmission over diverse fiber types including NDSF, NZDSF, and
DSF. Our distributed and discrete amplification technologies allow us to tailor
our amplifiers to customers' fiber plant and establish ultra-long transmission
paths through an all-optical network. Our Optical Amplifiers currently support
up to 400 gigabits per second in each direction and transmission distances of up
to 3,200 kilometers without electrical regeneration. This product is
commercially available.

      Optical Add/Drop Multiplexer--enables traffic to enter and exit the
network at a network intersection without requiring an
optical-to-electrical-to-optical conversion of traffic passing through the
intersection. The Optical Add/Drop Multiplexer can be integrated with the
Optical Network Gateway to allow traffic to enter or exit the network, up to the
full capacity of each fiber in each direction, at the network intersection. This
product is commercially available.

      Optical Switch--provisions routes and optically switches up to 2.4
terabits per second of traffic between fibers to provision services, reconfigure
the network and restore services in the event of a fiber cut. The Optical Switch
optically interconnects multiple fibers to switch traffic between one or more
fibers entirely in the optical domain. In addition, the Optical Switch can be
integrated with the Optical Network Gateway to allow traffic to enter or exit
any of the fibers at the network intersection. This product is commercially
available.

CorManager - Integrated Network Management System

      Corvis Wavelength Planner--allows service providers to plan the deployment
of transmission and switching equipment in the network using current and future
traffic patterns. In addition, service providers can evaluate and plan the
redeployment of deployed network capacity to meet evolving capacity demands in
the network. This product is commercially available.

      Corvis Provisioning Tool--allows service providers to provision their
networks from a centralized location based on a service provider's traffic
patterns, including those automatically generated by the Corvis Wavelength
Planner. This product is commercially available.

      Corvis Network Manager--provides a comprehensive view of the network, as
well as fault, configuration, performance and security management in the
network. This product is commercially available.


                                       12
<PAGE>

      Corvis Element Interface - provides detailed views of the Corvis products
down to the individual line cards either using the Corvis Network Manager or by
direct craft access to the Corvis product. This product is commercially
available.

Optical Protector System - Optical Layer Protection and Restoration System

      Optical Protector - provides optical layer protection and restoration to
ensure network reliability against major failures such as transmitter and
receiver failures and fiber cuts. The Optical Protector meets the industry
benchmark of 50 milliseconds protection switch time to insure carrier-grade
performance. The Optical Protector also provides bit rate transparent and
protocol independent open interfaces, which support 2.5 and 10 gigabits per
second applications, and SONET/SDH, Ethernet, IP, and ATM protocol applications.
The Optical Protector can be deployed with CorWave ON, CorWave LR, CorWave XL/XF
systems, as well as interoperate with existing vendor equipment deployed in a
service provider's network. This product is commercially available.

CorWave LR - Ultra-High Capacity, Long Reach Transmission System

      The CorWave LR system provides up to 3.2 terabits per second in each
direction that can be transmitted up to 2,000 kilometers without electrical
regeneration over diverse fiber types including NDSF, NZDSF, and DSF. Capacity
can be added incrementally by inserting transmitters and receivers into the
system. The CorWave LR system provides for transmission of 160 channels in the
C-band and 160 L-band in each direction. We expect that this product to be
commercially available in the second half of 2001.

CorWave XL/XF - High Capacity, Terrestrial and Festoon Repeaterless Transmission
Systems

      The CorWave XL/XF systems provide access to an all-optical network from
other networks. It will provide up to 800 gigabits per second in each direction
that can be transmitted up to 350 kilometers without the use of in-line
amplifiers (i.e., repeaterless). Capacity can be added incrementally by
inserting transmitters and receivers into the system. We expect the first
version of this product to be available in the second quarter of 2001.

Research and Development

      Our future success depends on our ability to increase the performance of
our products, to develop and introduce new products and product enhancements and
to effectively respond to our customers' changing needs. Our research and
development team is primarily responsible for, and is currently working on,
meeting these objectives. We believe that we can enhance our technologies to
provide greater efficiency in current backbone networks, as well as extend these
technologies into other parts of a service provider's current network. We have
made, and will continue to make, a substantial investment in research and
development. Research and development expenses were $15.7 million for the year
ended December 31, 1998, $41.6 million for the year ended January 1, 2000
(excluding $0.1 million of equity-based compensation expense) and $88.9 million
for the year ended December 30, 2000 (excluding $28.1 million of equity-based
compensation expense and purchased research and development of $42.2 million).

      To help meet the challenge of rapidly increasing network traffic demands,
we plan to continue to develop optical transport and switching products which
provide higher capacity transport on each fiber

                                       13
<PAGE>

over greater distances. We also plan to develop additional protection and
performance features for our network management system that further accelerate
our customers' ability to deliver revenue generating services using our
transport and switching products. In addition, we have developed, and will
continue to develop, new products for long reach, terrestrial and undersea
regional markets. We have assembled a team of highly-skilled hardware and
software engineers with extensive experience in telecommunications, dense wave
division multiplexing and other optical technologies and network management
systems. As of December 30, 2000, we had 484 employees involved in research and
development.

Customers

      We currently have three customers, Broadwing Communications, Inc.,
Williams Communications, Inc. and Qwest Communications Corporation.

      Broadwing has agreed to purchase $200 million of our products and services
over a two-year period ending in July 2002, the first $100 million of which must
be purchased prior to July 2001. We have agreed to provide by specified dates,
versions of our equipment with increased capacity and to provide training for a
limited number of Broadwing employees at no charge. We are obligated by the
agreement to repair or replace our products purchased by Broadwing that fail to
perform to specifications during the applicable warranty period at our cost. We
have also agreed to defend and indemnify Broadwing for any liability assessed
against it on account of any legal action relating to an alleged infringement of
any patent, copyright or trademark or a violation of misappropriation of any
trade secrets or other proprietary rights relating to the purchase, license or
use of our products in accordance with their specifications. If the use of any
of our products is enjoined or we believe that such use will be enjoined, at our
expense, we must secure for Broadwing the right to continue to use the product,
replace or modify the product to make it non-infringing or accept return of the
product and refund amounts paid by Broadwing. The procurement agreement can be
terminated by us or by Broadwing as a result of the other's bankruptcy, material
breach of the terms of the agreement, or attempted transfer or assignment of the
agreement to creditors or similar transfers, unless cured within 30 days.
Broadwing is a stockholder of Corvis. Sales to Broadwing account for all of our
revenue for the year ended December 30, 2000.

      Williams Communications originally agreed to purchase $200 million of our
products and services within two years following successful completion of their
fields trial of our products, the first $100 million of which must be purchased
within the first year. Upon successful completion of the field trial in January,
2001, Williams extended this agreement up to a $300 million, multi-year
agreement and made other modifications to the agreement. We shipped, installed
and activated the field trial system for Williams during the second and third
quarters of 2000. We have also agreed that by specified dates, our equipment
will be capable of increased capacity and to provide training for a limited
number of Williams Communications employees at no additional charge, which
number can be increased based on Williams Communications' purchases. We will
contribute 3% of the purchase price of our products purchased by Williams
Communications to a joint marketing program for use by Williams in advertising
that mentions us, as well as to subsidize certain additional training programs
for Williams' employees. We are required to repair or replace our products that
fail to perform to specifications during the applicable warranty period at our
cost. We have also agreed to defend and indemnify Williams Communications for
liability assessed against Williams Communications on account of any legal
action relating to an alleged infringement of any U.S. patent, U.S. copyright or
U.S. trademark or a violation or misappropriation of any trade secrets or other
U.S. proprietary rights relating to the purchase, license or use of our products
in accordance with their specifications. If the use of any of our products is
enjoined or we believe that such use will be enjoined, at our expense, we must
secure for Williams Communications the right to continue


                                       14
<PAGE>

to use the product, replace or modify the product to make it non-infringing or
accept return of the product and refund amounts paid by Williams Communications.
The agreement can be terminated by us or by Williams Communications as a result
of the other's bankruptcy, material breach of the terms of the agreement, or
attempted transfer or assignment of the agreement to creditors or similar
transfers, unless cured within 30 days. Williams Communications may also
terminate the agreement because of chronic late delivery of products ordered by
Williams Communications beginning six months after successful completion of
field trials or if the network deployed by Williams Communications using our
products fails to perform in accordance with any material portion of our system
specifications and we fail to cure such nonconformity within the cure period.
Williams Communications is a stockholder of Corvis.

      Qwest has agreed to purchase $150 million of our CorWave LR transmission
products, which are currently under development, over a two year period
beginning on the date that the products meet agreed technical requirements.
Qwest's purchase obligations are subject to our products being priced
competitively and our ability to make products that meet the agreed technical
requirements by the end of 2001. If these conditions are met, Qwest is required
to purchase at least $50 million of our products in the first year after the
date that the products meet the agreed technical requirements. We are required
to provide Qwest with a laboratory system comprised of equipment specified by
us. If Qwest satisfies its $50 million purchase obligation, we will be required
to transfer ownership of the laboratory equipment to Qwest for no additional
charge. We are required to provide training for a limited number of Qwest
employees at no additional charge, subject to increase based on Qwest's
purchases of our products. We are obligated by the agreement to repair or
replace our products purchased by Qwest that fail to perform to specifications
during the applicable warranty period at our cost. We have also agreed to defend
and indemnify Qwest for any liability assessed against it on account of any
legal action relating to an alleged infringement of any U.S. or European Union
patent, copyright or trademark or a violation of misappropriation of any trade
secrets or other proprietary rights relating to the purchase, license or use of
our products in accordance with their specifications. If the use of any of our
products is enjoined or we believe that such use will be enjoined, at our
expense, we must secure for Qwest the right to continue to use the product,
replace or modify the product to make it non-infringing or accept return of the
product and refund amounts paid by Qwest. The agreement can be terminated by us
or by Qwest as a result of the other's bankruptcy or material breach of the
terms of the agreement or attempted transfer or assignment of the agreement to
creditors or similar transfers, unless cured within 30 days. Qwest holds a
warrant to purchase shares of our common stock.

      We are in discussions with other service providers to test and/or purchase
our products and services.

      Like many companies that compete in our industry, we maintain a technical
advisory board to assist us in developing our technology and marketing our
products and services. We believe that this advisory board provides necessary
customer and industry guidance and is critical to the success of our business.
Some of our customers have representatives that are members of this advisory
board, and we expect that our potential customers and suppliers may also have
representatives on this board in the future. In exchange for a participant's
services on this advisory board, we have granted, and may in the future grant,
stock options to them, the terms of which are, and will be, fully disclosed to
and approved by the advisory board members' employer.


                                       15
<PAGE>

Sales, Marketing and Customer Support

      Sales

      Our sales strategy is to work closely with prospective customers to
analyze their existing networks and provide a customized plan for increasing
their network capacity and functionality. Our sales approach generally begins
with a senior sales executive contacting and establishing a relationship with a
service provider. We then assign an account manager to coordinate our efforts
and focus our resources on developing the relationship. This account manager
aligns our engineering teams and managers with their counterparts in the service
provider's organization to provide highly responsive technical and operational
support. We analyze the service provider's network layout and traffic patterns
and propose a network architecture and product configuration tailored to these
traffic patterns. We also invite the service provider to observe product
demonstrations and perform testing of our products at our on-site laboratories.
At the service provider's request, we provide it with products for additional
testing in its laboratories. Following these tests, the service provider
generally will undertake field trials of our products prior to commercial
deployment in its network. The service provider will accept the products
installed in its network upon successful completion of the field trials and
continue commercial deployment of additional products. We anticipate that our
sales cycle, from initial contact with a service provider through the signing of
a purchase agreement, will take several quarters. If our products become broadly
deployed, service providers may not require laboratory or field tests prior to
purchasing our products, which could shorten our sales cycle.

      Marketing

      We intend to market our products to established and emerging service
providers, initially focusing our efforts on the North American and European
markets. We intend to increase our visibility as a leader in developing
all-optical network products and believe our increased visibility will generate
additional sales. As part of our marketing strategy, we:

      o     participate in industry trade shows, technical conferences and
            technology seminars;

      o     communicate with market research firms and various industry
            organizations;

      o     publish technical articles in industry magazines and related
            marketing materials; and

      o     communicate and promote in traditional trade and business
            publications as well as on the Internet.

      Through these activities, we are building market awareness of our company
and our products.

      Customer Service and Support

      We market and sell technically complex products to sophisticated
customers. These products and customers require a high level of customer service
and support. We believe that providing ongoing support is critical to successful
long term relationships with our customers and we are committed to providing our
customers with the highest levels of service and support. We provide
engineering, installation, testing and commissioning services. Our customer
service and systems engineering teams provide extensive pre- and post-sale
support, including consultation, network design, in-depth training


                                       16
<PAGE>

and 24 hours a day, seven days a week technical assistance and expedited repair
and replacement of equipment. We believe that we have a good reputation for our
customer service and support, which we intend to leverage as distinguishing
factors in our efforts to enhance and maintain our market position. To further
develop and expand our customer base, we intend to increase the size of our
customer service force to focus on both domestic and international service
providers.

Competition

      We compete in a rapidly evolving and highly competitive market. The market
for our products has historically been dominated by companies such as Alcatel,
Ciena, Cisco, Lucent, NEC and Nortel. We expect to continue to compete with
these and other established and new market entrants. We believe that the
principal competitive factors in our market include:

      o     product performance, including high-capacity transmission over long
            distances without regeneration;

      o     speed and cost of deployment;

      o     speed and cost of service provisioning;

      o     ability to reconfigure or increase network capacity;

      o     integrated network management under software control;

      o     compatibility with existing products; and

      o     ongoing customer service and support.

      Many of our competitors have longer operating histories, greater name
recognition, larger customer bases and greater financial, technical and sales
and marketing resources than we do and may be able to undertake more extensive
marketing efforts, adopt more aggressive pricing policies and provide more
vendor financing than we can. To remain competitive, we must continue to develop
our products, increase our manufacturing capabilities and augment our customer
support organization to address customers' evolving expectations and current
market conditions.

Manufacturing

      We manufacture nearly all of our products and conduct all final assembly
and final component, module and system tests at our manufacturing facilities in
Columbia, Maryland. We have invested substantial resources in developing
efficient and automated production capabilities and manufacturing processes. We
expect to further enhance our manufacturing capabilities with additional
production process controls, enhanced yields and increased use of contract
manufacturers where appropriate and cost-effective. We expect to be ISO 9000
certified in the first half of 2002.

      We focus our manufacturing efforts to produce uniformly high-quality
products that perform according to their design specifications. Prior to
shipment, our products undergo a comprehensive testing process designed to
verify their performance capabilities. By manufacturing most of our own
products, we expect to avoid risks related to fully outsourced manufacturing
which may include shipment delays,


                                       17
<PAGE>

lack of quality control and increased access to our proprietary technology.
Where appropriate and cost effective, we selectively use contract manufacturers
to increase our manufacturing capacity and speed to market, reduce costs and
increase flexibility. We are currently manufacturing our products in limited
quantities and have limited manufacturing experience. In the optical equipment
industry there are limited sources for many key components. We purchase less
than 5% of our optical, electrical and mechanical components from single source
suppliers. In an effort to reduce the impact on our business of disruptions in
the delivery of products from these suppliers, we carry excess inventory of
components from these single source suppliers and we also make strategic
investments in component manufacturers to ensure the continued supply of key
components. As the number of manufacturers of the remaining products increases,
we intend to seek additional suppliers for these components. The loss of any
single source supplier would have a material adverse affect on our business.

Intellectual Property

      We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
The United States Patent and Trademark Office has issued two patents to us, and
we have applied for numerous additional patents. We require our employees and
consultants to execute non-disclosure and proprietary rights agreements at the
beginning of employment or consulting arrangements with us. These agreements
acknowledge our exclusive ownership of all intellectual property developed by
the individual during the course of his or her work with us and require that all
proprietary information disclosed to the individual remain confidential. We
intend to enforce vigorously our intellectual property rights if infringement or
misappropriation occurs. However, we do not expect that our proprietary rights
in our technology will prevent competitors from developing competitive
technologies.

      Given the technological complexity of our systems and products, we can
give no assurance that claims of infringement will not be asserted against us or
against our customers in connection with their use of our systems and products,
nor can there be any assurance as to the outcome of any such claims. On July 19,
2000, Ciena filed a lawsuit alleging that we are willfully infringing three of
Ciena's patents relating to optical networking systems and related dense
wavelength division multi-plexing communications systems technologies. On March
5, 2001, a motion was granted, allowing Ciena to amend its complaint to include
allegations that we are willfully infringing two additional patents. We believe
that we will prevail in this litigation, however, there can be no assurance that
we will be successful in the defense of this litigation. See "Item 3--Legal
Proceedings."

      We license certain patents covering components, which require us to pay
royalties. Each of these patent licenses expires on the earlier of the date the
last licensed patent expires or is abandoned by the licensor. We also license
certain software components for our network management software. These software
licenses are perpetual but will generally terminate if we breach the agreement
and do not cure the breach in a timely manner.

      Companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices or trade secret misappropriation. We have received claims of
this kind in the past and we cannot assure you that we will not receive claims
of this kind in the future as we seek to hire qualified personnel or that those
claims will not result in material litigation. In March 1999, we filed suit
against Ciena asking the court to invalidate noncompete agreements between Ciena
and six former Ciena technicians and assemblers now working for us. Ciena filed
a counterclaim against us, the former employees and Dr. David Huber, also a
former employee of


                                       18
<PAGE>

Ciena, seeking injunctive relief and unspecified monetary damages for various
alleged activities, including conspiracy, breach of contract, unfair competition
and theft of intellectual property. Although we believed Ciena's counterclaims
to be unfounded, we ultimately settled the litigation without prejudice to
either party. If Ciena were to refile this suit, or any other party were to file
a similar suit, an adverse judgment could result in monetary damages or an
injunction that could materially affect our business. In addition, as with any
suit, regardless of the suit's merits we could incur substantial costs defending
ourselves and/or our employees. Also, defending ourselves from such claims could
divert the attention of our management away from our operations.

Employees

      As of December 30, 2000, we employed 1,452 persons, of whom 675 were
primarily engaged in manufacturing, 484 in research and development activities
and 293 in sales, marketing, customer service and support and general
administration services. None of our employees are currently represented by a
labor union. We consider our relations with our employees to be good.

Item 2. Properties.

      The following table shows as of December 30, 2000 each of our facilities,
its function, location and size and the term of the lease for the facility.
Lease termination dates are the earliest dates that Corvis can terminate the
lease and do not give effect to any renewal rights that Corvis may have.

<TABLE>
<CAPTION>
      Function                       Location               Square Feet       Lease Term
      --------                       --------               -----------       ----------
<S>                               <C>                             <C>        <C>
Executive offices and             Columbia Maryland            173,235       Expiring between
research and development                                                     October 2002 and
                                                                             July 2010

Manufacturing and                 Columbia Maryland            183,247       Expiring between
customer support                                                             October 2001
                                                                             through August
                                                                             2007

Research and development          Columbia Maryland             75,496       Expiring in
                                                                             October 2005 and
                                                                             June 2005

Executive offices,                Quebec, Canada               116,073       Expiring between
research and development                                                     August 2001 and
and manufacturing                                                            April 2008

Executive offices and             Lannion, France               11,320
research and development                                                     Expiring in
facilities                                                                   April 2009

Research and development          Lannion, France               10,330       At will
facilities

Sales offices                     Worldwide                   less than      Varied
                                                                10,000
</TABLE>

      We believe that our facilities are adequate for the purposes for which
they are presently used and that replacement facilities are available at
comparable cost, should the need arise.

Item 3. Legal Proceedings.

      By letter dated July 10, 2000, Ciena Corporation ("Ciena") informed us of
its belief that there is significant correspondence between products that we
offer and several U.S. patents held by Ciena relating


                                       19
<PAGE>

to optical networking systems and related dense wavelength division multiplexing
communications systems technologies. On July 19, 2000, Ciena filed a lawsuit in
the United States District Court for the District of Delaware alleging that we
are willfully infringing three of Ciena's patents. Ciena is seeking injunctive
relief, an unspecified amount of damages including treble damages, as well as
costs of the lawsuit, including attorneys' fees. On September 8, 2000, we filed
an answer to the complaint, as well as counter-claims alleging, among other
things, invalidity and/or unenforceability of the three patents in question. On
March 5, 2001, a motion was granted, allowing Ciena to amend its complaint to
include allegations that we are willfully infringing two additional patents. We
are currently in the discovery phase of the litigation and a trial date has been
set for April 1, 2002.

      We have designed our products in an effort to respect the intellectual
property rights of others. We intend to defend ourselves vigorously against
these claims and we believe that we will prevail in this litigation. However,
there can be no assurance that we will be successful in the defense of the
litigation, and an adverse determination in the litigation could result from a
finding of infringement of only one claim of a single patent. We may consider
settlement due to the costs and uncertainties associated with litigation in
general, and patent infringement litigation in particular, and due to the fact
that an adverse determination in the litigation could preclude us from producing
some of our products until we were able to implement a non-infringing
alternative design to any portion of our products to which such a determination
applied. Even if we consider settlement, there can be no assurance that we will
be able to reach a settlement with Ciena. An adverse determination in, or
settlement of, the Ciena litigation could involve the payment of significant
amounts by us, or could include terms in addition to payments, such as a
redesign of some of our products, which could have a material adverse effect on
our business, financial condition and results of operations.

      We believe that defense of the lawsuit may be costly and may divert the
time and attention of some members of our management. Further, Ciena and other
competitors may use the existence of the Ciena lawsuit to raise questions in
customers' and potential customers' minds as to our ability to manufacture and
deliver our products. There can be no assurance that questions raised by Ciena
and others will not disrupt our existing and prospective customer relationships.

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

None.

        EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES OF THE REGISTRANT

      Listed below are our executive officers, directors and key employees as of
March 16, their ages of that date and the position with us. Officers are elected
by the Board of Directors to serve for a period ending with the next meeting of
the Board of Directors held after the Annual Meeting of Stockholders.


                                       20
<PAGE>

<TABLE>
<CAPTION>
Name                                    Age                                Title
----                                    ---    ------------------------------------------------------------------------
Executive Officers and Directors:
<S>                                     <C>    <C>
David R.  Huber, Ph.D. ...........      50     Chairman of the Board, President and Chief Executive Officer
Terence F.  Unter, Ph.D. .........      48     Chief Operating Officer
Anne H.  Stuart...................      38     Senior Vice President, Chief Financial Officer and Treasurer
Kim D.  Larsen....................      43     Senior Vice President, General Counsel and Secretary
Frank A. Bonsal...................      64     Director
Frank M. Drendel..................      56     Director
Joseph R. Hardiman................      63     Director
Ossama R. Hassanein, Ph.D. .......      52     Director
David S. Oros.....................      41     Director

Key Employees:
Michael C. Antone.................      39     Senior Vice President, Intellectual Property Counsel
Moise A. Augis....................      37     Senior Vice President, Business Development and Marketing
Rick J. Bakosh....................      41     Senior Vice President, Global Sales
Kris M. Boschert..................      38     Vice President, Customer Satisfaction
Ghazi M. Chaoui, Ph.D.............      46     Vice President, Manufacturing
Timothy C. Dec....................      42     Vice President, Chief Accounting Officer and Corporate Controller
Jerome F. Faul....................      34     Vice President, Business Development and Managing Director-Corvis Algety
Thierry Georges, Ph.D.............      36     Senior Vice President, Technology - Corvis Algety
Raman Kashyap, Ph.D...............      49     Vice President, Corvis Canada
Robert L. Richmond................      53     Senior Vice President, Hardware Engineering
Albert Risdorfer..................      52     Vice President, Human Resources
Gil Tadmor........................      40     Vice President, Software Engineering

</TABLE>

      David R. Huber, Ph.D., is the founder of Corvis. He has served as a
Director and Chairman of our Board, President and Chief Executive Officer since
June 1997. Dr. Huber has 19 years of experience in the development of optical
communications systems. From 1992 through April 1997, Dr. Huber served first as
Chief Technology Officer and later as Chief Scientist of Ciena Corporation, a
company he founded in 1992. From 1989 through 1992, Dr. Huber managed the
Lightwave Research and Development Program for General Instrument Corporation.
Prior to 1989, Dr. Huber held positions in optical communications development at
Rockwell International Corporation Optelecom, Inc. and ITT Industries, Inc.,
formerly International Telephone & Telegraph Corporation. Dr. Huber holds 41
U.S. patents in optics technology and has numerous additional patents pending.
He earned a Ph.D. in electrical engineering from Brigham Young University and a
B.S. in physics from Eastern Oregon State University. Dr. Huber is the brother-
in-law of Mr. Larsen.

      Terence F. Unter, Ph.D., has served as our Chief Operating Officer since
September 1998. From July 1997 through September 1998, Dr. Unter was Vice
President of Global Optoelectronics for AMP Incorporated. From August 1991
through June 1997, he was responsible for the creation and development of
Alcatel Optronics S.A., a subsidiary of Alcatel (formerly Alcatel Alsthom), a
leading supplier of optoelectronic components for dense wave division
multiplexing. He served as Managing Director of Alcatel Optronics from May 1994
and as Chairman and Chief Executive Officer from June 1996. Dr. Unter earned a
Ph.D. in silicon microelectronics and an Honors B.Sc. (Engineering) from the
University of Southampton in England.


                                       21
<PAGE>

      Anne H. Stuart has served as our Chief Financial Officer and Treasurer
since January 1999 and a Senior Vice President since June 2000. From 1986
through January 1999, Ms. Stuart held a variety of accounting, finance and
treasury positions with Marriott International, Inc., including Vice President,
Finance in the Senior Living Services division from March 1996 through January
1999. From 1995 through 1996, Ms. Stuart also served as Senior Director,
Corporate Finance and Corporate Treasurer for the Forum Group, Inc., an
operating and real estate holding company that was acquired by Marriott
International in 1996. Ms. Stuart earned an M.B.A. from the University of North
Carolina at Chapel Hill and a B.S. in mathematics and applied statistics from
Brigham Young University.

      Kim D. Larsen has served as our General Counsel and Secretary since
September 1998 and a Senior Vice President since June 2000. From October 1994
through September 1998, Mr. Larsen was a partner with the law firm of Mayer,
Brown & Platt and served as partner-in-charge of its Cologne, Germany office,
where he specialized in corporate mergers and acquisitions in the international
telecommunications sector. Mr. Larsen earned his law degree from Columbia
University and a B.S. in economics and political science from Brigham Young
University. Mr. Larsen was a founding director of Ciena Corporation. Mr. Larsen
is the brother-in-law of Dr. Huber.

      Frank A. Bonsal, Jr. has served as a Director since March 1998. Mr. Bonsal
is a partner of New Enterprise Associates, a venture capital firm, which he
co_founded in 1978. His current board memberships include Aether Systems,
ViewGate Networks, Inc., Med Specialists, Inc., the Brown Investment Advisory
Trust Company, Seneca Network, Versient and Healthy Pet, Inc. In addition, he is
a special limited partner of Amadeus Capital Partners, Boulder Venture, Novak
Biddle, Trellis Ventures and Windward Ventures. Previously, he was a director of
Aspect Medical Systems, Inc., Biopure Corporation, CARS, Inc., Entevo
Corporation, Explore, Inc., GeneScreen, Inc., Synaptic Pharmaceuticals, Torrent
Network Technology and Vertex Pharmaceuticals. Prior to founding New Enterprise
Associates, Mr. Bonsal was a general partner of Alex. Brown & Sons. He received
a B.A. in economics from Princeton University.

      Frank M. Drendel has served as a Director since July 2000. Mr. Drendel has
served as chairman and chief executive officer of CommScope, Inc. of North
Carolina since its spin off from General Instrument Corporation in 1997. Mr.
Drendel previously served as president and chairman of CommScope, Inc. of North
Carolina from 1986 to 1997 and chief executive officer of that company since
1976. He was a director of General Instrument Corporation until its merger with
Motorola in January 2000. He is currently a director of Nextel Communications,
Inc., C_SPAN and the National Cable Television Association. Mr. Drendel
graduated from Northern Illinois University with a B.S. in marketing.

      Joseph R. Hardiman has served as a Director since July 2000. Mr. Hardiman
served as the president and chief executive officer of the National Association
of Securities Dealers, Inc. and its wholly owned subsidiary, The Nasdaq Stock
Market, Inc., from September 1987 through January 1997. From 1975 through
September 1987, Mr. Hardiman held various positions at Alex. Brown & Sons,
including managing director and chief operating officer. Mr. Hardiman earned
B.A. and LLB degrees from the University of Maryland. Mr. Hardiman serves on the
boards of Intellectual Development Systems, Inc., the Flag Investors Funds, the
ISI Funds, the Nevis Fund, the Brown Investment Advisory Trust Company, the Wit
Soundview Group, Inc., the University of Maryland Foundation, the University of
Maryland School of Law and The Nasdaq Stock Market Education Foundation.
Previously, he served on the boards of the Depository Trust Company, the
Securities Industry Foundation for Economic Education, the Securities Regulation
Institution and the Center for the Study of the Presidency and as a member of
the American Business Conference.


                                       22
<PAGE>

      Ossama R. Hassanein, Ph.D., has served as a Director since August 2000.
Mr. Hassanein has been managing general partner of Newbury Ventures since
September 1997, and founder and CEO of Advanced Computer Communications, a wide
area network remote access company, since April 1990. From April 1984 to April
1990, he was an executive vice president of Berkeley International Capital, and
from September 1976 to April 1984 he was director of system engineering and
strategic marketing with NorTel. Mr. Hassanein co_founded and chaired the board
of Technocom Ventures in Paris, a seed financing venture capital company managed
by France Telecom. He is a director of several international communication
technology companies including, NetCentrex and HighWave Optical Technologies in
France, and he is chairman of both High Deal and nCipher in Cambridge, England.
Mr. Hassanein received his B.A.Sc. in electrical engineering from the University
of Alexandria, and completed his M.A.Sc. and Ph.D. programs in electrical
engineering and M.B.A. in management sciences at the University of British
Columbia.

      David S. Oros served as a Director since January 2001. Mr. Oros has been
chairman and chief executive officer of Aether Systems, Inc., a provider of
wireless data services, systems and software since he founded Aether in 1996.
From 1994 until 1996, Mr. Oros was president of NexGen Technologies, L.L.C., a
wireless software development company that contributed all of its assets to
Aether. From 1992 until 1994, he was president of the Wireless Data Group at
Westinghouse Electric. Prior to that, Mr. Oros spent from 1982 until 1992 at
Westinghouse Electric directing internal research and managing large programs in
advanced airborne radar design and development. He currently serves on the board
of OmniSky Corporation. Mr. Oros received a B.S. in mathematics and physics from
the University of Maryland.

      Michael C. Antone has served as Senior Vice President, Intellectual
Property Counsel since June 2000 and as our Intellectual Property Counsel from
February 1998 to June 2000. Mr. Antone was previously an intellectual property
attorney in the law firm of Kirkpatrick and Lockhart, LLP, where his patent
practice included optics and various other technologies. Mr. Antone was
previously a senior engineer at Westinghouse Electric Corporation, where he
received awards for his work in multi-discipline, mathematical performance and
predictive modeling. Mr. Antone holds a law degree from Duquesne University and
Masters and Bachelors degrees in Chemical Engineering from the University of
Pittsburgh, as well as his Professional Engineer's License.

      Moise A. Augis has served as Senior Vice President, Business Development
and Marketing since June 2000 and served as Vice President, Sales and Marketing
from May 1998 to June 2000. From February 1996 to May 1998, Mr. Augis was
Marketing and Sales Director North America for Alcatel Telecom's Optronics
Division in Reston, Virginia. From November 1991 to January 1996, he held a
number of marketing and sales positions in the long-distance equipment division
of Alcatel. He has also worked for Philips Telecom and Thompson France where he
was in charge of the deployment of large data communication networks. Mr. Augis
holds a Masters degree in Electrical Engineering from Illinois Institute of
Technology in Chicago, Illinois and a Masters degree in Telecommunications from
the Institut National des Sciences Appliquees de Lyon in France.

      Rick J. Bakosh has served as our Senior Vice President, Global Sales
since July 2000. From July 1999 to July 2000, he was Vice President of Sales for
Tellabs, Inc.. From August 1997 to January 1999, Mr. Bakosh was a Vice President
of Sales, at Ameritech Corporation (now SBC Communications) and from March 1989
to March 1997, he held various sales positions at General Electric Company. From
February 1983 to March 1989, he held various sales positions with Xerox
Corporation. Mr. Bakosh earned a B.S. in marketing from Southern Illinois
University.

      Kris M. Boschert has served as our Vice President, Customer Satisfaction
since June 2000. Prior to that, from January 1988 to May 2000 she held various
positions at Sprint Corporation including


                                       23
<PAGE>

Assistant Vice President, Integration Management and most recently as Vice
President of Network Engineering. At Sprint, she was responsible for the
engineering, installation and budget management of long distance networks, as
well as the management of long distance programs, software design and network
design. Ms. Boschert earned a B.S. in Mechanical Engineering from the University
of Missouri in 1985.

      Ghazi M. Chaoui, Ph.D. has served as our Vice President, Manufacturing
since May 2000. From January 1999 to April 2000, Dr. Chaoui was the R&D Director
of Lucent Technologies' Passive Optical Network Lab in Makuhari, Japan. From
February 1997 to December 1998, Dr. Chaoui led the Lucent Technologies/Furukawa
Electric Joint Venture FiNet as the President and Chief Executive Officer. From
September 1994 to February 1997, he was the manager of manufacturing of high
performance lasers for Lucent Technologies' Opto Electronics division. Dr.
Chaoui's 15 years of management experience with Lucent Technologies (formerly
AT&T Bell Laboratories) included responsibilities for the design and
manufacturing of high performance opto-electronics active and passive
components. Dr. Chaoui earned a Ph.D. in Robotics from the University of Rhode
Island and a "Docteur Ingenieur" degree in Electrical Engineering from the
Laboratoire d'Automatique et d'Analyse des Systemes of Toulouse, France, which
belongs to the French Centre National de Recherche Scientifique. He also earned
an M.B.A. from the Institut de Preparation aux Affaires-University Paul Sabatier
(Toulouse, France).

      Timothy C. Dec has served as our Vice President, Chief Accounting Officer
since June 2000 and he has been our Corporate Controller since June 1999. From
December 1997 to June 1999, Mr. Dec was the Director of Accounting and
Administration for Thermo Trilogy Corporation, a division of Thermo Electron,
Inc., a Fortune 400 multinational company. From August 1995 to December 1997, he
was the Corporate Controller of North American Vaccine, a publicly traded
company. Prior to that, until August 1995, he was the Corporate Controller of
Clark Construction Company. Mr. Dec is a C.P.A. and received an M.B.A. from
American University in 1990 and a B.S. in Accounting from Mount St. Mary's
College in 1980.

      Jerome F. Faul has served as Vice President, Business Development and
Managing Director of Corvis Algety, since July 2000, when we acquired Algety
Telecom S.A. He co-founder Algety in May 1999. From January 1997 to April 1998,
he was Director for Strategic Planning at France Telecom's Network and Service
Management division. From September 1991 to December 1996, he held several
positions at CNET, the research and development center of France Telecom,
including engineer and head of department in the field of network management for
transport networks. From March 1990 to December 1990, Mr. Faul was a software
development engineer at Radius Inc. Mr. Faul has two engineering degrees from
Ecole Polytechnique and Ecole Nationale Superieure des Telecommunications de
Paris in France.

      Thierry Georges, Ph.D. has served as Senior Vice President, Technology
since July 2000 and as Chief Technology Officer of Corvis Algety since we
acquired in June 2000. He was the founder, president and Chief Executive Officer
of Algety Telecom, S.A. from April 1999 to June 2000. Dr Georges was previously
a research scientist, then the director of advanced transmission laboratory in
France Telecom from 1989 to 1999. He received his Ph.D. degree from Ecole
Nationale Superieure des Telecommunications in 1994, Paris France and graduated
from Ecole Nationale Superieure des Telecommunications in 1989 and from Ecole
Polytechnique, Palaiseau, France in 1987.

      Raman Kashyap, Ph.D. has served as the Vice President, Corvis Canada since
September 2000 and as a Principal Engineer from July 2000 to September 2000.
From February 2000 to July 2000, Dr. Kashyap was employed by Corning Research
Centre (previously Photonics Technology Research Centre, BT Labs), where he was
the technical manager of fibre Bragg gratings, poling and other optical devices
for telecommunication applications. From 1974 to July 2000, he worked in various
positions at BT


                                       24
<PAGE>

      Laboratories in the United Kingdom. He also briefly worked at Corning
Research Centre. He pioneered the development of fibre Bragg grating devices for
Telecommunications while at BT Labs, and was instrumental in setting up a
European-commission funded program on Bragg gratings. Dr. Kashyap is also
currently a visiting Professor at King's College, University of London, as well
as a visiting lecturer at Imperial College of Science and Technology, London,
UK. He graduated with a BSc in Electronics from King's College, University of
London, and a Ph.D. in physics from Essex University, UK.

      Robert L. Richmond has served as our Senior Vice President, Hardware
Engineering since July 2000. Prior to this, since January 1991, he was an
Assistant Vice President, Engineering at Hughes Network Systems where he had
program, project, product and line management responsibilities for the design,
development, manufacturing and support of a wide variety of communications
products, including both hardware and software elements. From September 1981 to
December 1991, Mr. Richmond held various positions at Hadron Inc. including
Corporate Vice President, and since March 1983, President and Chief Executive
Officer of Hadron CPD, Inc., a subsidiary company that develops satellite
modems, communications simulators other military communications products used by
the U.S. Government and selected foreign governments. He has also held positions
at M/A-COM Communications, which later became Hughes Network Systems, where he
was involved in product development, program and product line management and
marketing support. He earned an AAET from Montgomery College in 1970 and a BSEE
from the University of Maryland in 1973.

      Albert Risdorfer has served as our Vice President, Human Resources since
December 2000. Previously, Mr. Risdorfer worked for nearly 18 years at Computer
Sciences Corporation, a $10 Billion global IT services firm. He served there
initially as its Defense Systems Division's Director of Human Resources, then
later as Corporate Director of HR Planning and Development. Prior to Computer
Sciences Corporation, he worked in various organizational development and human
resource development roles for RCA, Conrail and Uni-Coll corporations. He holds
a B.A. in philosophy from St. Charles Borromeo Seminary and an M.A. in
Organization Development from Antioch University.

      Gil Tadmor has served as our Vice President, Software Engineering since
March 1998. From April 1994 to March 1998, Mr. Tadmor served as an
Implementation Manager for Hughes Information Technology Systems (a division of
Hughes Aircraft). During his employment with Hughes, Mr. Tadmor was responsible
for the development and deployment of large scale distributed information
systems. Mr. Tadmor received a Masters in Computer Science from Johns Hopkins
University in 1994 and an Engineering degree from the Technion in Haifa, Israel
in 1985.


                                     PART II

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

      Our common stock has been traded on the Nasdaq National Market under the
symbol "CORV" since July 27, 2000. The following table sets forth, for the
periods indicated, the high and low closing sale prices as reported on the
Nasdaq National Market for our common stock.

                                                                High      Low
                                                                ----      ---
Third Quarter (July 27, 2000 through September 30, 2000)..    $108.06  $ 61.05
Fourth Quarter (ending December 30, 2000).................    $ 70.56  $ 19.50


                                       25
<PAGE>

      As of March 16, 2001, there were 1,321 holders of record of our Common
Stock.

Dividend Policy

      We have never paid or declared any cash dividends on our common stock or
other securities and do not anticipate paying cash dividends in the foreseeable
future. Any future determination to pay cash dividends will be at the discretion
of the board of directors and will be dependent upon our financial condition,
results of operations, capital requirements, general business condition and such
other factors as the board of directors may deem relevant.

Item 6. Selected Financial Data.

      You should read the following selected consolidated financial data along
with "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our consolidated financial statements and the notes
to those statements included elsewhere in "Item 8. Financial Statements and
Supplementary Data." Operating results for historical periods are not
necessarily indicative of the results that may be expected for future periods.
During 1999, we changed our accounting reporting cycle from a calendar year-end
to a manufacturing 52- or 53-week fiscal year-end, ending on the Saturday
closest to December 31 in each year.


                                       26
<PAGE>

<TABLE>
<CAPTION>
                                                 Period from
                                                 June 2, 1997             Year Ended
                                                 (inception) to -------------------------------------
                                                 December 31,  December 31,  January 1,  December 30,
                                                      1997       1998          2000          2000
                                                 -----------   ------------  ----------  ------------
<S>                                               <C>           <C>           <C>            <C>
Statement of Operations Data:
(in thousands except per share data)
Revenue .......................................   $     --      $     --      $      --      $    68,898
Cost of revenue ...............................         --            --             --           42,943
                                                  --------      --------      ---------      -----------
Gross profit ..................................         --            --             --           25,955
                                                  --------      --------      ---------      -----------
Operating expenses:
   Research and development, excluding
      equity-based expense ....................        249        15,746         41,565           88,874
   Sales and marketing, excluding equity-
      based expense ...........................         --           167          3,422           30,871
   General and administrative, excluding
      equity-based expense ....................        288         3,190         18,993           31,127
   Equity-based expense:
      Research and development ................         --            --            126           28,050
      Sales and marketing .....................         --            --          4,845           52,417
      General and administrative ..............         --            --             --           17,891
Amortization of intangible assets .............         --            --            173           46,746
Purchased research and development ............         --            --             --           42,230
                                                  --------      --------      ---------      -----------
Total operating expenses ......................        537        19,103         69,124          338,206
                                                  --------      --------      ---------      -----------
      Operating loss ..........................       (537)      (19,103)       (69,124)        (312,251)
Interest income (expense), net ................         43          (357)        (2,146)          28,640
                                                  --------      --------      ---------      -----------
      Net loss ................................   $   (494)     $(19,460)     $ (71,270)     $  (283,611)
                                                  ========      ========      =========      ===========
Basic and diluted net loss per common
   share ......................................   $  (0.02)     $  (0.86)     $   (2.33)     $     (1.80)
Weighted average number of common
   shares outstanding .........................     21,600        22,638         30,599          157,349

                                                 December 31,   December 31,  January 1,     December 30,
                                                      1997        1998           2000           2000
                                                 -----------   ------------  ----------      ------------

                  Balance Sheet Data:
                     (in thousands)
Cash and cash equivalents .....................   $  1,620      $  4,041      $ 244,597      $ 1,024,758
Working capital ...............................      1,552        (1,474)       236,839        1,172,040
Total assets ..................................      2,652         8,488        307,279        2,381,836
Notes payable and capital lease
   obligations, net of current portion ........         --         5,800         38,771           45,909
Total stockholders' equity (deficit) ..........      2,506        (2,968)       239,625        2,186,593

</TABLE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

      You should read the following discussion and analysis along with our
consolidated financial statements and the notes to those statements included
elsewhere in this report. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in the forward-looking statements as a result of various
factors including the risks discussed in "Factors That May Affect Out Future
Results" below and elsewhere in this report.


                                       27
<PAGE>

Overview

      We design, manufacture and market high performance optical communications
systems that lower the overall cost of network ownership for service providers.
Our all-optical products enable a fundamental shift in the design and efficiency
of backbone networks by allowing for the transmission, switching and management
of communications traffic entirely in the optical domain. Our products enable
the creation of all-optical backbone networks that support transmission over
long distances and eliminate the need for expensive and bandwidth-limiting
electrical regeneration and switching equipment.

      From our inception on June 2, 1997 until July 2000, we were a development
stage company. Our operating activities consisted primarily of research and
development, product design, manufacturing and testing. We also recruited and
trained our administrative, financial, marketing and customer support
organization and established a direct sales force.

      We currently have three customers, Broadwing, Williams Communications and
Qwest. During the first half of 2000, we shipped, installed and activated
laboratory trial systems and field trial systems for both Broadwing and Williams
Communications to allow for customer testing and inspection. In July 2000, we
successfully completed the Broadwing Communications field trial and Broadwing
agreed to purchase $200 million of our products and services over a two-year
period. Throughout the remainder of 2000, we began the deployment of both
transmission and switching equipment to Broadwing and built up finished goods
inventory necessary to support customer orders in early 2001.

      In January 2001, the field trial system provided to Williams
Communications was accepted and Williams Communications agreed to purchase up to
$300 million of our products and services over a multi-year period.

      Qwest has agreed to purchase $150 million of our products, some of which
are currently under development, over a two-year period beginning on the date
that the products meet agreed-upon technical requirements. Qwest's purchase
obligations are subject to our products being competitively priced and our
ability to make products that meet agreed-upon technical requirements by the end
of 2001.

      We are in discussions with other service providers to begin field trials
and to purchase our products and services.

      Revenue. Revenue from product sales is recognized upon execution of a
contract and the completion of all delivery obligations, provided that there are
no uncertainties regarding customer acceptance and collectibility is deemed
probable. If uncertainties exist, revenue is recognized when such uncertainties
are resolved. Costs of revenues include the costs of manufacturing the Company's
products and other costs associated with warranty and other contractual
obligations, inventory obsolescence costs and overhead related to the Company's
manufacturing, engineering, finishing and installation operations. Warranty
reserves are determined based upon actual warranty cost experience, estimates of
component failure rates and management's industry experience. Due to our limited
customer base, significant quarterly fluctuations in revenue may result.

      Research and Development, Excluding Equity-Based Expense. Research and
development, excluding equity-based expense consists primarily of salaries and
related personnel costs, test and prototype expenses related to the design of
our hardware and software products, laboratory units and


                                       28
<PAGE>

facilities costs. All costs related to product development, both hardware and
software, are recorded as expenses in the period in which they are incurred. Due
to the timing and nature of the expenses associated with this process,
significant quarterly fluctuations may result. We believe that research and
development is critical in achieving current and future strategic product
objectives. We expect that research and development expenses will continue to
increase in the future as we continue to enhance our existing products and
explore new or complementary technologies, and pursue various cost reduction
strategies.

      Sales and Marketing, Excluding Equity-Based Expense. Sales and marketing,
excluding equity-based expense consists primarily of salaries and related
personnel costs, laboratory trial systems provided to customers, trade shows,
other marketing programs and travel expenses. We intend to continue to adjust
our sales operations in order to increase market awareness and acceptance of our
products. We also expect to initiate additional marketing programs to support
our current products. Our success depends on establishing and maintaining key
customer relationships. In order to achieve this objective, we expect to expand
our customer service and support organization. We anticipate that our sales and
marketing expenses will continue to increase in the future, but at lower rates
than seen in prior periods.

      General and Administrative, Excluding Equity-Based Expense. General and
administrative, excluding equity-based expense consists primarily of salaries
and related personnel costs, information systems support, recruitment expenses
and facility demands associated with establishing the proper infrastructure to
support our organization. This infrastructure consists of executive, financial,
legal, information systems and other administrative responsibilities. We
anticipate that these costs will continue to increase in the future, but at
lower rates than seen in prior periods.

      Since our inception, we have incurred significant losses, and as of
December 30, 2000, we had an accumulated deficit of $374.8 million. We do not
expect to be cash flow positive before at least 2002. We have a lengthy sales
cycle for our products and accordingly expect to incur significant research and
development, sales and marketing and general and administrative expenses before
we realize related revenue. As a result, we will need to generate significant
revenue to achieve and maintain profitability.

      During 1999, we changed our accounting reporting period from a calendar
year-end to a manufacturing 52- or 53-week fiscal year-end, ending on the
Saturday closest to December 31 in each year.

Results of Operations

      Year ended December 30, 2000 compared to year ended January 1, 2000

      Revenue. Revenue increased to $68.9 million for the fiscal year ended
December 30, 2000 from zero for the fiscal year ended January 1, 2000. The
increase in revenue is attributable to the acceptance of a field trial system
and the subsequent sale of network hardware and software to Broadwing under a
$200 million two-year purchase agreement.

      Gross Profit. Costs of revenue consists of component costs, direct
compensation costs, warranty and other contractual obligations, inventory
obsolescence costs and overhead related to our manufacturing and engineering,
finishing and installation operations. Gross profit was $26.0 million for the
year ended December 30, 2000. Gross margin as a percentage of revenues was
37.7%.


                                       29
<PAGE>

      Research and Development, Excluding Equity-Based Expense. Research and
development expenses, excluding equity-based expense, increased to $88.9 million
for the year ended December 30, 2000 from $41.6 million for the year ended
January 1, 2000. The increase in expenses was primarily attributable to
significant increases in headcount and increased expenses associated with
prototype development and laboratory materials.

      Sales and Marketing, Excluding Equity-Based Expense. Sales and marketing
expenses, excluding equity-based expense, increased to $30.9 million for the
year ended December 30, 2000 from $3.4 million for the year ended January 1,
2000. The increase in expenses was primarily attributable to significant
increases in headcount, increases in promotional and trade show activities and
expenses related to laboratory systems provided to current and potential
customers.

      General and Administrative, Excluding Equity-Based Expense. General and
administrative expenses increased to $31.1 million for the year ended December
30, 2000 from $19.0 million for the year ended January 1, 2000. The increase in
expenses was primarily attributable to increases in salaries and related
benefits due to the hiring of additional personnel and increased expenses
incurred during the development of manufacturing processes.

      Equity-based Expense. Equity-based expense related to research and
development, sales and marketing and general and administrative functions for
the year ended December 30, 2000 increased to $98.4 million from $5.0 million in
the year ended January 1, 2000. The increase in equity-based compensation
resulted from options granted with exercise prices below fair value at the date
of grant as well as expenses recognized upon the waiving of certain forfeiture
provisions contained in warrants granted to certain customers.

      Amortization of Intangible Assets. Amortization of intangible assets
expenses increased to $46.7 million for the year ended December 30, 2000 from
$0.2 million for the year ended January 1, 2000. The increase was primarily
attributable to the amortization of intangibles resulting from our recent
acquisition of Algety Telecom S.A., which resulted in approximately $876.7
million in goodwill that is being amortized over five years.

      Interest Income (Expense), Net. Interest income, net of interest expense,
increased to $28.6 million for the year ended December 30, 2000 from $2.1
million of net interest expense for the year ended January 1, 2000. The increase
was primarily attributable to higher invested cash balances from the proceeds of
the initial public offering and other private placements, offset in part by
interest incurred under various credit facilities.

      Year ended January 1, 2000 compared to year ended December 31, 1998

      Revenue. We recognized no revenue in either period.

      Research and Development, Excluding Equity-Based Expense. Research and
development expenses, excluding equity-based expense, increased to $41.6 million
for the year ended January 1, 2000 from $15.7 million for the year ended
December 31, 1998. The increase in expenses was primarily attributable to
salaries and related benefits due to the hiring of additional personnel,
prototype and laboratory materials, facilities costs and information systems
support costs.


                                       30
<PAGE>

      Sales and Marketing, Excluding Equity-Based Expense. Sales and marketing
expenses, excluding equity-based expense, increased to $3.4 million for the year
ended January 1, 2000 from $0.2 million for the year ended December 31, 1998.
The increase in expenses was primarily attributable to salaries and related
benefits due to the hiring of additional personnel, promotional and trade show
expenses.

      General and Administrative, Excluding Equity-Based Expense. General and
administrative expenses, excluding equity-based expense, increased to $19.0
million for the year ended January 1, 2000 from $3.2 million for the year ended
December 31, 1998. The increase in expenses was primarily attributable to
professional fees, personnel and related benefits due to the hiring of
additional personnel and information system support costs.

      Equity-based Expense. Equity-based expense related to research and
development and sales and marketing for the year ended January 1, 2000 increased
to $5.0 million from zero in the year ended December 31, 1998. The increase in
equity-based compensation resulted from expenses recognized upon the waiving of
certain forfeiture provisions contained in warrants granted to certain customers
as well as options granted with exercise prices below fair value at the date of
grant.

      Amortization of Intangible Assets. Amortization of intangible assets
expenses increased to $0.2 million for the year ended January 1, 2000 from zero
for the year ended December 31, 1998. The increase was primarily attributable to
amortization associated with our acquisition of Kromafibre, Inc.

      Interest Income (Expense), Net. Interest expense, net of interest income,
increased to $2.1 million for the year ended January 1, 2000 from $0.4 million
for the year ended December 31, 1998. Interest expense increased for the year
ended January 1, 2000 as a result of increased borrowings under new and existing
credit facilities, offset in part by an increase in interest income primarily
attributable to proceeds from private placements.

Liquidity and Capital Resources

      Since inception through December 30, 2000, we have financed our
operations, capital expenditures and working capital primarily through public
and private sales of our capital stock, borrowings under credit and lease
facilities and cash generated from operations. At December 30, 2000, our cash
and cash equivalents totaled $1,024.8 million.

      Net cash used in operating activities was $235.0 million, $71.8 million
and $16.2 million for the years ended December 30, 2000, January 1, 2000 and
December 31, 1998, respectively. Cash used in operating activities for the year
ended December 30, 2000 was primarily attributable to a net loss of $283.6
million and $195.4 million of inventory increases, partially offset by an
increase in accounts payable of $79.7 million and non-cash expense items
including purchased research and development of $42.2 million and equity-based
expense of $98.4 million.

      Net cash used in investing activities for the years ended December 30,
2000, January 1, 2000 and December 31, 1998 was $68.2 million, $14.0 million and
$1.7 million, respectively. The increase in net cash used in investing
activities for the year ended December 30, 2000 was primarily attributable to
purchases of manufacturing and test equipment, information systems equipment and
office equipment, partially offset by cash acquired in the Algety purchase. We
are currently expanding our production and research facilities and have executed
agreements with our existing landlords to build-out and improve additional
facilities.

                                       31
<PAGE>

      Net cash provided by financing activities for the year ended December 30,
2000 was $1,084.3 million, primarily attributable to proceeds from our initial
public offering and other private placements. Net cash provided by financing
activities for the year ended January 1, 2000 was $326.3 million, primarily
attributable to private placements, and the issuance of notes payable, offset in
part by the payment of debt and an increase in restricted cash. Net cash
provided by financing activities for the year ended December 31, 1998 was $20.4
million, primarily attributable to private placements and the proceeds from the
issuance of notes payable.

      As of December 30, 2000, long-term restricted cash totaled $46.3 million,
of which $43.5 million represents cash held as security under a note payable.
This restriction will be released upon repayment of the note that is due in
November 2002. In addition, as of December 30, 2000, we had outstanding
irrevocable letters of credit aggregating $2.8 million relating to lease
obligations for various manufacturing and office facilities and other business
arrangements. These letters of credit are collateralized by funds in our
operating account. Various portions of the letters of credit expire at the end
of each respective lease term or agreement term.

      We continue to evaluate our need to acquire additional production and
administrative facilities to accommodate our expanding operations. We expect our
expenditures associated with this expansion to be significant over the next
several years. In addition, we have purchased and hold certain critical
components in anticipation of future orders. A significant price increase or a
shortage of these parts could adversely affect our liquidity, capital resources,
and results of operations.

      Due to competitive economic conditions pressures, we may be required to
sell our product to future customers at lower margins or be required to provide
customers with financing which could result in reduced gross margins, extended
payment terms or delayed revenue recognition, all of which could have a negative
impact on our liquidity, capital resources and results of operations.

      Our liquidity will also be dependent on our ability to manufacture and
sell our products. Changes in the timing and extent of the sale of our products
will affect our liquidity, capital resources and results of operations. We
currently have three customers that could provide substantially all of our
revenues for the near future. The loss of any of these customers, any
substantial reduction in current or anticipated orders or an inability to
attract new customers, could materially adversely affect our liquidity and
results of operations. We plan to diversify our customer base by seeking new
customers both domestically and internationally.

      If cash on hand and cash generated from operations is insufficient to
satisfy our liquidity requirements, we may seek to sell additional equity or
debt securities. To the extent that we raise additional capital through the sale
of equity or debt securities, the issuance of such securities could result in
dilution to our existing shareholders. If additional funds are raised through
the issuance of debt securities, the terms of such debt could impose additional
restrictions on our operations. Additional capital, if required, may not be
available on acceptable terms, or at all. If we are unable to obtain additional
financing, we may be required to reduce the scope of our planned product
development and sales and marketing efforts, which could harm our business,
financial condition and operating results. Increasingly, as a result of the
financial demands of major network deployments, service providers are looking to
their suppliers for financing assistance. From time to time, we may provide or
commit to extend credit or credit support to our customers as we consider
appropriate in the course of our business.


                                       32
<PAGE>

Ciena Litigation

      On July 19, 2000, Ciena Corporation ("Ciena") filed a lawsuit in the
United States District Court for the District of Delaware alleging that we are
willfully infringing three of Ciena's patents. Ciena is seeking injunctive
relief, an unspecified amount of damages including treble damages, as well as
costs of the lawsuit, including attorneys' fees. On September 8, 2000, we filed
an answer to the complaint, as well as counter-claims alleging, among other
things, invalidity and/or unenforceability of the three patents in question. On
March 5, 2001, a motion was granted, allowing Ciena to amend its complaint to
include allegations that we are willfully infringing two additional patents. A
trial date has been set for April 1, 2002. We are currently in the discovery
phase of the litigation. We intend to defend ourselves vigorously against these
claims and we believe that we will prevail in this litigation. An adverse
determination in, or settlement of, the Ciena litigation could involve the
payment of significant amounts by us, or could include terms in addition to
payments, such as a redesign of some of our products, which could have a
material adverse effect on our business, financial condition and results of
operations. If we are required to redesign our products, we have to stop selling
our current products until they have been redesigned. We believe that defense of
the lawsuit may be costly and may divert the time and attention of some members
of our management.

Recent Acquisitions

      Algety Telecom S.A.

      On July 1, 2000, we acquired Algety Telecom S.A., a French company that
develops and markets high capacity, high speed optical transmission equipment.
Algety, based in Lannion, France, was formed in April 1999, and was a
development stage company with no revenue.

      At the initial closing on July 1, 2000, we delivered to the Algety
shareholders 1,301,822 shares of our Series I convertible preferred stock, which
converted into 15,621,858 shares of common stock upon the closing of our initial
public offering. We also delivered 348,402 shares of Series I convertible
preferred stock to our escrow agent to secure potential warranty claims, which
converted into 4,180,824 shares of common stock upon the closing of our initial
public offering. In addition, we placed into escrow 2,275,032 shares of common
stock that will be released contingent upon satisfaction of certain minimum
employment terms for certain Algety employees. We incurred approximately $1.0
million of transaction costs relating to the transaction.

      On November 3, 2000, consistent with the terms of the acquisition
agreement, the Company completed a second closing in which an additional
11,385,358 shares of common stock were delivered to the former Algety
stockholders. Total value of all shares delivered in the first and second
closings was $947.1 million.

      We have accounted for the acquisition using the purchase method whereby
the net tangible and identifiable intangible assets acquired and liabilities
assumed are recognized at their estimated fair market values at the date of
acquisition. The excess of the aggregate purchase price over the estimated fair
value of net assets acquired of $876.7 million, based upon the purchase price
allocation, is being amortized on a straight-line basis over five years. In
addition, $42.2 million of the purchase price was allocated to in-process
research and technology and was expensed immediately.


                                       33
<PAGE>

      Baylight Networks, Inc.

      On May 19, 2000, we acquired Baylight, a company that designs optical
network access systems and subsystems. Baylight was formed in February 2000 and
was a development stage company with no revenue. In consideration for all of the
outstanding shares of Baylight, we assumed $0.1 million of Baylight liabilities
and placed in escrow 2,400,012 shares of common stock for release over the term
of three-year employment agreements with the former Baylight shareholders. We
have accounted for the acquisition using the purchase method. Accordingly, the
operating results of Baylight are included in our financial results from the
date of acquisition. The allocation of the purchase price to the fair value of
the assets acquired and liabilities assumed is based on an internal analysis of
the fair value of the assets and liabilities of Baylight. The excess of the
aggregate purchase price over the fair value of net assets acquired of
approximately $0.1 million is being amortized on a straight-line basis over five
years. We are recognizing compensation expense over the terms of the employment
agreements equal to the fair value of the shares to be issued.

      Corvis Canada, Inc.

      On July 6, 1999, we purchased all of the outstanding common stock of
Corvis Canada, Inc., a Canadian company formerly known as Kromafibre, Inc., for
211,928 shares of Series D convertible preferred stock valued at approximately
$1.9 million. Corvis Canada develops fiber optic technology that we use in some
of our products. We accounted for the acquisition using the purchase method.
Accordingly, the operating results of Corvis Canada have been included in our
results since the date of our acquisition of Corvis Canada. We are amortizing
the excess of the aggregate purchase price over the fair value of net assets
acquired of approximately $1.7 million on a straight-line basis over five years.

Recent Accounting Pronouncements

      In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Instruments and Hedging Activities." This Statement requires
companies to record derivatives on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the value of
those derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. SFAS No. 133, as amended by SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date for SFAS No. 133," will be effective for our
fiscal year ending December 29, 2001. We believe that the adoption of SFAS No.
133 and SFAS No. 137 will not have a material effect on our consolidated
financial statements.

      In September 2000, the Financial Accounting Standards Board issued SFAS
No. 140, "Accounting for the Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." SFAS No. 140 is effective for transfers
occurring after March 31, 2001 and for disclosures relating to the
securitization transactions and collateral for fiscal years ending after
December 15, 2000. We are reviewing the provisions of SFAS No. 140.


                                       34
<PAGE>

Factors that May Affect Our Future Results

Risks Related to Our Financial Results

We have incurred significant losses since inception and expect to continue
to incur losses in the future, all of which may adversely affect the market
price of our common stock.

      We have incurred significant net losses since inception. As of December
30, 2000, we had an accumulated deficit of $374.8 million. We cannot be certain
that we will achieve or maintain profitability. We have large fixed expenses and
expect to continue to incur significant and increasing manufacturing, research
and development, sales and marketing, administrative and other expenses in
connection with the continued development and expansion of our business. As a
result, we will need to generate significant revenue to achieve and maintain
profitability. We do not expect to be cash flow positive before at least 2002.

Our early stage of development makes it difficult to evaluate our business and
prospects.

      We were incorporated in June 1997 and began operations in August 1997.
Because we have only recently begun commercial sales of our products, our
revenue and profit potential is unproven and our limited operating history makes
it difficult for you to evaluate our business and prospects. Further, due to our
limited operating history, we have difficulty accurately forecasting our
revenue, and we have limited historical financial data upon which to base
operating expense budgets. You should consider our business and prospects in
light of the heightened risks and unexpected expenses and problems we may face
as a company in an early stage of development in a new and rapidly-evolving
industry.

The unpredictability of our quarterly results may adversely affect the trading
price of our common stock.

      Our revenue and operating results will vary significantly from quarter to
quarter due to a number of factors, many of which are outside of our control and
any of which may cause the price of our common stock to fluctuate. The primary
factors that may affect us include the following:

      o     loss of customers;

      o     fluctuation in demand for optical network products;

      o     the length and variability of the sales cycle for our products;

      o     the timing and size of sales of our products;

      o     our ability to attain and  maintain  production  volumes and quality
            levels for our products;

      o     our ability to obtain sufficient  supplies of sole or limited source
            components;

      o     changes in our  pricing  policies  or the  pricing  policies  of our
            competitors;

      o     increases in the prices of the components we purchase;


                                       35
<PAGE>

      o     new product introductions and enhancements by our competitors and
            us;

      o     our ability to develop, introduce and ship new products and product
            enhancements that meet customer requirements in a timely manner;

      o     the timing and magnitude of prototype expenses;

      o     our ability to attract and retain key personnel;

      o     our sales of common stock or other securities in the future;

      o     costs related to acquisitions of technology or businesses; and

      o     general economic conditions as well as those specific to the
            communications, Internet and related industries.

      Our operating expenses are largely based on anticipated organizational
growth and revenue trends and a high percentage of our expenses are, and will
continue to be, fixed. As a result, a delay in generating or recognizing revenue
could cause significant variations in our operating results from quarter to
quarter and could result in substantial operating losses. It is possible that in
some future quarters our operating results may be below the expectations of
analysts and investors. In this event, the price of our common stock will likely
decrease.

The long and variable sales cycles for our products may cause revenue and
operating results to vary significantly from quarter to quarter, which may
adversely affect the trading price of our common stock.

      Our products are designed to enable all-optical transmission and switching
of data traffic over long distances. We expect that customers who purchase our
products will do so as part of a large-scale deployment of these products across
their networks. As a result, a customer's decision to purchase our all-optical
network products will involve a significant commitment of its resources. A
lengthy testing and product qualification process, a portion of which is funded
by us, will precede any final decision to purchase our products. Throughout this
sales and qualification cycle, we will spend considerable time and expense
educating and providing information to prospective customers about the uses and
features of our products.

      The timing of deployment of our products may vary widely and will depend
on the specific network deployment plan of the customer, the installation skills
of the customer, the complexity of the customer's network environment and the
degree of hardware and software configuration necessary. Customers with
substantial or complex networks have traditionally expanded their networks in
large increments on a periodic basis. Accordingly, we may receive purchase
orders for significant dollar amounts on an irregular and unpredictable basis.
Because of our limited operating history and the nature of our business, we
cannot predict the timing or size of these sales and deployment cycles. Long
sales cycles, as well as our expectation that customers will tend to place large
orders sporadically with short lead times, may cause our revenue and results of
operations to vary significantly and unexpectedly from quarter to quarter.

We currently have three customers and we expect that substantially all of our
revenue will be generated from a limited number of customers.


                                       36
<PAGE>

      The target customers for our products are service providers that operate
backbone communications networks. There are only a limited number of potential
customers in our target market. We currently have three customers who have
signed agreements to purchase our products. Each of these agreements contains
significant obligations, the breach of which could result in termination of the
agreement. Our agreement with Qwest Communications Corporation will terminate
if, among other circumstances, our products do not meet the agreed technical
specifications. We expect that in the future substantially all of our revenue
will depend on sales of our optical network products to a limited number of
potential customers. The rate at which customers purchase products from us will
depend, in part, on the increasing demand for bandwidth by service providers'
customers. Any failure of service providers to purchase products from us for any
reason, including any downturn in their business, would seriously harm our
business, financial condition and results of operations.

We depend on our key personnel to manage our business effectively in a rapidly
changing market. If we are unable to retain our key employees, our business,
financial condition and results of operations could be harmed.

      Our future success depends upon the continued services of our executive
officers and other key engineering, manufacturing, operations, sales, marketing
and support personnel who have critical industry experience and relationships
that we rely on to implement our business plan. We do not have key person life
insurance policies covering any of our employees. The loss of the services of
any of our key employees, including Dr. David Huber, our founder, President and
Chief Executive Officer, could delay the development and production of our
products and negatively impact our ability to maintain customer relationships,
which would harm our business, financial condition and results of operations.

We do not have significant experience in international markets and may have
unexpected costs and difficulties in developing international revenue.

      We plan to expand the marketing and sales of our products internationally.
This expansion will require significant management attention and financial
resources to successfully develop international sales and support channels. We
have developed a sales and marketing staff outside of the United States.
International operations may be subject to certain risks and challenges that
could harm our results of operations, including:

      o     fluctuations in exchange rates;

      o     changes in regulatory requirements in the communications industry;

      o     expenses associated with developing and customizing our products for
            foreign countries;

      o     tariffs,  quotas and other  import  restrictions  on  communications
            products;

      o     greater  difficulty  in accounts  receivable  collection  and longer
            collection periods;

      o     difficulties and costs of staffing and managing foreign operations;

      o     reduced protection for intellectual property rights;


                                       37
<PAGE>

      o     potentially adverse tax consequences;

      o     longer sales cycles for our products;

      o     compliance  with  international  standards that differ from domestic
            standards; and

      o     political and economic instability.

Risks Related to the Growth of Our Industry

The market for all-optical backbone network products is new and uncertain and
our business will suffer if it does not develop as we expect.

      Most service providers have made substantial investments in their current
network infrastructure, and they may elect to remain with current network
architectures or to adopt new architectures in limited stages or over extended
periods of time. A decision by a customer to purchase our all-optical products
will involve a significant capital investment. We will need to convince these
service providers of the benefits of our all-optical network products for future
network upgrades or expansions. We cannot be certain that a viable market for
our products will develop or be sustainable. If this market does not develop, or
develops more slowly than we expect, our business, financial condition and
results of operations would be seriously harmed.

The market we serve is highly competitive and, as an early stage company, we may
not be able to achieve or maintain profitability.

      Competition in the backbone network communications equipment market is
intense. This market has historically been dominated by large companies, such as
Alcatel, Ciena, Cisco Systems, Lucent Technologies, NEC and Nortel Networks. We
may face competition from other large communications companies who may enter our
market. In addition, a number of private companies have announced plans for new
all-optical products to address the same network needs that our products
address. Due to several factors including the lengthy sales cycle, testing and
deployment process and manufacturing constraints associated with large-scale
deployments of our products, we may lose any advantage that we might have by
being an early provider of all-optical network products prior to achieving
market penetration. Many of our competitors have longer operating histories,
greater name recognition, larger customer bases and greater financial, technical
and sales and marketing resources than we do and may be able to undertake more
extensive marketing efforts, adopt more aggressive pricing policies and provide
more vendor financing than we can. Moreover, our competitors may foresee the
course of market developments more accurately than we do and could develop new
technologies that compete with our products or render our products obsolete. Due
to the rapidly evolving markets in which we compete, additional competitors with
significant market presence and financial resources may enter our markets,
further intensifying competition.

      In order to compete effectively, we must deliver products that:

      o     provide extremely high reliability;

      o     increase  network  capability  easily and  efficiently  with minimum
            disruption;


                                       38
<PAGE>

      o     operate with existing equipment and network designs;

      o     reduce the  complexity of the network in which they are installed by
            decreasing the amount of equipment required;

      o     provide effective network management;

      o     reduce operating costs; and

      o     provide an overall cost-effective solution for service providers.

      In addition, we believe that a knowledge of the infrastructure
requirements applicable to service providers, experience in working with service
providers to develop new services for their customers, and an ability to provide
vendor financing are important competitive factors in our market. We have
limited knowledge of service providers' infrastructure requirements and limited
experience in working with service providers to develop new services. We
currently provide only a limited vendor-sponsored financing program. Many of our
competitors, however, are able to offer more complete financing programs, which
may influence prospective customers to purchase from our competitors rather than
from us.

      If we are unable to compete successfully against our current and future
competitors, we may have difficulty obtaining customers, and we could experience
price reductions, order cancellations, increased expenses and reduced gross
margins, any one of which would harm our business, financial condition and
results of operations.

The communications industry is subject to government regulations which could
harm our business.

      The Federal Communications Commission, or FCC, has jurisdiction over the
entire communications industry and, as a result, our products and our customers'
products, are subject to FCC rules and regulations. Current and future FCC rules
and regulations affecting communications services, our products or our
customers' businesses or products could negatively affect our business. In
addition, international regulatory standards could impair our ability to develop
products for international service providers in the future. Delays caused by our
compliance with regulatory requirements could result in postponements or
cancellations of product orders, which would harm our business, results of
operations and financial condition. Further, we cannot be certain that we will
be successful in obtaining or maintaining any regulatory approvals that may, in
the future, be required to operate our business.

Risks Related to Our Product Manufacturing

We have limited manufacturing experience and unproven manufacturing
capabilities. If we are unable to adjust our manufacturing capacity in a timely
manner or if we do not accurately project demand, we will not achieve or
maintain profitability.

      Our future  operating  results  will  depend on our ability to develop and
manufacture  our  products  cost-effectively.  To do so, we will have to develop
manufacturing  processes that will allow us to produce sufficient  quantities of
products at competitive  prices.  We have limited  manufacturing  experience and
have only used our current  facilities  for  limited  quantities  of  commercial
products.  Furthermore,  our  current  facilities  may  not  be  sufficient  for
producing  the volume of products  required on a timely basis by


                                       39
<PAGE>

our customers. Due to the complexities of the optical product manufacturing
process, we may be unable to supplement our internal manufacturing capability by
outsourcing manufacturing of our products to meet demand.

      If we are unable to adjust our manufacturing capacity in a timely manner
or if we do not accurately project demand, we will have insufficient capacity or
excess capacity, either of which will seriously harm our business. There are
numerous risks associated with adjusting our manufacturing capabilities,
including the following:

      o     the  inability to purchase and install the  necessary  manufacturing
            equipment;

      o     the scarcity and cost of manufacturing personnel;

      o     difficulties  in achieving  adequate  yields from new  manufacturing
            lines; and

      o     the scarcity and cost of certain components.

      Our manufacturing facilities and related capital expenditures assume a
level of customer orders that we may not realize or, if we do realize, may not
be sustained over multiple quarters. If we do not receive anticipated levels of
customer orders, our gross margins will decline and we will not be able to
reduce our operating expenses quickly enough to prevent a decline in our
operating results.

We are dependent on sole source and limited source suppliers for several key
components. If we are unable to obtain these components on a timely basis, we
will be unable to meet our customers' product delivery requirements, which would
harm our business.

      We currently purchase several key components from single or limited
sources. From time to time, there have been industry-wide shortages of some
optical components due to rapidly increasing demand. For some of these
components, there can be waiting periods of six months or more between placement
of an order and receipt of the components. If any of our sole or limited source
suppliers experiences capacity constraints, work stoppages or any other
reduction or disruption in output, they may be unable to meet our delivery
schedule. We currently have no long-term supply contracts for certain of our key
components. Our suppliers may enter into exclusive arrangements with our
competitors, be acquired by our competitors, stop selling their products or
components to us at commercially reasonable prices, refuse to sell their
products or components to us at any price or be unable to obtain or have
difficulty obtaining components for their products from their suppliers, and we
may be unable to develop alternative sources for the components. Even if
alternate suppliers are available to us, identifying them is often difficult and
time consuming. If we do not receive critical components from our suppliers in a
timely manner, we will be unable to manufacture our products in a timely manner
and would, therefore, be unable to meet customers' product delivery
requirements. Any failure to meet a customer's delivery requirements could harm
our reputation and decrease our sales, which would harm our business, financial
condition and results of operations.

Some of our competitors are also our suppliers and if our supply relationship
with them deteriorates, it could harm our business.

      Some of our component suppliers are both our primary source for those
components and major competitors in the market for communications equipment. For
example, we buy some of our key


                                       40
<PAGE>

components from Lucent and Alcatel, each of which offers communications systems
and equipment that compete with our products. Our business, financial condition
and results of operations could be harmed if these supply relationships were to
change in any manner adverse to us.

Risks Related to Our Products

Because optical products are complex and are deployed in complex environments,
our products may have defects that we discover only after full deployment, which
could seriously harm our business.

      Optical products are complex and are designed to be deployed in large
quantities across complex networks. Because of the nature of the products, they
can only be fully tested when completely deployed in large networks with high
amounts of traffic. Our customers may discover errors or defects in the hardware
or the software, or our products may not operate as expected, after they have
been fully deployed. If we are unable to fix defects or other problems that may
be identified in full deployment, we would experience:

      o     loss of, or delay in, revenue and loss of market share;

      o     loss of existing customers;

      o     failure to attract new customers or achieve market acceptance;

      o     diversion of development resources;

      o     increased service and warranty costs;

      o     legal actions by our customers; and

      o     increased insurance costs.

      The occurrence of any of these problems would seriously harm our business,
financial condition and results of operations. Defects, integration issues or
other performance problems in our products could result in financial or other
damages to our customers or could negatively affect market acceptance for our
products. Our customers could also seek damages for losses from us, which, if
they were successful, would seriously harm our business, financial condition and
results of operations. A product liability claim brought against us, even if
unsuccessful, would likely be time consuming and costly and would put a strain
on our management and resources.

Our business will suffer if we do not respond rapidly to technological changes.

      The market for backbone network communications equipment is characterized
by rapid technological change, frequent new product introductions and changes in
customer requirements. We may be unable to respond quickly or effectively to
these developments. We may experience design, manufacturing, marketing and other
difficulties that could delay or prevent our development, introduction or
marketing of new products and enhancements. The introduction of new products by
competitors, market acceptance of products based on new or alternative
technologies or the emergence of new industry standards could render our
existing or future products obsolete, which would harm our business, financial
condition and results of operations.


                                       41
<PAGE>

      In developing our products, we have made, and will continue to make,
assumptions about the industry standards that may be adopted by our competitors
and potential customers. If the standards adopted are different from those which
we have chosen to support, market acceptance of our products may be
significantly reduced or delayed and our business will be seriously harmed. In
addition, the introduction of products incorporating new technologies and the
emergence of new industry standards could render our existing products obsolete.
In order to introduce products incorporating new technologies and new industry
standards, we must be able to gain access to the latest technologies of our
suppliers, other network vendors and our potential customers. Any failure to
gain access to the latest technologies would seriously harm our business,
financial condition and results of operations.

Our business will suffer if our current and future products do not meet specific
customer requirements.

      Customers may require product features and capabilities that our current
products do not have. To achieve market acceptance for our products, we must
anticipate and adapt to customer requirements and offer products and services
that meet customer demands. Our failure to develop products or offer services
that satisfy customer requirements would seriously harm our business, financial
condition and results of operations.

      We intend to continue to invest in product and technology development. The
development of new or enhanced products is a complex and uncertain process that
requires the accurate anticipation of technological and market trends. We may
experience design, manufacturing, marketing and other difficulties that could
delay or prevent the development, introduction or marketing of new products and
enhancements. The introduction of new or enhanced products also requires that we
manage the transition from older to newer products in order to minimize
disruption in customer ordering patterns and ensure that adequate supplies of
new products can be delivered to meet anticipated customer demand. Our inability
to effectively manage this transition would harm our business, financial
condition and results of operations.

Our business will be adversely affected if we are unable to protect our
intellectual property rights from third-party challenges.

      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 enter into confidentiality or license agreements with our employees,
consultants and corporate partners and control access to and distribution of our
software, documentation and other proprietary information. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology. Monitoring unauthorized use
of our technology is difficult, and we cannot be certain that the steps we have
taken will prevent unauthorized use of our technology, particularly in foreign
countries where the laws may not protect our proprietary rights as fully as in
the United States.

We are involved in an intellectual property dispute and in the future we may
become involved in similar disputes, which could subject us to significant
liability, divert the time and attention of our management and prevent us from
selling our products.

      On July 19, 2000, Ciena filed a lawsuit in the United States District
Court for the District of Delaware alleging that we are willfully infringing
three of Ciena's patents. Ciena is seeking injunctive relief, an unspecified
amount of damages including treble damages, as well as costs of the lawsuit
including attorneys' fees. We intend to defend ourselves vigorously against
these claims and we believe


                                       42
<PAGE>

that we will prevail in this litigation. However, there can be no assurance that
we will be successful in the defense of the litigation, and an adverse
determination in the litigation could result from a finding of infringement of
only one claim of a single patent. An adverse determination in, or settlement
of, the Ciena litigation could involve the payment of significant amounts by us,
or could include terms in addition to payments, such as a redesign of some of
our products, which could have a material adverse effect on our business,
financial condition and results of operations. We expect that defense of the
lawsuit will be costly and will divert the time and attention of some members of
our management. Further, Ciena and other competitors may use the existence of
the Ciena lawsuit to raise questions in customers' and potential customers'
minds as to our ability to manufacture and deliver our products. There can be no
assurance that questions raised by Ciena and others will not disrupt our
existing and prospective customer relationships.

      We or our customers may be a party to additional litigation in the future
to protect our intellectual property or to respond to allegations that we
infringe others' intellectual property. Any parties asserting that our products
infringe upon their proprietary rights would force us to defend ourselves and
possibly our customers against the alleged infringement. If we are unsuccessful
in any intellectual property litigation, we could be subject to significant
liability for damages and loss of our proprietary rights. Intellectual property
litigation, regardless of its success, would likely be time consuming and
expensive to resolve and would divert management time and attention. In
addition, we could be forced to do one or more of the following:

      o     stop selling, incorporating or using our products that include the
            challenged intellectual property;

      o     obtain from the owner of the infringed intellectual property right a
            license to sell or use the relevant technology, which license may
            not be available on reasonable terms, or at all; or

      o     redesign those products that use the technology.

      If we are forced to take any of these actions, our business would be
seriously harmed.

If necessary licenses of third-party technology are not available to us or are
very expensive, our business would be seriously harmed.

      We currently license technology, and from time to time we may be required
to license additional technology, from third parties to sell or develop our
products and product enhancements. We cannot assure you that our existing and
future third-party licenses will be available to us on commercially reasonable
terms, if at all. Our inability to maintain or obtain any third-party license
required to sell or develop our products and product enhancements could require
us to obtain substitute technology of lower quality or performance standards or
at greater cost, any of which could seriously harm our business, financial
condition and results of operations.

Risks Related to the Development of Our Business

Our business will suffer if we do not adjust our sales organization and our
customer service and support operations.


                                       43
<PAGE>

      Our products and services require a sophisticated sales effort targeted at
a limited number of key individuals within our prospective customers'
organizations. Our success will depend, in part, on our ability to develop and
manage these relationships. This effort requires specialized sales personnel as
well as experienced sales engineers. Competition for these individuals is
intense because there are a limited number of people available with the
necessary technical skills and understanding of our market. When we hire them or
contract for these personnel, they may require extensive training in our network
products. We might not be able to hire the kind and number of sales personnel
and sales engineers required for us to be successful. If we are unable to adjust
our sales, customer service and support operations, we may not be able to
effectively market our products, which may prevent us from achieving and
maintaining profitability.

      We believe our future success will also depend in large part upon our
ability to identify, attract and retain highly skilled managerial, engineering,
sales and marketing and finance personnel. Competition for these individuals is
also intense in our industry. We may not succeed in identifying, attracting and
retaining personnel. Further, competitors and other entities may attempt to
recruit our employees. If we are unable to hire any of these required personnel
and expand our corporate infrastructure, we may not be able to increase sales of
our products, which would seriously harm our business, financial condition and
results of operations.

To date, two of our customers have acquired an equity interest in our company,
and our third customer holds a warrant to purchase our common stock. If we
discontinue this practice of selling equity to our customers, we may not attract
new customers.

      Two of our customers have purchased an equity interest in our company, and
our third customer holds a warrant to purchase our common stock. Although these
customers purchased the equity interests at fair value and the warrant has an
exercise price equal to the fair value on the date of grant, the opportunity to
invest in our company provided these customers with an additional incentive to
purchase our products. It is unlikely that we will offer this opportunity to
prospective customers, which may hurt our ability to sell our products.

Our business will suffer if we fail to properly manage our growth and
continually improve our internal controls and systems.

      We have expanded our operations rapidly since our inception. We continue
to adjust the scope of our operations, as well as broaden our in-house
manufacturing and customer support capabilities, develop new distribution
channels and fund greater levels of research and development. Our growth has
placed, and our anticipated growth will continue to place, a significant strain
on our management and resources. Our ability to successfully offer our products
and implement our business plan in a rapidly evolving market requires an
effective planning and management process. In order to manage our growth
properly, we must:

      o     retain existing personnel;

      o     hire, train, manage and retain additional qualified personnel,
            including engineers and research and development personnel;

      o     manage our manufacturing operations, controls and reporting systems;


                                       44
<PAGE>

      o     effectively manage multiple relationships with our customers,
            suppliers and other third parties; and

      o     implement additional operational controls, reporting and financial
            systems and procedures.

      Failure to do any of the above in an efficient and timely manner could
seriously harm our business, financial condition and results of operations.

If we become subject to unfair hiring claims we could incur substantial costs in
defending ourselves or our management's attention could be diverted away from
our operations.

      Companies in our industry whose employees accept positions with
competitors frequently claim that their competitors have engaged in unfair
hiring practices. We have received claims of this kind in the past, and we
cannot assure you that we will not receive claims of this kind in the future as
we seek to hire qualified personnel or that those claims will not result in
material litigation. We could incur substantial costs in defending ourselves or
our employees against such claims, regardless of the merits of the claims. In
addition, defending ourselves from such claims could divert the attention of our
management away from our operations.

Any acquisitions we make could disrupt our business and seriously harm our
financial condition.

      We may, from time to time, consider investments in complementary
companies, products or technologies. We have recently acquired two companies,
and we may acquire additional businesses, products or technologies in the
future. In the event of any future acquisitions, we could:

      o     issue stock that would dilute our current stockholders' percentage
            ownership;

      o     incur debt;

      o     assume liabilities;

      o     incur amortization expenses related to goodwill and other intangible
            assets; or

      o     incur large and immediate write-offs.

      Our operation of any acquired business will also involve numerous risks,
including:

      o     problems combining the acquired operations, technologies or
            products;

      o     unanticipated costs;

      o     diversion of management's time and attention from our core business;

      o     adverse effects on existing business relationships with suppliers
            and customers;

      o     risks associated with entering markets in which we have no or
            limited prior experience; and


                                       45
<PAGE>

      o     potential loss of key employees, particularly those of acquired
            companies.

      We cannot assure you that we will be able to successfully integrate any
businesses, products, technologies or personnel that we might acquire in the
future. Any failure to do so could seriously harm our business, financial
condition and results of operations.

We may need additional capital to fund our existing and future operations. If we
are unable to obtain additional capital, we may be required to reduce the scope
of our planned product development and marketing and sales efforts, which would
harm our business, financial condition and results of operations.

      The development, marketing and sales of new products is expected to
require a significant commitment of resources. We may incur significant
operating losses or expend significant amounts of capital if:

      o     the market for our products develops more slowly than anticipated;

      o     we fail to establish market share or generate revenue;

      o     our capital expenditure forecasts change or prove inaccurate; and

      o     we need to respond to unforeseen challenges or take advantage of
            unanticipated opportunities.

      As a result, we may need to raise substantial additional capital. To the
extent that we raise additional capital through the sale of equity or debt
securities, the issuance of such securities could result in dilution to our
existing stockholders. If additional funds are raised through the issuance of
debt securities, the terms of such debt could impose additional restrictions on
our operations. Additional capital, if required, may not be available on
acceptable terms, or at all. If we are unable to obtain additional capital, we
may be required to reduce the scope of our planned product development and
marketing and sales efforts, which would harm our business, financial condition
and results of operations.

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

      We are exposed to market risk related to changes in interest rates and
foreign currency exchange rates. We do not use derivative financial instruments
for speculative or trading purposes.

Interest Rate Sensitivity

      We maintain a portfolio of cash equivalents in a variety of securities
including: commercial paper, certificates of deposit, money market funds and
government and non-government debt securities. Substantially all amounts are in
money market funds, the value of which is generally not subject to interest rate
changes. The other available-for-sale securities are subject to interest rate
risk and may fall in value if market interest rates increase, however, because
of the short-term nature of these investments, we do not believe the risk is
significant. Our long-term debt obligations bear fixed interest rates. As such,
we have minimal cash flow exposure due to general interest rate changes
associated with our long-term debt obligations.


                                       46
<PAGE>

Exchange Rate Sensitivity

      We have two wholly owned subsidiaries which use a foreign currency as
their functional currency and are translated into U.S. dollars. The functional
currency of Algety is the French Franc and Corvis Canada's functional currency
is the Canadian dollar, respectively. As such, we are exposed to risk related to
the adverse movements in foreign currency exchange rates. These exposures may
change over time and could have a material adverse impact on our financial
results. For the year ended December 30, 2000, we recognized a foreign currency
translation gain of $60.2 million as part of Other Comprehensive Income.


                                       47
<PAGE>

Item 8. Financial Statements and Supplementary Data.

                               INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Corvis Corporation and subsidiaries:

      We have audited the accompanying consolidated balance sheets of Corvis
Corporation and Subsidiaries as of January 1, 2000 and December 30, 2000, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the years ended December 31, 1998, January 1, 2000
and December 30, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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 Corvis
Corporation and Subsidiaries as of January 1, 2000 and December 30, 2000, and
the results of their operations and their cash flows for the years ended
December 31, 1998, January 1, 2000 and December 30, 2000, in conformity with
accounting principles generally accepted in the United States of America.

                                 /s/ KPMG LLP

McLean, Virginia
January 23, 2001, except as to
   Note 13(b) which is as
   of March 5, 2001


                                       48
<PAGE>

                               CORVIS CORPORATION

                           CONSOLIDATED BALANCE SHEETS

                (Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                      January 1,   December 30,
                                                                                         2000         2000
                                                                                      ----------   ------------
<S>                                                                                   <C>          <C>
ASSETS
Current assets:
       Cash and cash equivalents ..................................................   $ 244,597    $ 1,024,758
       Restricted cash ............................................................       2,103             --
       Trade accounts receivable ..................................................          --         16,085
       Inventory, net .............................................................      15,869        219,414
       Other current assets .......................................................       1,641         26,802
                                                                                      ---------    -----------
           Total current assets ...................................................     264,210      1,287,059

Restricted cash, long-term ........................................................      15,000         46,292
Property and equipment, net .......................................................      22,355        106,681
Goodwill and other intangible assets, net .........................................          --        929,204
Other long-term assets, net .......................................................       5,714         12,600
                                                                                      ---------    -----------
           Total assets ...........................................................   $ 307,279    $ 2,381,836
                                                                                      =========    ===========

LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:

      Notes payable, current portion ..............................................   $  15,287    $     1,438
      Capital lease obligations, current portion ..................................       1,587          1,841
      Accounts payable ............................................................       6,823         90,995
      Accrued expenses ............................................................       3,674         20,745
                                                                                      ---------    -----------
           Total current liabilities ..............................................      27,371        115,019

Noncurrent liabilities:
      Notes payable, net of current portion .......................................      35,807         44,529
      Capital lease obligations, net of current portion ...........................       2,964          1,380
      Other long-term liabilities .................................................       1,511          4,315
                                                                                      ---------    -----------
           Total liabilities ......................................................      67,653        165,243

Commitments and contingencies
Redeemable stock ..................................................................          --         30,000
Stockholders' equity:
      Series A convertible preferred stock; $0.01 par value; 1,550,000 shares
         authorized, 1,550,000 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000.............          16             --
      Series B convertible preferred stock; $0.01 par value; 6,685,931 shares
         authorized, 6,328,955 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000 ............          63             --
      Series C convertible preferred stock; $0.01 par value; 3,270,819 shares
         authorized; 3,120,118 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000 ............          31             --
      Series D convertible preferred stock; $0.01 par value; 273,314 shares
         authorized; 211,928 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000 ............           2             --
      Series F convertible preferred stock; $0.01 par value; 1,946,906 shares
         authorized; 1,898,406 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000 ............          19             --
      Series G convertible preferred stock; $0.01 par value; 573,989 shares
         authorized; 292,825 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000 ............           3             --
      Series H convertible preferred stock; $0.01 par value; 3,186,710 shares
         authorized, 2,685,954 issued and outstanding at January 1, 2000; no
         shares authorized, issued or outstanding at December 30, 2000 ............          27             --
      Series I convertible preferred stock; $0.01 par value; no shares
         authorized; no shares issued and outstanding as of January 1, 2000 or
         December 30, 2000 ........................................................          --             --
      Common stock--$0.01 par value; 425,121,094 shares authorized; 61,114,020
         shares issued and outstanding as of January 1, 2000; 348,039,489 issued
         and outstanding as of December 30, 2000 ..................................         609          3,478
      Additional paid-in capital...................................................     331,303      2,497,773
      Stockholder note receivable..................................................      (1,224)            --
      Accumulated other comprehensive income:
           Foreign currency translation adjustment.................................          --         60,176
      Accumulated deficit..........................................................     (91,223)      (374,834)
                                                                                      ---------    -----------
           Total stockholders' equity .............................................     239,626      2,186,593
                                                                                      =========    ===========
           Total liabilities, redeemable stock  and stockholders' equity ..........   $ 307,279    $ 2,381,836
                                                                                      =========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       49
<PAGE>

                               CORVIS CORPORATION

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                (Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                Year Ended
                                                 ----------------------------------------
                                                   December 31,  January 1,  December 30,
                                                      1998         2000         2000
                                                 --------------  ----------  ------------
<S>                                                 <C>         <C>         <C>
Revenue .........................................   $     --    $     --    $  68,898
Cost of revenue .................................         --          --       42,943
                                                    --------    --------    ---------
Gross profit ....................................         --          --       25,955
                                                    --------    --------    ---------

Operating expenses:
    Research and development, exclusive of
        equity-based expense ....................     15,746      41,565       88,874
    Sales and marketing, exclusive of
        equity-based expense ....................        167       3,422       30,871
    General and administrative, exclusive of
        equity-based expense ....................      3,190      18,993       31,127
    Equity-based expense:
        Research and development ................         --         126       28,050
        Sales and marketing .....................         --       4,845       52,417
        General and administrative ..............         --          --       17,891
    Amortization of intangible assets ...........         --         173       46,746
    Purchased research and development ..........         --          --       42,230
                                                    --------    --------    ---------

        Total operating expenses ................     19,103      69,124      338,206
                                                    --------    --------    ---------

        Operating loss ..........................    (19,103)    (69,124)    (312,251)
Interest income (expense), net ..................       (357)     (2,146)      28,640
                                                    --------    --------    ---------

        Net loss ................................    (19,460)    (71,270)    (283,611)
Other comprehensive income:
        Foreign exchange adjustment .............         --          --       60,176
                                                    --------    --------    ---------
Comprehensive loss ..............................   $(19,460)   $(71,270)   $(223,435)
                                                    ========    ========    =========

Basic and diluted net loss per common share .....   $  (0.86)   $  (2.33)   $   (1.80)
Weighted average number of common
    shares outstanding ..........................     22,638      30,599      157,349
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       50
<PAGE>

                               CORVIS CORPORATION

            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

                             (Dollars in thousands)

<TABLE>
<CAPTION>

                       Convertible                                                        Accumulated
                     Preferred Stock                                                        Other
                        All Series            Common Stock      Additional   Stockholder    Compre-                     Total
                  -------------------------------------------     Paid-in        Note       hensive    Accumulation  Stockholders'
                    Shares     Amount       Shares     Amount     Capital     Receivable     Income       Deficit       Equity
                    ------     ------       ------     ------     -------     ----------     ------       -------       ------
<S>               <C>          <C>        <C>          <C>      <C>            <C>          <C>         <C>          <C>
Balance at
  December
  31, 1997 ..     1,500,000    $  15      21,600,000   $  216   $     2,769    $    --      $    --     $    (493)   $     2,507
Private
  Placement--
  Series A
  preferred
  stock .....        50,000       --              --       --           100         --           --            --            100
Private
  Placement--
  Series B
  preferred
  stock .....     6,328,955       63              --       --        13,544         --           --            --         13,607
Issuance of
  common
  stock .....            --       --       1,200,000       10            --         --           --            --             10
Exercise of
  stock
  options ...            --       --       1,146,012       11            22         --           --            --             33
Issuance of
  warrants ....          --       --              --       --           236         --           --            --            236
Net loss ....            --       --              --       --            --         --           --       (19,460)       (19,460)
                -----------    -----    ------------   ------   -----------    -------      -------     ---------    -----------
Balance at
  December
  31, 1998 ..     7,878,955       78      23,946,012      237        16,671         --           --       (19,953)        (2,967)
Private
  Placement--
  Series C
  preferred
  stock .....     3,075,736       31              --       --        28,103         --           --            --         28,134
Private
  Placement--
  Series D
  preferred
  stock .....       211,928        2              --       --         1,936         --           --            --          1,938
Private
  Placement--
  Series F
  preferred
  stock .....     1,898,406       19              --       --        46,017         --           --            --         46,036
Private
  Placement--
  Series G
  preferred
  stock .....       292,825        3              --       --         9,997         --           --            --         10,000
Private
  Placement--
  Series H
  preferred
  stock .....     2,685,954       27              --       --       216,273         --           --            --        216,300
Exercise of
  stock
  options and
  warrants ..        44,382        1      37,168,008      372         2,604     (1,224)          --            --          1,753
Issuance of
  warrants ....          --       --              --       --         9,576         --           --            --          9,576
Equity-based
  expense ...            --       --              --       --           126         --           --            --            126
Net loss ....            --       --              --       --            --         --           --       (71,270)       (71,270)
                -----------    -----    ------------   ------   -----------    -------      -------     ---------    -----------
Balance at
  January 1,
  2000 ......    16,088,186      161      61,114,020      609       331,303     (1,224)          --       (91,223)       239,626
Exercise of
  stock
  options and
  warrants ..       352,576        4       6,111,073       61        47,244         --           --            --         47,309
Private
  Placement --
  Series H
  preferred
  stock .....       496,710        5              --       --        40,000         --           --            --         40,005
Acquisition
  of
  Algety
  Telecom
  S.A .......     1,301,822       13      11,385,358      114       916,942         --           --            --        917,069
Initial
  public
  offering
  and
  concurrent
  private
  placement,
  net .......            --       --      31,902,778      319     1,066,118         --           --            --      1,066,437
Equity-based
  expense ...       213,633        2              --       --        98,356         --           --            --         98,358
Conversion of
  preferred
  stock .....   (18,452,927)    (185)    237,526,260    2,375        (2,190)        --           --            --             --
Collection of
  shareholder
  note ......            --       --              --       --            --      1,224           --            --          1,224
Foreign
  exchange
  adjustment             --       --              --       --            --         --       60,176            --         60,176
Net loss ....            --       --              --       --            --         --           --      (283,611)      (283,611)
                -----------    -----    ------------   ------   -----------    -------      -------     ---------    -----------
Balance at
  December
  30, 2000 ..            --    $  --    $348,039,489    3,478   $ 2,497,773    $    --      $60,176     $(374,834)   $ 2,186,593
                ===========    =====    ============   ======   ===========    =======      =======     =========    ===========

</TABLE>

          See accompanying notes to consolidated financial statements.


                                       51
<PAGE>

                               CORVIS CORPORATION

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                      Year Ended
                                                     ----------------------------------------
                                                     December 31,  January 1,    December 30,
                                                         1998          2000          2000
                                                         ----          ----          ----
<S>                                                   <C>         <C>           <C>
Cash flows from operating activities:
Net loss ..........................................   $(19,460)   $ (71,270)    $ (283,611)
Adjustments to reconcile net loss to net cash used
    in operating activities:
    Depreciation and amortization .................      1,128        4,937         54,301
    Equity-based expense ..........................         --        4,971         98,358
    Purchased research and development ............         --           --         42,230
    Changes in operating assets and liabilities:
        Increase in accounts receivable ...........         --           --        (16,085)
        Increase in inventory, net ................         --      (15,869)      (195,384)
        Increase in other current assets ..........        (48)      (1,465)       (29,125)
        Increase in accounts payable ..............      1,762        4,737         79,725
        Increase in other current liabilities .....        380        2,207         14,591
                                                      --------    ---------    -----------
            Net cash used in operating activities .    (16,238)     (71,752)      (235,000)
                                                      --------    ---------    -----------

Cash flows from (used in) investing activities:
    Purchase of property and equipment ............     (1,543)     (14,180)       (90,659)
    Cash acquired in business combination .........         --           37         22,496
    Increase (decrease) in deposits and other
      long-term assets ............................       (201)         167             --
                                                      --------    ---------    -----------
        Net cash used in investing activities .....     (1,744)     (13,976)       (68,163)
                                                      --------    ---------    -----------

Cash flows from financing activities:
    Increase in restricted cash ...................         --      (17,103)       (29,189)
    Proceeds from issuance of note payable ........      5,000       49,091         43,500
    Proceeds from stockholder note payable ........      1,653        8,347             --
    Proceeds from equity offerings ................     13,717      290,470      1,071,443
    Proceeds from stock options and warrants
       exercised ..................................         33        1,752         47,309
    Proceeds from repayment of shareholder note ...         --           --          1,224
    Payment of notes payable and capital lease
      obligations .................................         --       (6,272)       (49,958)
                                                      --------    ---------    -----------
        Net cash provided by financing activities .     20,403      326,285      1,084,329
                                                      --------    ---------    -----------
        Cash effect of foreign exchange adjustment          --           --         (1,004)
                                                      --------    ---------    -----------
        Net increase (decrease) in cash and cash
           equivalents ............................      2,421      240,557        780,161
Cash and cash equivalents--beginning ..............      1,620        4,040        244,597
                                                      --------    ---------    -----------
Cash and cash equivalents--ending .................   $  4,041    $ 244,597    $ 1,024,758
                                                      ========    =========    ===========

 Supplemental disclosure of cash flow information:
    Interest paid .................................   $     --    $     564    $     7,220
  Supplemental disclosure of noncash activities:
    Financed leasehold improvements ...............   $     30    $   3,164    $     2,105
    Obligations under capital lease ...............      2,001        3,000             --
    Issuance of warrants under capital lease
        obligation ................................         49           94             --
    Conversion of stockholder note payable ........         --       10,000             --
    Stockholder note received for exercise of
        stock options .............................         --        1,224             --
    Purchase business combinations consideration
        paid with preferred and common stock ......         --        1,888        947,069
    Issuance of stock for intellectual property ...         --           --         35,000
                                                      ========    =========    ===========
</TABLE>

          See accompanying notes to consolidated financial statements.


                                       52
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies and Practices

(a) Nature of Business and Basis of Presentation

      Corvis Corporation (the "Company") was incorporated on June 2, 1997 to
design, manufacture and market products that enable a fundamental shift in the
design and efficiency of backbone communications networks by allowing for the
transmission, switching and management of traffic entirely in the optical
domain. In July 2000, the Company commenced its planned principal operations,
including production, shipment and delivery of its commercial products.
Accordingly, the Company is no longer considered a development stage enterprise
and previous disclosures related to a development stage enterprise are no longer
required. The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated. In 1999, the
Company changed its year end from a calendar year end to a year ending on the
Saturday closest to December 31.

      On February 8, 2000 and July 21, 2000, the Company declared a 3-for-1 and
a 4-for-1 split of its common stock, respectively. All share and per share
amounts of common stock in the accompanying consolidated financial statements
have been retroactively adjusted to reflect the stock splits.

(b) Cash and Cash Equivalents

      The Company considers short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents include cash in banks and investments in overnight repurchase
agreements, certificates of deposit, money market funds and government and
non-government debt securities. As of January 1, 2000 and December 30, 2000,
investments in overnight repurchase agreements totaled $13.1 million and $0.8
million, respectively, and investments in commercial paper totaled $231.5
million and $1,011.5 million, respectively. The Company considers these
investments as available-for-sale. As such, the securities are stated at their
fair market value. Unrealized gains and losses on available-for-sale securities
are recognized as a component of Other comprehensive income (loss). As of
December 30, 2000, the fair value of the marketable securities approximated the
carrying value.

      As of December 30, 2000, restricted cash of $46.3 million is comprised of
approximately $2.8 million supporting outstanding letters of credit and $43.5
million pledged as collateral under the terms of a long-term note.

      As of January 1, 2000, restricted cash of $17.1 million is comprised
principally of cash restricted under long-term working capital facilities.

(c) Revenue and Cost of Revenue

      Revenue from product sales is recognized upon execution of a contract and
the completion of all delivery obligations provided that there are no
uncertainties regarding customer acceptance and collectibility is deemed
probable. If uncertainties exist, revenue is recognized when such uncertainties
are resolved.

      Revenue from installation services is recognized as the services are
performed unless the terms of the supply contract combine product acceptance
with installation, in which case revenues for installation services are
recognized when the terms of acceptance are satisfied and installation is
completed. Revenues from installation service fixed price contracts are
recognized on the percentage-of-completion method, measured by the percentage of
costs incurred to date compared to estimated total costs for each contract.
Amounts received in excess of revenue recognized are included as deferred
revenue in the accompanying consolidated balance sheets.


                                       53
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Costs of revenues include the costs of manufacturing the Company's
products and other costs associated with warranty and other contractual
obligations, inventory obsolescence costs and overhead related to the Company's
manufacturing, engineering, finishing and installation. Warranty reserves are
determined based upon actual warranty cost experience, estimates of component
failure rates and management's industry experience.

(d) Inventory

      Inventory is stated at the lower of cost (first-in, first-out) or market
(net realizable value). The Company records a provision for excess and obsolete
inventory whenever such an impairment has been identified.

(e) Property and Equipment

      Internal network equipment, test and manufacturing equipment, furniture
and fixtures, and leasehold improvements are stated at cost or estimated fair
market value if acquired in a purchase business combination. Depreciation is
calculated using the straight-line method over estimated useful lives ranging
between three and seven years for internal network equipment, test and
manufacturing equipment, and furniture and fixtures. Leasehold improvements and
assets acquired under capital leases are amortized over the shorter of the lease
term or the estimated useful life of the assets.

(f) Goodwill

      The Company has classified as goodwill the cost in excess of fair value of
the net assets of companies acquired in purchase business combinations. Goodwill
is being amortized using the straight-line method over five years.

(g) Recovery of Long-lived Assets

      The Company's policy is to review its long-lived assets, including
goodwill and other intangibles, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. The Company recognizes an impairment loss when the sum of the
expected future undiscounted cash flows is less than the carrying amount of the
asset. The measurement of the impairment losses to be recognized is based upon
the difference between the fair value and the carrying amount of the asset.

(h) Research and Development

      Research and development costs are expensed as incurred.

(i) Income Taxes

      The Company accounts for income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial reporting and tax
basis of assets and liabilities and are measured using the enacted tax rates and
laws in effect when the differences are expected to be recovered or settled.

(j) Foreign Currency Translation

      The assets and liabilities of the Company's self-contained foreign
operations for which the functional currency is the local currency are generally
translated into U.S. dollars at current exchange rates and revenue and expenses
are


                                       54
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

translated using average exchange rates for the period. Resulting translation
adjustments are reflected as a component of other comprehensive income (loss).

(k) Earnings (Loss) Per Common Share

      The computations of basic and diluted earnings (loss) per common share are
based upon the weighted average number of common shares outstanding during the
period. Dilutive earnings per share give effect to all potentially dilutive
common securities. Potentially dilutive securities include convertible preferred
stock, stock options and warrants.

(l) Uses of Estimates

      The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements, and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.

(m) Stock Options and Warrants

      The Company accounts for its stock options in accordance with the
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," which
permits entities to recognize as expense over the vesting period the fair market
value of all stock-based awards on the date of grant. Alternatively, SFAS No.
123 also allows entities to apply the provisions of APB Opinion No. 25 and
provide pro forma net income disclosures for employee stock options granted as
if the fair value based method defined in SFAS No. 123 had been applied. The
Company has elected to apply the provisions of APB Opinion No. 25 and provide
the pro forma disclosures of SFAS No. 123. Stock options and warrants granted to
other than employees are recognized at fair market value.

(n) Concentrations

      Substantially all of the Company's cash and cash equivalents are custodied
at one major U.S. financial institution. Deposits held with banks exceed the
amount of insurance provided on such deposits. Generally, these deposits may be
redeemed upon demand and, therefore, in the opinion of management, bear minimal
risk.

      During 2000, the Company has relied on one customer, a shareholder, for
all of its revenue. The Company expects that a significant portion of its future
revenue will continue to be generated by a limited number of customers. The loss
of any one of these customers or any substantial reduction in orders by any one
of these customers could materially adversely affect the Company's financial
condition or operating results.

(o) Equity Investments

      During 2000, the Company has made strategic equity investments in five
companies for a total of $4.2 million. Because the Company does not have
significant influence over any one of these entities, the Company accounts for
these investments using the cost method.


                                       55
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(p) Reclassifications

      Certain reclassifications have been made in the December 31, 1998 and
January 1, 2000 consolidated financial statements to conform to the December 30,
2000 presentation. Such reclassifications had no effect on net loss or total
stockholders' equity (deficit).

(2) Inventory

      Inventories are comprised of the following (in thousands):

<TABLE>
<CAPTION>
                                                         January 1,   December 30,
                                                            2000          2000
                                                       -------------  ------------
<S>                                                      <C>          <C>
Raw materials ........................................   $  13,467    $ 131,983
Work-in-process ......................................       4,173       50,161

Finished goods .......................................          --       51,119
                                                         ---------    ---------
                                                            17,640      233,263
Less reserve for excess inventory and obsolescence ...      (1,771)     (13,849)
                                                         ---------    ---------
  Inventory, net .....................................   $  15,869    $ 219,414
                                                         =========    =========
</TABLE>

(3) Property and Equipment

      Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                         January 1,   December 30,
                                                            2000          2000
                                                       -------------  ------------

<S>                                                      <C>          <C>
Test and manufacturing equipment .....................   $  15,657    $  78,855
Furniture, fixtures and internal network equipment ...       4,140       20,209
Leasehold improvements ...............................       5,678       23,650
                                                         ---------    ---------
   Total .............................................      25,475      122,714
Less accumulated depreciation and amortization .......      (3,120)     (16,033)
                                                         ---------    ---------
   Property and equipment, net .......................   $  22,355    $ 106,681
                                                         =========    =========
</TABLE>

(4) Notes Payable

      A summary of notes payable as of January 1, 2000 and December 30, 2000 is
as follows (in thousands):


                                       56
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                         January 1,    December 30,
                                                            2000          2000
                                                         -----------   ------------
<S>                                                       <C>          <C>
Note payable due November 7, 2002 ....................    $     --     $ 43,500
Equipment note due April 2001 ........................       5,117           --
Equipment notes due May 2002 .........................       5,427           --
Equipment note due May 2002 ..........................       2,615           --
Leasehold improvements loan due May 2009 .............       1,181        1,102
Working capital facility due August 2002 .............      36,587           --
Other ................................................         167        1,365
                                                          --------     --------
                                                            51,094       45,967
Less current portion .................................     (15,287)      (1,438)
                                                          --------     --------
Notes payable, net of current portion ................    $ 35,807     $ 44,529
                                                          ========     ========
</TABLE>

      During 1999, the Company executed long-term notes for equipment financing
with a lender for approximately $6.1 million. The notes bore interest at the
rate of 14.91%, and were collateralized by the underlying equipment. The debt
was repayable in 36 monthly installments of principal and interest beginning
June 1999. In connection with the issuance of the notes, the Company issued
19,679 warrants to purchase Series C convertible preferred stock to the lender.
The warrants had an exercise price of $9.147 per share and expired three years
from issuance, or upon an initial public offering. The fair market value of the
warrants, approximately $0.1 million, was recognized as deferred financing fees.
In August 2000, this note was repaid in full.

      In January 1999, the Company executed a long-term collateralized equipment
note with another lender for $3.0 million. The note bore interest at a rate of
11%. The debt was repayable in 36 monthly installments of principal and interest
beginning June 1, 1999. In connection with the issuance of the notes, the
Company issued 32,798 warrants to purchase Series C convertible preferred stock
to the lender. The warrants had an exercise price of $9.147 per share. The fair
value of the warrants, approximately $0.2 million, was recognized as deferred
financing fees. In November 2000, this note was repaid in full.

      In July 1999, the Company entered into a loan agreement with a landlord
for tenant improvements associated with the lease of a new building in the
amount of $1.2 million. As of December 30, 2000, the Company has drawn the
entire $1.2 million commitment. The debt bears interest at a rate of 10.0%. The
debt is repayable in 120 monthly installments of principal and interest which
began June 1999.

      During 1999, the Company obtained a commitment for an aggregate of $40.0
million of debt financing from a syndicate of lenders. As of January 1, 2000,
the Company had drawn the entire $40.0 million commitment. The debt bore
interest at a rate of 8.5%. The debt was repayable in 36 monthly installments of
principal and interest beginning September 1999 and with aggregate balloon
payments of 14% at maturity. In connection with the issuance of the debt, the
Company issued 641,121 warrants to purchase Series E convertible preferred stock
to the lender. The warrants have an exercise price of $9.147 per share. The fair
value of the warrants, approximately $3.7 million, was recognized as deferred
financing fees. In November 2000, this facility was repaid in full.

      In November 2000, the Company executed a long-term note payable with a
lender for approximately $43.5 million. Interest associated with the note is due
monthly while associated principal is due November 2002. The note bears interest
at 6.5% so long as the Company maintains a cash balance with the lender of
$347.0 million through November 2001 and $231.0 million through November 2002.
If cash balances deposited with the lender drop below these minimum levels, the
note will bear interest at LIBOR plus .80%. In addition, the Company pledged a
certificate of deposit with a carrying value of $43.5 million as collateral
under the agreement.


                                       57
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) Equity

      In December 1999, the Company issued 292,825 shares of Series G
Convertible Preferred Stock for an aggregate purchase price of $10.0 million in
a private placement transaction with a strategic investor. If certain minimum
purchase commitments were not met by the holder of the Series G Convertible
Preferred Stock on or before March 2000, the Company had the right to repurchase
the shares at a price of $44.40 per share. In May 2000, the Company waived its
right to repurchase the shares.

      On August 2, 2000, the Company sold 31,625,000 of common stock in an
initial public offering and 277,778 shares of common stock in a concurrent
private placement for proceeds of $1,066.4 million after deducting underwriter
discounts and commissions and offering expenses. Upon completion of the IPO, all
outstanding shares of convertible preferred stock automatically converted into
237,526,260 shares of common stock at the following ratios: Series A Preferred,
24-to-1; all other Preferred Stock, 12-to-1.

(6) Acquisitions

(a) Baylight Networks, Inc.

      On May 19, 2000, the Company acquired Baylight Networks, Inc.
("Baylight"), a company that designs network systems and subsystems. Baylight,
based in Palo Alto, California, was formed in February 2000 and was a
development stage company with no revenue. In consideration for all of the
outstanding shares of Baylight, the Company assumed $0.1 million of Baylight's
liabilities and agreed to issue 2,400,012 shares of common stock over the term
of three-year employment agreements with the former Baylight shareholders. The
Company accounted for the acquisition as a purchase. Accordingly, the operating
results of Baylight are included in the Company's financial results from the
date of acquisition. The allocation of the purchase price to the fair value of
the assets acquired and liabilities assumed has been based on an internal
analysis of the fair value of the assets and liabilities of Baylight. The excess
of the aggregate purchase price over the fair value of net assets acquired of
approximately $0.1 million is being amortized on a straight-line basis over five
years. The Company will recognize compensation expense over the term of the
employment agreements equal to the fair value of the shares to be issued.

(b) Algety Telecom S.A.

      On July 1, 2000, the Company acquired Algety Telecom S.A. ("Algety"), a
French company that develops and markets high-capacity, high-speed optical
transmission equipment. Algety, based in Lannion, France, was formed in April
1999, and was a development stage company with no revenue. The acquisition price
on the initial closing date equaled 1,301,822 shares of Series I convertible
preferred stock. On November 3, 2000, consistent with the terms of the
acquisition agreement, the Company completed a second closing at which time an
additional 11,385,358 shares of common stock were delivered to the former Algety
stockholders. The total value of all shares delivered in the first and second
closing was $947.1 million. In addition, 2,275,032 shares of common stock has
been placed into escrow to be released contingent upon satisfaction of certain
minimum employment terms for certain Algety employees. The Company incurred
approximately $1.0 million of transaction costs related to the acquisition.

      The Company accounted for the acquisition as a purchase. Accordingly, the
operating results of Algety are included in the Company's financial results from
the date of acquisition. The allocation of the purchase price to the fair value
of the assets acquired and liabilities assumed has been based upon an
independent third-party valuation. Based upon the results of the valuation, the
Company allocated $20.1 million to tangible assets, $6.0 million to liabilities
and $1.3 million to identifiable intangible assets. In addition, the Company
allocated $42.2 million of the purchase price to in-process technology, which is
included in operating expenses in the accompanying consolidated


                                       58
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

statement of operations. The excess of the aggregate purchase price over the
fair value of net assets acquired of $876.7 million is being amortized on a
straight-line basis over five years.

      Under the terms of the acquisition agreement, the Company granted certain
former Algety shareholders the right to put certain shares of common stock back
to the Company at the stock's then fair market value. The put right is available
during a period from June 2001 to December 2001 and is enforceable only if no
other liquidity sources are available to those shareholders. The fair market
value of the common stock put to the Company cannot exceed $30 million. Stock
associated with this put right has been classified as redeemable stock in the
consolidated balance sheet as of December 30, 2000.

      The following unaudited pro forma data summarizes the results of
operations for the period indicated as if the Algety acquisition had been
completed as of the beginning of the periods presented. The unaudited pro forma
data gives effect to actual operating results prior to the acquisition, adjusted
to include the pro forma effect of amortization of intangibles. These pro forma
amounts do not purport to be indicative of the results that would have actually
been obtained if the acquisition occurred as of the beginning of the periods
presented or that may be obtained in the future (in thousands, except per share
data).

                                                     Year Ended
                                     -----------------------------------------
                                       December 31,  January 1,   December 30,
                                          1998         2000          2000
                                     --------------  ----------   ------------
Revenues ..........................    $     --     $      --     $  68,898
Net loss ..........................     (19,460)     (198,110)     (385,148)
Basic and diluted
   net loss per share .............    $  (0.86)    $   (6.47)    $   (2.45)

(7) Stock Options

      In July 1997, the Company adopted the 1997 Stock Option Plan (the "Plan")
pursuant to which the Company's Board of Directors may grant options to purchase
common stock to employees, officers, directors and consultants. The Company has
reserved 103,600,000 shares of common stock for issuance under the Company's
Stock Option Plan. Stock options are granted with an exercise price equal to the
estimated fair value of the common stock at the date of grant. The stock options
have a 10-year term, become fully exercisable when granted, and ownership vests
over four years from the date of grant. Common stock associated with the
exercise of options prior to vesting is placed into escrow and released to the
employee as the shares vest. Prepayments made by employees are not refundable in
the event of termination prior to vesting. As of December 30, 2000, 43,874,203
shares of common stock have been issued through the exercise of options under
the Plan, of which 29,336,010 shares have vested.

      The Company applies APB Opinion No. 25. Had compensation cost for the
Company's plan been determined based on the fair value at the date of grant,
consistent with the method of SFAS No. 123, the Company's net loss would have
been increased to the pro forma amounts indicated below (in thousands):


                                       59
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                                    Year Ended
                                     ------------------------------------------
                                      December 31,    January 1,   December 30,
                                         1998           2000           2000
                                     -------------  ------------  -------------
Net loss:
   As reported ...............         $(19,460)      $(71,270)     $(283,611)
   Pro forma .................          (19,506)       (71,953)      (290,634)
                                       ========       ========      =========

      The per share weighted-average fair value of stock options granted during
1998, 1999 and 2000 was $.001, $0.489 and $10.62, respectively, on the date of
grant with the following weighted-average assumptions:

                                                    Year Ended
                                     ------------------------------------------
                                      December 31,    January 1,   December 30,
                                         1998           2000           2000
                                     ------------    -----------   ------------
Expected dividend yield. .....                0%             0%             0%
Risk-free interest rate. .....             4.56%          6.33%          5.00%
Expected life ................          4 years        4 years        3 years
Volatility ...................               70%            70%           130%

      The following is a summary of options granted:

                                                                     Weighted
                                                 Number              Average
                                              Outstanding         Exercise Price
                                              -----------         --------------

December 31, 1997 ......................         6,828,000            $ .01
Granted ................................        26,240,400              .02
Exercised ..............................        (1,146,012)             .01
Canceled ...............................                --               --
                                              ------------            -----

December 31, 1998 ......................        31,922,388              .02
Granted ................................        21,583,800              .40
Exercised ..............................       (37,168,008)             .07
Canceled ...............................           (68,400)             .06
                                              ------------            -----

January 1, 2000 ........................        16,269,780              .39
Granted ................................        43,744,848             8.18
Exercised ..............................        (5,560,183)             .52
Canceled ...............................        (2,212,506)            4.64
                                              ------------            -----

December 30, 2000 ......................      $ 52,241,939            $6.72
                                              ============            =====

      The following table summarizes information about outstanding and
exercisable stock options at December 30, 2000:


                                       60
<PAGE>

                                    CORVIS CORPORATION

                        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                               Weighted
        Range of                               Average
        Exercise              Number          Remaining         Number
         Prices            Outstanding      Contract Life    Exercisable
     ---------------     ---------------  ----------------   -----------
       $0.01-$ 0.34         7,196,061            8.1           7,196,061
       $1.01-$ 3.36        32,263,898            9.4          23,489,951
       $9.03-$ 21.00        9,767,016            9.5           2,800,872
      $21.63-$103.81        3,014,964            9.8                  --
                           ----------          -----          ----------
                           52,241,939            9.2          33,486,884
                           ==========          =====          ==========

(8) Warrants

      During 1998 and 1999, the Company issued warrants to purchase 140,497
shares of Series B preferred stock and Series C preferred stock, convertible
into 1,685,964 shares of common stock in association with certain lease
agreements. The warrants are immediately exercisable and expire seven years from
the date of issuance. On December 30, 2000, associated warrants to purchase
1,685,964 shares of common stock remain outstanding with a weighted average
exercise price of $0.27.

      During 1998 and 1999, in connection with certain debt facilities, the
Company issued warrants to purchase 1,052,683 shares of Series B preferred
stock, Series C preferred stock and Series E preferred stock, convertible into
12,632,196 shares of common stock. The warrants are immediately exercisable and
expire between three and seven years from the date of issuance. On December 30,
2000, associated warrants to purchase 8,853,912 shares of common stock with a
weighted average exercise price of $0.54 remain outstanding.

      In September 1999, the Company entered into a series of agreements with a
strategic investor. Under a stock purchase agreement, the Company agreed to
issue 164,948 shares of Series F convertible preferred stock for aggregate
proceeds of approximately $4.0 million. Concurrently with the stock issuance,
the Company entered into an exclusive license agreement with the investor for
the use of certain intellectual property and a non-exclusive license for certain
other technology. As consideration for the license, the Company agreed to make
quarterly payments of $0.3 million over a four-year period. In addition, the
Company granted the strategic investor a warrant to receive common stock valued
at $35.0 million upon the consummation of a qualifying initial public offering
("IPO"). As part of the agreement, the Company had the right to accept ownership
in the license in full if the qualifying IPO took place. After the Company's
initial public offering in July 2000, the Company accepted ownership of the
license and recorded an intangible asset valued at $35.0 million, which is being
amortized ratably over a three-year life.

      In November 1999, the Company issued warrants to purchase up to 5,270,856
shares of common stock at $2.85 per share to a strategic investor. A certain
percent of the warrants were immediately exercisable, with the remaining amount
contingent upon certain future purchasers of the Company's products by the
strategic investor. These warrants were to expire in June 2001 if these
conditions were not met. Of the total 5,270,856 shares of common stock committed
in this warrant, the rights to purchase 2,635,428 shares expire on December 31,
2004 and the rights to purchase the remaining 2,635,428 shares expire on June
30, 2006. In 1999, the Company recorded equity-based sales and marketing expense
of approximately $1.8 million for the estimated fair value at grant date of the
warrants which were immediately exercisable. In June 2000, the Company waived
the purchase requirements associated with the remaining warrants, resulting in
an equity-based sales and marketing expense of approximately $19.5 million for
the estimated fair value at the date the warrants became exercisable. On
December 30, 2000, all warrants associated with the agreement remain
outstanding.


                                       61
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      In December 1999, the Company issued warrants to purchase 281,162 shares
of Series G convertible preferred stock at $32.01 per share to another strategic
investor. The warrants were immediately exercisable and would have expired upon
the IPO. In December 1999, the Company recorded equity-based sales and marketing
expense of approximately $3.1 million for the estimated fair value at grant date
of the warrants issued. These warrants were exercised in full during 2000.

      Also, in December 1999, the Company issued to this strategic investor the
right to purchase up to an additional $30.0 million of stock at a price equal to
the most recently completed financing round subject to meeting certain minimum
purchase commitments of the Company's product, and an additional $5.0 million of
common stock in the event of a qualified public offering. In June 2000, the
Company waived the minimum purchase commitments associated with the additional
stock purchase rights and recorded equity-based sales and marketing expense of
$10.5 million. These stock purchase rights were fully exercised in 2000.

      In December 1999, the Company issued to another strategic investor the
right to purchase 124,177 shares of Series H Convertible Preferred Stock at a
price equal to $80.53 per share subject to meeting certain purchase commitments
and an additional $5.0 million of common stock in the Company's Initial Public
Offering. In May 2000, the Company waived the minimum purchase commitments
associated with the Series H stock purchase rights and recorded equity-based
sales and marketing expense of $ 3.5 million. Both stock purchase rights were
fully executed in 2000.

(9)  Employee Stock Purchase Plan

      During 2000, the Company established the Corvis Employee Stock Purchase
Plan (the "Plan"). Under the Plan, the Company may issue up to 2,000,000 shares
of common stock in each Purchase Plan year, up to a total of 10,000,000 shares
during the life of the Plan. Eligible employees choose to participate in the
Plan during offering periods by authorizing payroll deductions up to 15% of
their salaries, subject to limitations imposed by the Internal Revenue Code. The
first offering period began in July 2000. Subsequent periods will be six months
long, with the first subsequent period beginning on January 1, 2001. As of the
last business day of each offering period, called an "exercise date", the
participant's accumulated payroll deductions as of that date are used to
purchase shares of common stock. The purchase price per share of common stock
purchased as of this date is the lower of either (1) 85% of the fair market
value of a share of common stock on the first business day of the offering
period or (2) 85% of the fair market value of a share of common stock on the
exercise date.

(10) Basic and Diluted Net Loss Per Share

      Basic and diluted net loss per share are computed as follows (in
thousands, except per share data):

                                                      Year Ended
                                        --------------------------------------
                                        December 31,  January 1,  December 30,
                                            1998         2000        2000
                                        ------------  ----------  ------------
Net loss .............................   $(19,460)    $(71,270)    $(283,611)
Basic and diluted weighted average
  shares .............................     22,638       30,599       157,349
Basic and diluted net loss per share..   $  (0.86)    $  (2.33)    $   (1.80)

      Convertible Preferred Stock outstanding as of December 31, 1998,
convertible into 113,147,460 shares of common stock, options and warrants to
purchase 4,283,712 and 31,922,388 shares of common stock, respectively, and
1,519,488 unvested shares acquired through the exercise of options were not
included in the computation of diluted loss per share for the year ended
December 31, 1998 as their inclusion would be anti-dilutive.


                                       62
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Convertible Preferred Stock outstanding as of January 1, 2000, convertible
into 211,658,232 shares of common stock, options and warrants to purchase
16,269,780 and 17,598,770 shares of common stock, respectively, and 25,556,484
unvested shares acquired through the exercise of options were not included in
the computation of diluted loss per share for the year ended January 1, 2000 as
their inclusion would be anti-dilutive.

      Options and warrants outstanding as of December 30, 2000 to purchase
52,241,939 and 15,810,732 shares of common stock, respectively, and 14,546,488
unvested shares acquired through the exercise of options were not included in
the computation of diluted loss per share for the year ended December 30, 2000
as their inclusion would be anti-dilutive.

(11) Income Taxes

      The Company has incurred operating losses since its inception and has
recognized no current or deferred tax provision or benefit. The provision for
income taxes is different from that which would be obtained by applying the
statutory federal income tax rate to loss before income taxes. The items causing
this difference are as follows (in thousands):

<TABLE>
<CAPTION>
                                                             Year Ended
                                               ----------------------------------------
                                               December 31,   January 1,    December 30,
                                                  1998          2000           2000
                                               ------------  ----------     ------------
<S>                                               <C>          <C>           <C>
Expected tax benefit at statutory rate ......     $ 6,811      $ 24,944      $ 99,264
State tax, net of federal benefit ...........         885         3,198         9,026
 Non-deductible goodwill amortization and
   purchased research and development .......          --            --       (29,400)
Research and development tax credits ........       1,526         1,030         4,055
Other, net ..................................        (389)         (440)       (1,697)
Increase in valuation allowance .............      (8,833)      (28,732)      (81,248)
                                                  -------      --------      --------
                                                  $    --      $     --      $     --
                                                  =======      ========      ========
</TABLE>

      Temporary differences and carryforwards that give rise to deferred tax
assets and liabilities are as follows (in thousands):


                                       63
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                         January 1,   December 30,
                                                            2000          2000
                                                       -------------  ------------
<S>                                                       <C>         <C>
Deferred tax assets:
   Capitalized start-up and organization costs ........   $ 13,500    $  28,860
   Domestic net operating loss carryforward ...........     18,873       55,147
   Foreign net operating loss carryforward ............        323        7,007
   Accrued expenses ...................................        721        7,872
   Research and development tax credit carryforwards ..      2,556        6,776
   Non-cash stock compensation ........................      1,966       24,867
                                                          --------    ---------
       Total gross deferred tax assets ................     37,939      130,529
Valuation allowance ...................................    (37,635)    (128,462)
                                                          --------    ---------

       Net deferred tax assets ........................        304        2,067
Deferred tax liabilities -- property and equipment,
   net due to depreciation ............................       (304)      (2,067)
                                                          --------    ---------
       Net deferred tax ...............................   $     --    $      --
                                                          ========    =========
</TABLE>

      In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or the entire
deferred tax assets will not be realized. The ultimate realization of the
deferred tax asset is dependent upon the generation of future taxable income
during the periods in which temporary differences become deductible and credit
carryforwards are available. Management considers scheduled reversal of deferred
tax liabilities, projected future taxable income, and tax planning strategies
which can be implemented by the Company in making this assessment. Based upon
the level of historical taxable income, scheduled reversal of deferred tax
liabilities, and projections for future taxable income over the periods in which
the temporary differences are deductible and tax credits are available to reduce
taxes payable, the Company has established a valuation allowance of $128.5
million as of December 30, 2000.

      The net change in the valuation allowance for the years ended December 31,
1998, January 1, 2000 and December 30, 2000 was an increase of approximately
$8.8 million, $28.7 million and $90.8 million, respectively. The valuation
allowances at January 1, 2000 and December 30, 2000 are a result of the
uncertainty regarding the ultimate realization of the tax benefits related to
the deferred tax assets. The domestic net operating loss carryforwards of $137.8
million will expire commencing in 2017 through the year 2020. Foreign net
operating loss carryforwards of $18.9 million expire commencing in 2004.
Further, as a result of certain financing and capital transactions, an annual
limitation on the future utilization of a portion of the net operating loss
carryforward has occurred. As a result, the net operating loss carryforward may
not be fully utilized before expiration.

(12) Related Party Transactions

(a) Joint Venture

      The Company has a 99% economic interest and a 49% voting interest in ACME
Grating Ventures, LLC ("ACME LLC"). The remaining economic interest and voting
interest are owned by ACME Gratings, Inc. ("ACME Corp."). An officer of the
Company owns 100% of ACME Corp. ACME Corp. has contributed to ACME LLC certain
licensed intellectual property and the Company has contracted with ACME LLC for
its use of the Company's facilities, personnel, equipment and certain
intellectual property. ACME LLC makes gratings that the Company purchases at a
unit cost that is consistent with the requirements of the licensed intellectual
property, which require


                                       64
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

that the gratings made with the licensed technology be sold for no less than the
fair market value of comparable gratings that are available in the commercial
marketplace.

      According to the operating agreement of ACME LLC, the Company receives 99%
of the profits and losses from the business, and ACME Corp. receives the
remaining 1%; however, $0.3 million of ACME LLC-related start up costs incurred
by ACME Corp. will be returned to ACME Corp. out of the net profits of ACME LLC
before any distributions of net profits are made to the Company. Further, ACME
Corp. is responsible for paying royalties to the licensor of the licensed
technology contributed by ACME Corp., which vary in amounts ranging from 0.5% to
2.0% of the net invoice cost of each grating sold by ACME LLC. In addition to 1%
of the profits, ACME LLC is obligated to pay to ACME Corp. an amount sufficient
to pay the royalty obligations of ACME Corp.

(b) Strategic Relationships

      During 2000, the Company purchased a non-controlling equity interest for
$1.2 million in Redfern Broadband Network, Inc. The Company also entered into a
strategic development agreement and a call option agreement with Redfern which,
among other things, provides the Company with a two year option to acquire all
of the outstanding shares of Redfern at a specified price. Certain officers and
directors of the Company also own a non-controlling interest in Redfern.

      During 2000, the Company has purchased approximately $0.9 million of
components from Nufern. Certain officers and directors of the Company own a
non-controlling interest in Nufern. As of December 30, 2000, no amounts were
owed by the Company to Nufern.

      During 2000, the Company purchased approximately $6.7 million of
components from Wavesplitter Technologies. Certain officers and directors of the
Company, in total, own a non-controlling interest in Wavesplitter. In addition,
the Company has made a non-controlling equity investment in Wavesplitter
Technologies totaling $2.0 million. As of December 30, 2000, amounts owed by the
Company to Wavesplitter totaled $0.6 million. The Company has committed to
purchases from Wavesplitter totaling $50.0 million over the next three years,
which if not fulfilled, would result in cancellation penalties.

      In 2000, The Company has purchased approximately $2.9 million of
components from ITF Optical Technologies. Certain officers and directors of the
Company own a non-controlling interest in ITF. As of December 30, 2000, the
Company owed $0.5 million to ITF.

(13) Commitments and Contingencies

(a) Leases

      Minimum annual rental payments under noncancellable operating leases,
primarily for the rent of office space and manufacturing facilities, are as
follows (in thousands):


                                       65
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

               Year ending December 31,
               ------------------------
               2001..................................    $ 9,549
               2002..................................      8,911
               2003..................................      6,349
               2004..................................      6,342
               2005..................................      6,542
               Thereafter............................     34,187
                                                        --------
                      Total..........................    $71,880
                                                         =======

      Rent expense under operating leases was approximately $0.6 million, $1.7
million and $3.5 million for the years ended December 31, 1998, January 1, 2000
and December 30, 2000, respectively.

      The Company has equipment under capital lease which require payments of
principal and interest as follows (in thousands):

        Year ending December 31,                              Amount
        ------------------------                              ------
        2001 ........................................        $ 2,072
        2002 ........................................          1,390
        2003 ........................................             54
        2004 ........................................             --
                                                            --------
           Total Payment.............................          3,516

        Less -- amount attributable to interest......           (295)
                                                            --------
            Capital lease obligation. ...............          3,221
        Less -- current portion                               (1,841)
                                                            --------
           Long-term lease obligation                        $ 1,380
                                                             =======

      Property and equipment includes approximately $5.2 million of test
equipment as of December 30, 2000 that was acquired under capital lease.
Accumulated amortization associated with this equipment totaled approximately
$2.5 million as of December 30, 2000.

(b) Legal Matters

      In July 2000, Ciena Corporation ("Ciena") informed the Company of its
belief that there is significant correspondence between products that the
Company offers and several U.S. patents held by Ciena relating to optical
networking systems and related dense wavelength division multiplexing
communications systems technologies. On July 19, 2000, Ciena filed a lawsuit in
the United States District Court for the District of Delaware alleging that the
Company is willfully infringing three of Ciena's patents. Ciena is seeking
injunctive relief, an unspecified amount of damages including treble damages, as
well as costs of the lawsuit, including attorneys' fees. On September 8, 2000,
the Company filed an answer to the complaint, as well as counter-claims
alleging, among other things, invalidity and/or unenforceability of the three
patents in question. On March 5, 2001, a motion was granted, allowing Ciena to
amend its complaint to include allegations that the Company is willfully
infringing two additional patents. Also, a trial date has been set for April 1,
2002. The litigation is currently in the discovery phase. Based on the status of
the litigation, the Company cannot reasonably predict the likelihood of any
potential outcome.


                                       66
<PAGE>

                               CORVIS CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(14) Summary of Quarterly Data (Unaudited):

      The following is a summary of the quarterly results of operations of the
Company for the years ended January 1, 2000 and December 30, 2000 (in millions,
except per share amounts):

<TABLE>
<CAPTION>
                                              Fiscal Quarter
                             ------------------------------------------------
                              First         Second        Third        Fourth       Total
                             -------       -------       -------       ------      -------
<S>                          <C>           <C>           <C>           <C>         <C>
1999:
  Revenue ..............     $    --       $    --       $    --       $   --      $    --
  Gross profit .........          --            --            --           --           --
  Net loss .............       (11.2)        (14.3)        (16.1)       (29.7)       (71.3)
  Basic and diluted net
     loss per share ....     $ (0.41)      $ (0.55)      $ (0.56)      $(0.92)     $ (2.33)

2000:
  Revenue ..............     $    --       $    --       $  22.9       $ 46.0      $  68.9
  Gross profit .........          --            --           8.4         17.6         26.0
  Net loss .............       (26.8)       (100.7)*       (66.4)       (89.7)      (283.6)
  Basic and diluted net
     loss per share ....     $ (0.65)      $ (2.51)      $ (0.29)      $(0.27)     $ (1.80)
</TABLE>

----------------
* Includes purchased research and development charges totaling $42.2 million.


                                       67
<PAGE>

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

None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

      The information called for by this Item 10 with respect to our directors
is set forth under the caption "Election of Directors" in our definitive Proxy
Statement which will be furnished to stockholders in connection with the Annual
Meeting of Stockholders to be held on May 11, 2001, and is hereby incorporated
by reference. The information called for with respect to our executive officers
is included in Part I of this Annual Report on Form 10-K under the caption
"Executive Officers, Directors and Key Employees of the Registrant."

Item 11. Executive Compensation.

      The information called for by this Item 11 is set forth under the caption
"Executive Compensation" in our definitive Proxy Statement which will be
furnished to stockholders in connection with the Annual Meeting of Stockholders
to be held on May 11, 2001, and is hereby incorporated by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      (a) The information called for by this Item 12 with respect to security
ownership of more than five percent of our Common Stock is set forth under the
caption "Principal Stockholders" in our definitive Proxy Statement which will be
furnished to stockholders in connection with the Annual Meeting of Stockholders
scheduled to be held on May 11, 2001, and is hereby incorporated by reference.

      (b) The information called for by this Item 12 with respect to the
security ownership of our directors and of management is set forth under the
caption "Principal Stockholders" in our definitive Proxy Statement, which will
be furnished to stockholders in connection with the Annual Meeting of
Stockholders to be held on May 11, 2001, and is hereby incorporated by
reference.

Item 13. Certain Relationships and Related Transactions.

      Information called for by this Item 13 is set forth under the caption
"Certain Relationships and Related Transactions" in our definitive Proxy
Statement which will be furnished to stockholders in connection with the Annual
Meeting of Stockholders to be held on May 11, 2001, and is hereby incorporated
by reference.

                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

      (a) Documents filed as part of this report.


                                       68
<PAGE>

            1.    Consolidated Financial Statements. Our consolidated financial
                  statements listed below are contained in our Annual Report to
                  Stockholders for the fiscal year ended December 30, 2000, and
                  are incorporated by reference in Item 8 of this Annual Report
                  on Form 10-K.

                  Independent auditors' report

                  Consolidated Balance Sheets as of January 1, 2000 and December
                  30, 2000

                  Consolidated Statements of Operations for the years ended
                  December 31, 1998, January 1, 2000 and December 30, 2000

                  Consolidated Statements of Stockholders Equity (Deficit) for
                  the years ended December 31, 1998, January 1, 2000 and
                  December 30, 2000

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1998, January 1, 2000 and December 30, 2000

                  Notes to consolidated financial statements

                  Schedule of Valuation and Qualifying Accounts

            2.    Exhibits. The exhibits required to be filed by Item 601 of
                  Regulation S-K are listed in the Exhibit Index which is
                  attached hereto, and incorporated by reference herein.


      (b)   Reports on Form 8-K.

      We did not file any Current Reports on Form 8-K during the quarter ended
December 30, 2000.


                                       69
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Corvis Corporation:

      Under date of January 23, 2001, except as to note 13(b) which is as of
March 5, 2001, we reported on the consolidated balance sheets of Corvis
Corporation as of January 1, 2000 and December 30, 2000, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 1998, January 1, 2000 and December 30,
2000, which are included in this Annual Report on Form 10-K. In connection with
our audits of the aforementioned consolidated financial statements, we also
audited the related financial statement schedule. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits.

      In our opinion, such 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

McLean, Virginia
January 23, 2001, except as to
   Note 13(b) which is as
   of March 5, 2001


                                       70
<PAGE>

                               CORVIS CORPORATION

                  Schedule of Valuation and Qualifying Accounts
                                 (In thousands)

<TABLE>
<CAPTION>
                                           Balance at                             Balance at
                                           Beginning                                End of
                                           of Period   Provisions   Deductions      Period
                                           ----------  ----------   ----------    ----------
Year ended December 31, 1998
<S>                                        <C>          <C>          <C>          <C>
   Deferred tax valuation allowance .      $    70      $ 8,833      $    --      $  8,903
   Allowance for excess inventory and
     obsolescence ...................      $    --      $    --      $    --      $     --

Year ended January 1, 2000
   Deferred tax valuation allowance .      $ 8,903      $28,732      $    --      $ 37,635
   Allowance for excess inventory and
     obsolescence ...................      $    --      $ 1,771      $    --      $  1,771

Year ended December 30, 2000
   Deferred tax valuation allowance .      $37,635      $90,827      $    --      $128,462
   Allowance for excess inventory and
     obsolescence ...................      $ 1,771      $22,565      $10,487      $ 13,849
</TABLE>


                                       71
<PAGE>

                                   SIGNATURES

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

                                        CORVIS CORPORATION


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

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

<TABLE>
<CAPTION>
                Signature                              Title                      Date
                ---------                              -----                      ----
<S>                                        <C>                             <C>
/s/ David R. Huber                         Chairman of the Board,          March 26, 2001
----------------------------------------   President and Chief Executive
             David R. Huber                Officer



/s/ Anne H. Stuart                         Senior Vice President, Chief    March 26, 2001
----------------------------------------   Financial Officer and
             Anne H. Stuart                Treasurer



/s/ Timothy C. Dec                         Vice President, Chief           March 27, 2001
----------------------------------------   Accounting Officer and
             Timothy C. Dec                Corporate Controller



/s/ Frank A. Bonsal, Jr.                   Director                        March 27, 2001
----------------------------------------
             Frank A. Bonsal, Jr.


/s/ Frank M. Drendel                       Director                        March 26, 2001
----------------------------------------
             Frank M. Drendel


/s/ Joseph R. Hardiman                     Director                        March 26, 2001
----------------------------------------
             Joseph R. Hardiman


/s/ Ossama R. Hassanein                    Director                        March 26, 2001
----------------------------------------
             Ossama R. Hassanein


/s/ David S. Oros                          Director                        March 27, 2001
----------------------------------------
             David S. Oros
</TABLE>

                                       72
<PAGE>

                                  EXHIBIT INDEX

Exhibit
Number                           Description
-------  ---------------------------------------------------------------------

2.1      Agreement and Plan of Reorganization between Corvis Corporation and the
         Stockholders of Algety Telecom S.A., dated April 28, 2000 (incorporated
         by reference herein to Exhibit 2.1 to Corvis Corporation's registration
         statement on Form S-1, File No. 333-36238)

         Registrant hereby agrees to provide a copy of omitted Schedules to the
         above exhibit to the Securities and Exchange Commission upon request

3.1      Amended and Restated Certificate of Incorporation of Corvis Corporation
         (incorporated by reference herein to Exhibit 3.1 to Corvis
         Corporation's registration statement on Form S-1, File No. 333-36238)

3.2      Amended and Restated By-laws of Corvis Corporation (incorporated by
         reference herein to Exhibit 3.2 to Corvis Corporation's registration
         statement on Form S-1, File No. 333-36238)

10.1     Amended and Restated Loan Agreement, dated as of June 30, 1999, among
         Corvis Corporation, Venture Lending & Leasing II, Inc., as Agent, and
         Venture Lending & Leasing II, Inc. and the other Lenders signatory
         thereto (incorporated by reference herein to Exhibit 10.1 to Corvis
         Corporation's registration statement on Form S-1, File No. 333-36238)

10.2*    Corvis Corporation Second Amended 1997 Stock Option Plan (incorporated
         by reference herein to Exhibit 10.2 to Corvis Corporation's
         registration statement on Form S-1, File No. 333-36238)

10.3*    Form of Corvis Corporation 2000 Long Term Incentive Plan (incorporated
         by reference herein to Exhibit 10.3 to Corvis Corporation's
         registration statement on Form S-1, File No. 333-36238)

10.4     Form of Corvis Corporation Employee Stock Purchase Plan (incorporated
         by reference herein to Exhibit 10.4 to Corvis Corporation's
         registration statement on Form S-1, File No. 333-36238)

10.5*    Employment Agreement, dated as of July 22, 1999, by and between Corvis
         Corporation and Glenn M. Falcao (incorporated by reference herein to
         Exhibit 10.5 to Corvis Corporation's registration statement on Form
         S-1, File No. 333-36238)

10.6     Falcao separation agreement

10.7*    Employment Agreement, dated as of September 30, 1998, by and between
         Corvis Corporation and Terence F. Unter (incorporated by reference
         herein to Exhibit 10.6 to Corvis Corporation's registration statement
         on Form S-1, File No. 333-36238)
<PAGE>

Exhibit
Number                           Description
-------  ---------------------------------------------------------------------
10.8     Procurement Agreement, dated March 17, 2000, by and between Broadwing
         Communication Services, Inc. and Corvis Corporation (incorporated by
         reference herein to Exhibit 10.7 to Corvis Corporation's registration
         statement on Form S-1, File No. 333-36238)

10.9     Amended and Restated Procurement Agreement and Field Trial Agreement,
         dated June 23, 2000, by and between Williams Communications Inc. and
         Corvis Corporation (incorporated by reference herein to Exhibit 10.8 to
         Corvis Corporation's registration statement on Form S-1, File No.
         333-36238)

10.10    Amendment No. 3 to Procurement Agreement, dated January 9, 2001, by and
         between Williams Communications Inc. and Corvis Corporation
         (incorporated by reference herein to Exhibit 10.1 to Corvis
         Corporation's Current Report on Form 8-K, dated January 9, 2001, File
         No. 0-30989)

10.11    Procurement Agreement, dated June 5, 2000, by and between Qwest
         Communications Corporation and Corvis Corporation (incorporated by
         reference herein to Exhibit 10.9 to Corvis Corporation's registration
         statement on Form S-1, File No. 333-36238)

21.1     Subsidiaries

23.1     Consent of KPMG LLP

27.1     Financial Data Schedule

---------------
*  Management contract or compensatory plan or arrangement required to be filed
   as an exhibit to this Annual Report on Form 10-K.