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 the Fiscal Year Ended June 30, 2000

                                       OR

    [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR
                15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

                         Commission File Number 0-27977

                  LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
             (Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------

             Delaware                                  98-0213257
 (State or other jurisdiction of                    (I.R.S. Employer
  incorporation or organization)                  Identification No.)
--------------------------------------------------------------------------------

                            8851 Trans-Canada Highway
                                Ville St.-Laurent
                             Quebec, Canada H4S 1Z6
              (Address and zip code of principal executive offices)

                                  514-331-3738
              (Registrant's telephone number, including area code)

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

           Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 Par Value
                          -----------------------------
                                (Title of Class)

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

                                    Yes  [X]  No  [  ]

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

            As  of  August  31,  2000,   the  aggregate   market  value  of  the
Registrant's   Common  Stock  held  by  non-affiliates  of  the  Registrant  was
US$335,200,412 which value, solely for the purposes of this calculation excludes
shares held by the Registrant's officers,  directors, and their affiliates. Such
exclusion should not be deemed a determination or an admission by the Registrant
that all such individuals are, in fact, affiliates of the Registrant.

            The number of shares of the  Registrant's  Common  Stock  issued and
outstanding as of August 31, 2000 was 34,752,039.



<PAGE>
                  LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.

                                TABLE OF CONTENTS

                                     PART I                             Page No.
                                                                        --------

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

Item 2.     Properties.......................................................28

Item 3.     Legal Proceedings................................................28

Item 4.     Submission of Matters to a Vote of Security Holders..............29

                                     PART II

Item 5.     Market for Registrant's Common Stock and Related Security
            Holder Matters...................................................29

Item 6.     Selected Financial Data..........................................31

Item 7.     Management's Discussion and Analysis of Financial Condition
            and Results of Operations........................................32

Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.......35


Item 8.     Financial Statements and Supplementary Data......................35

Item 9.     Changes In and Disagreements With Accountants on
            Accounting and Financial Disclosure..............................35

                                    PART III

Item 10.    Directors and Executive Officers of the Registrant...............36

Item 11.    Executive Compensation...........................................38

Item 12.    Security Ownership of Certain Beneficial Owners and Management...41

Item 13.    Certain Relationships and Related Transactions...................42

                               PART IV

Item 14.    Exhibits, Financial Statement Schedules, and Reports on
            Form 8-K.........................................................44

Signatures..................................................................F-1



<PAGE>

                                     PART I


ITEM 1.                 BUSINESS


Overview

            Lumenon  Innovative  Lightwave  Technology,  Inc.  ("Lumenon" or the
"Company")  is a development  stage  company that designs and develops  products
related to the Dense Wavelength Division  Multiplexing ("DWDM") market and other
optical  (photonic)   segments  of  the  global   telecommunications   and  data
communications optical networking markets. DWDM is a technology that permits the
transmission of multiple sources of information and data  simultaneously  over a
single optic fiber.  DWDM allows network  operators to remove an entire class of
equipment in their emerging,  high-capacity,  data-backbone networks. Lumenon is
developing and  manufacturing  devices for use in the DWDM market  pursuant to a
teaming agreement (the "Teaming  Agreement") with Molex Incorporated  ("Molex").
(See  "Material  Agreements - Agreements  with Molex" for a  description  of the
terms of the Teaming Agreement.)

            Lumenon's  plan of  operations  for  fiscal  year 2001 is focused on
finalizing the development of its 8, 16 and 32 channel DWDM devices and bringing
them to market by year-end.  Over the next twelve  months,  product  development
will  focus  on four  aspects:

            (i)     defining processing sequences and conditions (wafer coating,
                    photolithography, etc.) for DWDM devices;

            (ii)    implementing automation equipment for manufacturing of these
                    devices in our new manufacturing facility;

            (iii)   establishing  quality  control  criteria  for the  Company's
                    processes and operations; and

            (iv)    upgrading its on-site DWDM  packaging  and fiber  pigtailing
                    capability for the Company optical chips.

            The Company plans to (i) finalize the construction of the clean room
in its new  manufacturing  facility,  with the  capacity of  producing up to 500
devices per day in 2001 and up to 1,000 units per day in 2002, (ii) increase its
work force to approximately 175 persons to fully staff this facility,  and (iii)
launch marketing  activities for its DWDM products.  See  "--Manufacturing"  and
Item 2.  "Properties,"  for  information  in  respect  of the new  manufacturing
facility.  For more detailed  description of the Company's  future plans and its
products,  see the "--Plan of Operations,"  "Business  Strategy" and "Technology
and Products" sections of this Item 1. As a development stage company,  to date,
Lumenon has not generated  product  revenues and does not anticipate  generating
product  revenues until 2001. It is subject to numerous  risks,  including risks
associated with product development,  growth, manufacturing and competition. See
"Risk  Factors"  regarding  the risks the Company will face in its growth and in
the manufacture and marketing of its products.

            Service  providers  like AT&T and MCI WorldCom  are  creating  fiber
optic  networks to transmit  large  quantities of data and  information  at high
speeds to accommodate the demand for applications such as the Internet,  e-mail,
and electronic commerce.  Such service providers desire to increase the capacity
of their  networks to carry and deliver more  information at high speeds without
the additional  costs of having to install new fiber optic cable.  DWDM products
allow  providers to greatly  increase  their  information  carrying  capacity on
existing  fiber at  significantly  lower cost.  Existing  DWDM  products use the
following technologies: thin film filters ("Thin Filters"), fiber Bragg gratings
("Bragg Gratings") or array waveguides ("AWG"). DWDM is a technology that allows
multiple  wavelengths of light (the information  carrier) to be transported on a
single fiber optical strand,  increasing the carrying  capacity of optical fiber
and transmitting  information at the speed of light. The multiplexing  component
of the DWDM allows different  wavelengths of light (that is, different colors or
channels  of  information)  to be added to the optical  fiber,  which means more
(dense) channels or  communication  pathways are added to existing optical fiber
for simultaneous transport. To date, the solution to resolve capacity constraint
has been to add or lay  additional  fiber in the  ground  or to use one of

                                       3
<PAGE>

three kinds of DWDM  devices  presently  available.  The devices can be circuits
that have been etched into chips  (AWG),  Thin  Filters or Bragg  Gratings.  See
"Business  Strategy,   --  Establish  Technology   Leadership"  for  a  detailed
description of the three principal competing DWDM technologies.  The use of DWDM
technologies  to add  capacity  is  significantly  less  costly than that of the
installation  in the ground of new fiber,  which  installation  method  includes
costs  associated  with  construction,  purchases  of  rights  of way,  work and
regulatory permits and weather delays.

            Lumenon makes DWDM products in the form of an AWG "optical  chip" on
silicon through a patented sol-gel manufacturing  process.  Lumenon acquired its
rights to the sol-gel process under a license agreement with Ecole Polytechnique
and McGill University.  (See "Material Agreements - Agreement with Polyvalor and
McGill  University"  for a description  of the terms of such  agreement.) To the
knowledge of the Company,  there are no other  manufacturers of DWDM products on
silicon  using a sol-gel  manufacturing  process.  Lumenon has chosen an optical
chip form for its  product  development  because it believes  that its  licensed
process  will allow it to provide  high volume and high  quality  DWDM  devices.
These  devices will address  market  demand that cannot be fully served by other
devices  manufactured with competing  technologies.  The bases for the Company's
belief are: (i) lower capital  investment in equipment for the sol-gel  process,
because  there is no need for vacuum  thin film  deposition  and vacuum  coating
technology; (ii) less manual labor (piece-work assembly) is required to make the
AWG chip;  (iii) fewer steps are  required  in the  optical  chip  manufacturing
process,  which reduces the likelihood of manufacturing defects; and (iv) as the
optical  chip's  channel  count  grows,   the  chip's  cost  does  not  increase
proportionally.  (See "Business Strategy" and "Technology and Products" sections
of this Item 1. for a description of the Company's products and its strategy for
such products.)

            Lumenon has focused on  developing  and  producing  DWDM devices and
products  because DWDM technology  offers a bandwidth  solution to a potentially
large market,  the  telecommunications  market.  The  telecommunications  market
includes  long  distance,  metropolitan,  and access.  Bandwidth or  information
carrying  capacity is critical in each  segment.  DWDM is in a nascent stage for
the metropolitan and access markets.

            The functional  currency of the Company is the Canadian dollar.  All
amounts  presented in Canadian  currency  herein are  identified as such.  Other
amounts are expressed in United States dollar.


Industry Background

            Survey  data on the  size of the  global  and  North  American  DWDM
markets  vary from  source to source.  What is common to all surveys is the fact
that the DWDM  market is large and growing at a compound  annual  growth rate of
approximately   50%.  The  U.S.  market  for  DWDM  systems  in  1995  stood  at
approximately US$50 million.  According to Laser Focus World, the North American
DWDM market  reached  US$1.3 billion and the global market for DWDM systems grew
to  US$2.2  billion  in 1998.  Communications  Industry  Researchers,  Inc.,  an
industry authority, reports that DWDM and related optical technologies will grow
to a market of US$7.6  billion by 2003.  Manufacturers  of DWDM systems that use
DWDM devices include Lucent  Technologies,  Inc., Ciena Corp.,  Alcatel,  Cisco,
Nortel Networks Corp., NEC and Fujitsu.  Several of these systems  manufacturers
(Lucent,  Ciena,  Alcatel,  and NEC) also manufacture DWDM products.  Other DWDM
component suppliers include,  but are not limited to, JDS-Uniphase Corp., Gould,
Instruments SA, Corning OCA, Ditech Communications Corp., DiCon,  Sumitomo,  and
Bosch.  Large  companies  like AT&T Corp.  and MCI WorldCom Inc. are part of the
DWDM market. AT&T has used equipment supplied by Lucent Technologies,  while MCI
has used DWDM equipment supplied by Hitachi Ltd. and Nortel.

Unprecedented Growth of Information Traffic

            The telecommunications industry has experienced the shift in traffic
from  voice to  data-dominated.  Computers  increasingly  process  and send more
information  across networks with greater speed and in greater quantity than the
quantity for which  voice-centered  networks were  designed.  New  data-handling
protocols  have been  introduced  to  handle  data  more  efficiently.  New data
communications  equipment has been designed and created to route and switch data
transmission at very high speeds.

                                       4
<PAGE>

            The  popularity and increased  usage of the Internet,  new users and
applications   are  putting  pressure  on  the  existing  network  capacity  and
performance of service  providers.  Service providers are continually in need of
network improvements and increases in their available bandwidth in order to stay
competitive.  They are looking for ways to optimize  their  investment  in their
existing  network and a low cost  solution to increase  capacity.  Optical fiber
networks  are  widely  deployed  by  telecommunications  service  providers  for
domestic and international  carriage.  Recent increases in information  traffic,
growing  competition  and increased  demand for  reliability  at lower cost have
required carriers to enhance the service they provide.  Part of the solution has
been the deployment of DWDM systems.

            The flow of traffic has also  increased by the growing  capacity and
processing speed of data communications  equipment,  like Asynchronous  Transfer
Mode (ATM)  switches and Internet  Protocol (IP) routers and the  development of
high bandwidth network access technologies,  such as cable modems,  hybrid fiber
coaxial architectures and digital subscriber lines.  According to Ryan, Hankin &
Kent, a leading market  researcher,  Internet traffic will increase from 350,000
tera bytes per month at the end of 1999 to over 15 million  tera bytes per month
in 2003.

Competition

            Widespread  telecommunications  industry  deregulation in the United
States has resulted in  increased  competition  among  service  providers.  Some
industry  analysts  believe this has  increased  the need for greater  bandwidth
capacity  on  networks.  As  carriers  seek  to  differentiate  themselves  from
competitors,  they  have  emphasized  high  capacity  technology  to sell  their
services.


Reliability

            Consumers and generators of information  are becoming more dependent
on  network  reliability.  End-users  are  less  and less  tolerant  of  service
interruptions.  Network  carriers  have  responded  by  introducing  fiber optic
networks that can overcome  cable cuts or other  equipment  failure  between two
points.  These networks frequently utilize a "ring architecture" in which routes
are linked in a ring  configuration,  permitting  rerouting of traffic along the
reverse path of the ring in the event of a service interruption  occasioned by a
fiber optic cable cut or other equipment  failure.  Ring  architectures  require
twice the fiber capacity of non-ring  systems.  These system  designs  therefore
place greater bandwidth demand on existing fiber networks.


Other capacity drivers

            Other capacity drivers on fiber optic networks include  technologies
such as digital  subscriber  lines (DSL).  DSL promises  higher access speeds to
residences and businesses.  With potential  speeds in excess of a megabit,  this
will continue to impose  additional strain (demand for bandwidth) on the optical
network backbone.  According to W. Carter, an industry analyst, such constraints
can be resolved by utilizing DWDM technology.


PHASIC(TM)  Process

            Lumenon's  manufacturing  process  is  called  PHASIC(TM).  PHASICTM
stands for Photonic Hybrid Active Silica Integrated Circuit, which refers to the
materials  and  processes  Lumenon uses to produce its devices in the form of an
integrated  optical  circuit  on  silicon  microchips  similar  to those used in
computers.  For DWDM devices,  the optical  circuit  consists of a collection of
micron size array  waveguide  gratings  (AWG) that have been arranged to combine
(multiplex) or separate (demultiplex) light at the telecommunications wavelength
near 1.55 microns. More specifically, the Company uses hybrid glasses for making
its AWG and a simplified manufacturing process for creating its optical circuits
on silicon.  The "hybrid glass" (a glass-polymer  solution) can be used to print
(through  light) circuits on chips

                                       5
<PAGE>

without  the  costly  vacuum  etching  process  and the use of manual  labor for
assembly  of  micro-optic  devices.  The  Company  expects  to be the  first  to
commercialize hybrid glasses for use in integrated optics.

            The  optical  chip has an  optical  circuit on it  analogous  to the
micro-electronic  circuit  that  is  produced  on  silicon  microchips  used  in
computers.  Optical  circuits  can be made  with 4, 8, 16,  32,  40, 64 and more
channels to transport  different  optical  signals  (light) carried at different
wavelengths.  Light  signals are combined  and  separated on the optical chip by
taking  advantage of the differences in the length of the individual  waveguides
in the AWG. These path  differences  translate  into optical phase  differences.
This means that light of a given  wavelength  (a given  optical  channel) can be
combined with others for input to an optical fiber (multiplexing). With the same
device,  light can also be separated  for output to  individual  optical  fibers
(demultiplexing).  This  technology  simplifies  the process  while  providing a
product and technology that can be adapted to the industry's changing needs.


Plan of Operations

            Lumenon's  plan of  operations  for  fiscal  year 2001 is to get its
plant and volume  production up and running in order to produce 8, 16, 32 and 40
channel  DWDM  devices  and bring  them to  market.  Volume  production  will be
realized by (i) completing the  construction  of its facility and setting up its
manufacturing infrastructures, (ii) defining processing sequences and conditions
(wafer coating, photolithography, etc.) that distinguish fabrication of devices,
(iii)  staffing  up  and  investing  in the  training  of  its  employees,  (iv)
implementing  a frame work for quality  control  and  reliability  testing,  (v)
expanding its DWDM packaging and fiber  pigtailing  capability,  (vi) broadening
its product portfolio, and (vii) securing its supply chain.


Research and Development

            Research  and  development  activities  for fiscal year 2001 will be
centered on finalizing  the packaging of Lumenon's  DWDM products and optimizing
their  manufacturing  processes.  The Company will also focus on developing  new
products  that it  judges  to be of value to the  photonics  market.  See  "Risk
Factors - Risks Relating to Our Business,"  second,  third,  and thirteenth risk
factors  for  those  risks  associated  with the  development  of the  Company's
products.


Manufacturing

            At the end of June 2000,  Lumenon moved its  headquarters  to a site
located  in  Ville  St-Laurent,  a  suburb  of  Montreal,   Canada.  The  53,427
square-foot  facility  has a 34,400  square  foot  manufacturing  facility  that
features materials preparation, fabrication, packaging, optical test and quality
control  facilities  for  Lumenon's  DWDM  products.  Lumenon has  commenced the
internal  construction of the production facility,  consisting of cleanrooms and
associated laboratories, and has ordered the needed manufacturing equipment. See
"Risk Factors - Risks Relating to Our Business,"  fourth risk factor for risks
associated  with  the  Company's  manufacture  of its  products.  The  Company's
existing R&D facility,  located in Dorval,  Quebec, will be used for prototyping
once the manufacturing facility is operational.

                                       6
<PAGE>

Employee Growth

            Lumenon currently has 90 employees.  Over the past 12 months Lumenon
has increased the corporate  team to a complement of 7. The existing R&D team of
27 meets  current  requirements  and will be increased at a measured pace as new
requirements are identified.  Most of Lumenon's  personnel growth will be within
the  operations  team,  which will  require  an  increase  in its  manufacturing
component of approximately 75 hourly employees and 25 specialists/technicians to
meet the current  sales  forecasts  for fiscal 2001 and first  quarter of fiscal
2002.   Headcount   growth   thereafter  will  be  highly  dependant  on  volume
requirements  and will be  primarily  focused on hourly  employees.  Most of the
manufacturing  employees  that Lumenon will hire will be fully  trained in a few
months.  The  remainder  of the  Company's  administrative  staff is intended to
increase by 35 persons within marketing and sales,  engineering,  accounting and
administrative  staff. Combined with the employees remaining at the Dorval pilot
facility,  the total  employee  count is  anticipated  to be in the range of 225
employees by the end of fiscal 2001.  See "Risk Factors - Risks  Relating to Our
Business," - ninth and tenth risk factors.


Business Strategy

            The Company believes that there is a substantial  market for its AWG
devices for DWDM  systems.  This market may be best  supplied  using AWG,  which
provides high channel counts in a single compact device.

            Optical  chips in AWG format  are  currently  used in DWDM  systems.
Companies  that produce the AWG format are PIRI (a subsidiary of JDS  Uniphase),
Kymata,  Siemens  and  Lumenon.  These AWG  devices  perform  in a similar  way.
However,  DWDM devices can differ both in composition  and method of fabrication
depending on how they are processed.  AWG DWDM devices made by PIRI,  Kymata and
Siemens use a high temperature  (greater than 1,000oC) vacuum deposition process
called "flame hydrolysis deposition" (FHD). This method of manufacturing optical
chips uses a repetition of step by step processing to achieve final  composition
of a device. See "Business Strategy - Establish Technology  Leadership" for more
detailed information concerning FHD processing.

            The AWG DWDM devices  produced by Lumenon differ in composition  and
method of  fabrication.  Lumenon's AWG devices are made of hybrid sol-gel glass.
They are made by  spin- or dip  coating  of  fluids  and at  temperatures  about
1,000oC   lower  than  those  used  in  FHD.   The   devices   are   created  by
photolithography  directly  in the hybrid  sol-gel  glass  avoiding  vacuum film
deposition,  and they have optical properties that can be changed over a broader
range than those  provided by  commercial  forms of FHD.  The latter  difference
allows  Lumenon to make smaller DWDM devices  (measuring  less than 5 cm x 5 cm)
than those produced by FHD. Smaller devices permit manufacturers of DWDM systems
to make more  compact  products so their  systems  can be deployed in  locations
where space is limited, providing greater design flexibility.  The difference in
the materials and method of  fabrication  used by Lumenon also allows it to make
AWG devices more simply  (through a simplified  process),  using less equipment,
faster and in larger  quantities per unit of processing  time than FHD component
manufacturers.  The Company  believes,  at present,  that no other  manufacturer
utilizes the sol-gel  method in the  commercial  production of optic devices for
use in the DWDM market.

            Lumenon's  goal is to provide high quality,  cost effective and high
volume DWDM  devices.  The Company  developed  its PHASICTM  process  because it
believes  that high volume  manufacturing  methods  similar to those used by the
microelectronics manufacturing industry are necessary to meet telecommunications
customer demands for high volume and reliability.  The Company believes that its
materials, design tools and process give it a technological edge that will allow
it to improve  yield in  optical  chip  production.  See  "Industry  Background"
section of this Item 1. in relation to the current needs of the market and "Risk
Factors,"  generally,  detailing  the  potential  risks  the  Company  faces  in
producing its products at lower cost and in greater volume.



                                       7
<PAGE>

            The Company  has begun  producing  and  testing a limited  number of
product  devices with the  intention to market 4, 8, 16, 32 and 40 DWDM product.
In addition,  the Company  intends to offer  services based on its capability to
design new customized  DWDM devices  according to specific  client needs.  These
needs may  include,  among  others,  channel  count,  channel  spacing,  central
wavelength and optical loss  characteristics.  Because Lumenon's DWDM is created
on a silicon  substrate,  there is the  potential  for  product  enhancement  by
combining other features e.g., lasers, on the same silicon substrate.

            Lumenon's   products  will  address  existing  demand,   and  create
conditions for expanded use of its devices and families of devices, by utilizing
its  technology  and  expertise  for existing and new product  development  in a
client-specific  manner.  For  example,  the Company is  presently  targeting an
existing DWDM market that has for the most part,  very specific  needs.  Because
the Company manufactures its DWDM devices from a Platform Technology, it can use
similar materials and processes to produce both devices related generally to the
DWDM industry and optical  internetworking  and customized  devices for the DWDM
industry.  Examples  include  optical chips for  selectively  adding or dropping
wavelengths (channels) and optical  cross-connects.  Because the technology is a
Platform,  the Company can expand from its DWDM chip, building into new kinds of
optical chip  products  beyond DWDM.  The Company  believes  that  customers may
favorably  view the idea of having  optical  devices that are all related to one
another through a common (generic)  technology.  Photonics is a nascent industry
and the  Company  believes  that it will be  necessary  to work  with  customers
closely to meet their specific needs.  See,  "Technology and Products - Platform
Material Technology and Advanced Software Design Tools" regarding the ability of
the Company's Platform Technology to be combined with other products and devices
to create new products,  including  custom made products.  In such a competitive
industry,  the  Company  faces many risks  including  market  acceptance  of its
products  and its ability to adapt its  products to  technological  change,  see
"Risk Factors - Risks Relating to Our Business," - second, third and eighth risk
factors.

            To implement its strategy, the Company intends to:

            (i) Establish Technology Leadership

            There are three primary multiplexer component technologies currently
used in DWDMs:  thin film filters (Thin  Filters),  fiber Bragg gratings  (Bragg
Gratings) and array waveguides (AWG). According to a report in Laser Focus World
Supplement,  "WDM Solutions," in 1998, Thin Filters held a 26% share of the DWDM
market. AWG captured market share from Thin Filters in 1998, representing 47% of
the DWDM market with Bragg  Gratings  having a market  share of 19%.  Within the
industry,  AWG  technology  currently  provides the least  costly  manufacturing
alternative  to expanding  existing  capacity over that of Thin Filter and Bragg
Gratings technology.

            In existing AWG technology,  a "flame  hydrolysis  deposition" (FHD)
method, is used to manufacture DWDM components and devices.  This method employs
a  hydrogen-oxygen  nozzle  flame to burn the desired  combinations  of gases of
silicon tetrachloride, phosphorous oxychlorides, chlorides of phosphorous, boron
or  germanium,  for example,  that may be  transported  by a gas like argon to a
heated silicon wafer  surface.  Combustion of the gases produces a glass soot on
the surface of a silicon substrate.  The soot is melted and consolidated at high
temperature  (greater than 1,000oC) in a lengthy thermal process.  The procedure
is repeated at least  three times to achieve the final  composition.  The second
coating step is usually followed by a series of coating and vacuum etching steps
used to create the AWG  component.  In some cases,  a thin section of polymer (a
half wave plate) is inserted into the array waveguide section to desensitize the
device to the polarization state of the light.

            Thin Filters use  one-millimeter  square glass  windows  coated with
multi-layers of metal oxide. This layered structure is used to pass through some
wavelengths  of light and reflect  others in  transferring  information or data.
These  windows act as an optical  filter when many are  assembled  together with
lenses  and  appropriate  input  an  output  filters.  Then,  together  they can
selectively  separate  wavelengths of light for transmission of information.  In
this way,  the Thin  Filter  device acts in the same  capacity as a  mutliplexer
device.

                                       8
<PAGE>

            Bragg Gratings act as micro optical filters.  The grating spacing is
selected in such a way that it allows some  wavelengths of light to pass through
the filter and reflects  other  wavelengths  of light.  When Bragg  Gratings are
created in optical fiber and fibers are assembled  together in a structure  like
an  interferometer,  the Bragg Gratings  assembly acts in the same capacity as a
multiplexer device.

            The Company believes that the following three  variables,  discussed
in detail below,  will determine the relative  successes of the above  competing
technologies:

            (1) Chip manufacturing cost per channel,
            (2) Size of the optical component and
            (3) Suitability to high volume manufacture.

            Lumenon  believes  that  its  products,   which  are  based  on  AWG
technology, will enjoy an advantage in each case.

            Chip  Manufacturing Cost Per Channel.  In AWG technology,  cost does
not scale  with an  increase  in the number of  channels  per chip  because  all
channels are created simultaneously or in parallel.  There is little increase in
the cost of  manufacturing  an  8-channel,  16-channel or other channel AWG DWDM
chip because the circuits and optical channels are all created in the same step.
In contrast, in Thin Filter and Bragg Gratings technologies, additional channels
must be added  sequentially  (one at a time),  increasing  the complexity of the
task and adding time and cost to the process.  Thus,  the current  manufacturing
cost per channel is lower for AWG technology  than for the Thin Filter and Bragg
Gratings  technologies.  The cost of making an AWG DWDM component will depend on
the method and materials used. The Company's products are  distinguishable  from
those of its AWG competitors in their composition and method of fabrication. The
Company  believes  that simple  one-mask  manufacturing  process  should be cost
effective and will be suitable for high volume and high yield manufacturing.

            Size  of   Optical   Components.   AWG   technology   products   are
significantly  smaller than those produced by competing  technologies.  This may
prove an advantage where space is at a premium.

            Suitability to High Volume Manufacture.  The Company's manufacturing
process is simpler,  because the  complexity  of the process  does not  increase
linearly  with an increase in the number of  channels  per chip,  as is the case
with  competing  technologies.  The  Company  anticipates  that as optical  chip
technology matures, customer demand and competition will drive down the price of
chips. The Company's low temperature  manufacturing process, which distinguishes
it from other producers  utilizing the AWG technology,  should permit lower cost
production and higher product yield.

            The  Company's  AWG DWDM devices  differ from other  waveguide  DWDM
devices in composition and its method of fabrication.  The Company's AWG devices
are made from  different  materials  (its hybrid  glass) and through a different
method of fabrication (its low temperature  sol-gel process).  The use of hybrid
glass and the sol-gel  processing  gives the Company the advantage of being able
to use  spin-coating  and  dip-coating  manufacturing  methods to cover  silicon
wafers, rather than vacuum deposition  techniques.  The Company's hybrid glasses
are  made at  temperatures  about  1,000oC  lower  than  those  used in FHD chip
production.  This gives the Company an energy  saving  advantage  and provides a
greater  choice in the range of substrates  e.g.,  glass,  plastic that might be
used in the future to support  DWDM  devices  and  future  product  development.
Lumenon's  DWDM optical  chips are created by  photolithography  directly in the
hybrid glass.  This avoids complex  post-processing  sequences in which chemical
resists and masks must be used in conjunction  with vacuum  reactive ion etching
methods  to create the AWG for the DWDM.  The  properties  of the  hybrid  glass
materials can be altered so that the glasses have  properties that are more like
those of plastics  or  inorganic  glasses or  properties  that are  intermediate
between  plastics and glasses.  This permits  hybrid  glasses to be adapted into
more  commercially  usable and compact or miniature forms than those produced by
FHD. Smaller DWDM devices also permit manufacturers of DWDM systems to make more
compact products.

                                       9
<PAGE>

            (ii)  Leverage  Existing  Customer   Relationship  and  Develop  New
Relationships

            In May 1999,  the  Company  entered  into a Teaming  Agreement  with
Molex,  a  global  manufacturer  of  electronic,   electrical  and  fiber  optic
interconnection products and systems. The Teaming Agreement was amended on March
3, 2000 (See "Material  Agreements - Agreements with Molex").  Under the Teaming
Agreement,  the Company and Molex agreed to jointly develop 8, 16 and 32-channel
DWDM products for sale to Molex and distribution and marketing by Molex to other
customers.  Subject  to  testing  of the  Lumenon  technology  and  proof of its
manufacturing capability, Molex is committed to purchase 400 units per month for
the first 12  months,  and has the  option to  purchase  50% of  Lumenon's  DWDM
production.  This  arrangement  should  provide  a firm  customer  base  for the
Company's early production. The Company also proposes to establish relationships
with telecommunications  equipment manufacturers and with manufacturers in other
industries with potential applications for its devices.

            (iii) Target Long Distance, Metropolitan Area and Access Markets

            The Company  believes  that much of the  potential  expansion of the
markets for its products will occur not in long distance telecommunications, but
in new markets,  such as metropolitan area, local area and office  environments.
This  is a  result  of  technological  advances  and  the  potential  to  reduce
manufacturing  costs. The Company has chosen to target these market segments for
DWDM technology because combined, they are anticipated by Pioneer Consulting, an
industry authority, to account for market growth from US $200 million in 1998 to
approximately US$1 billion in 2003.


            (iv) Expand Manufacturing Capability

            The  Company's  prospective  customers  are expected to require high
volumes  of  products  manufactured  to  high  quality  standards  at  gradually
decreasing  prices.  The  Company is  currently  expanding  beyond its  existing
Research and Development facility to a full scale manufacturing facility, with a
production  capability  of 500 devices per day.  The Company is  finalizing  the
completion  of the 34,400  square foot  manufacturing  facility  for  production
beginning in 2001.


Technology and Products

            The Company uses a solution or liquid sol-gel process to produce its
DWDM   optical   devices.    Sol-gel    processing    converts    molecules   of
silicon-containing compounds into a network of glasses. The Company produces its
glass at  temperatures  below  200(0)C,  which is  considerably  lower  than the
temperatures  otherwise used in the FHD process.  The Company believes it is the
only  producer  of compact  AWG DWDM  devices  using a low  temperature  sol-gel
process for its hybrid glass on silicon.  The licensed  low-temperature  sol-gel
process  allows  films of glass to be  dip-coated  or  spin-coated  onto silicon
substrates in large  quantities  and at greater speed than vacuum  coating.  The
Company     uses     conventional     photolithography     (also     known    as
photo-microlithography),  which is a method  to  "print"  optical  circuits  and
devices  directly  into its hybrid  glasses.  The glass  also  contains a second
monomer (an organic  component)  that can be  polymerized  when it is exposed to
light  in the  ultra-violet  end of the  spectrum.  Polymerization  creates  the
optical AWG that comprises the DWDM technology.  A pattern of the AWG is made by
projecting an image of the pattern,  exposing a patterned mask (an optical mask)
to ultra-violet  light.  The light passes through the patterned  openings of the
mask and "writes" or "projects" the image directly into the  micron-thin  hybrid
glass  film  on a  silicon  substrate.  The  procedure  is  similar  to the  way
photographs are printed in a darkroom.

Platform Material Technology

            Lumenon's  licensed "hybrid glass" technology  combines the features
of inorganic  silica glass and organic  polymeric  materials in a single  matrix
(material  glass  platform),  which  the  Company  refers  to  as  its  Platform
Technology.  The "hybrid glass" provides a more flexible material for use in the
design,   fabrication  and  manufacturing  of  devices,   resulting  in  greater
adaptability and increased options within the performance of a DWDM system. This
technology  permits the  manufacture of customized  devices to meet a customer's
specific  needs.  DWDM  devices  may

                                       10
<PAGE>

be required to meet certain  performance  standards  established  by  regulatory
groups.  Lumenon's  DWDM  technology  can be  adapted  to meet such  performance
standards.

            Lumenon  believes  it is the only  producer  to  introduce a sol-gel
technology for  integrated  optics that combines both polymer and glass material
platforms in a single  material base for  integrated  optics devices on silicon,
using  polymer  photolithographic  manufacturing  methods  long  accepted by the
semiconductor and microelectronics  industries adapted by the Company to produce
hybrid silica glass  integrated  optics devices.  Based on its own experience in
the research and development of the Platform  Technology,  the Company  believes
that it has a two-to  three-year  lead-time over the industry  competition  that
might arise in the  production  of optical  chips from hybrid  glasses.  See the
"Risk  Factors"  section below for the risks that the Company will  encounter in
efforts to compete successfully in its industry. The materials used to formulate
the hybrid  glasses are custom  designed and readily  available  "off-the-shelf"
products supplied by well-known manufacturers like Dow Corning, Aldrich Chemical
and Ciba Specialty  Chemicals Ltd. Because the quantity of material used to make
a device is very small (the films are less than 20 microns  thick),  the cost of
the materials is less than 5% of the total cost of the DWDM product,  making the
material cost-competitive with silica or polymers. Additionally, the methodology
used to  manufacture  such products  avoids  complex and costly  processing  and
etching  sequences,  thereby reducing  production costs.  Through the use of the
Platform Technology, the Company will, in the future, be able to target products
for a  customer's  product  line by  supplying a variety of valuable  customized
products.  For example,  in the photonic circuit market,  Lumenon can market its
products to meet the broadest possible range of applications. These applications
might  call  for   material   properties   very   similar  to  those  of  glass.
Alternatively,  these applications might require material  properties similar to
those of organic polymers.  Neither polymers nor silica alone are as flexible or
adaptable  as a hybrid  glass.  Further,  other  target  products  that could be
produced and utilized in the  telecommunications  long-haul networks are Optical
Add-Drop Multiplexers,  Optical Cross Connects and Photonic Switches,  which can
create  more  transparent  all-optical  networks  and replace  many  synchronous
optical network  ("SONET")  sub-systems.  The Company believes that the relative
simplicity of its PHASICTM process, using hybrid glasses, will enable Lumenon to
fabricate   optical  chips  across  the  broadest   range  of  photonic   market
opportunities  in high volume.  See also  "Business  Strategy"  for  information
relating to the characteristics of the Company's manufacturing process.

Technological Leadership

            Lumenon  has   assembled  a  team  of   scientists,   engineers  and
technologists  with broad  expertise in materials  formulation,  photonic device
design, hybrid glass integrated optics circuit fabrication,  product definition,
and industrial process  engineering.  This team has pioneered the development of
"photonic chips on silicon" based on proprietary  formulations of hybrid glasses
and the creation of software design tools and processing  knowledge,  privileged
to   Lumenon.    The   Company's    technical   structure   comprises   software
development/optical   circuit  design,   materials   formulation,   and  process
engineering.  This combination of attributes should allow Lumenon to evolve as a
significant  provider of integrated  optics  products to the photonic  industry,
including local area networks and future Home Network applications.

            Lumenon has also  created a Technical  Advisory  Board to advise the
Company  on  photonic  market  trends  and  technology  and  to  assist  in  the
development  of an optical  information  technology  "roadmap" for the Company's
benefit.  This  board  consists  of three  external  scientists  with  extensive
experience and expertise in the industry.



                                       11
<PAGE>

Advanced Software Design Tools

            The Company uses both proprietary and industry standard design tools
to create its DWDM devices. Lumenon has developed in-house theories and software
algorithms for creating  product  designs such as the Company's  complex AWG for
DWDM. The Company is unaware of any commercially  available design packages that
compete with the Company's  software  capability.  Whether or not other entities
have developed software design tools of quality competitive with that of Lumenon
has no impact on the  business  of the  Company,  which uses its  software  in a
manner  uniquely  adapted  to  the  photonic  materials  and  processes  it  has
developed. The Company has also obtained licenses for industry standard computer
aided design (CAD) and beam propagation method (BPM) software to model or design
selected  performance  features  of  simpler  devices,   such  as  couplers  and
splitters.

            The  Company  has built a  library  of  design  tools  and  designed
elements  that can be used in  modular  form to  assemble  more  complex  device
structures  (multi-functional  devices on a chip). Lumenon's technical marketing
and design  application  engineers have a broad  knowledge of integrated  optics
device systems design  (architectures)  and their  integration in subsystems and
systems. With such expertise,  the Company will be able to develop photonic chip
products that are flexible,  modular and designed to be deployed in existing and
future  networks  and for use in modern data and  telecommunications  equipment.
This modular approach  facilitates the re-use of complex functional DWDM devices
in new and  customized  designs,  reducing  Lumenon's  DWDM product  development
cycles.  The  Company  believes  that a large  library of complex  functions  is
required to compete  effectively in the market,  especially in terms of cost and
length of development cycles.


Manufacturing

            Lumenon has commenced the manufacture of its prototype  devices in a
custom-designed pilot  microfabrication  facility located at Dorval, Quebec. The
capacity of this existing  pilot facility is 20 DWDM chips per day. As of August
2000,  Lumenon does not sell a finished product in the open market.  The current
generation of chips is being used for development and test phases. This includes
the development of solutions for pigtailing optical fiber to the DWDM chips, and
for hermetic, semi-hermetic and non-hermetic packaging.

            Lumenon relies  largely on its own processes for the  manufacture of
its products.  In order to meet the projected  demand for high volume,  low cost
photonic chip production, the Company will be required to equip and staff a full
scale production  facility.  The Company anticipates  developing a manufacturing
capacity  to 500  devices  per day in 2001 and  1,000 per day in 2002 in the new
facility.  There are a variety of risks  associated  with the operation of a new
facility,  see "Risk  Factors - Risks  Relating to Our  Business," - fourth risk
factor.


Proprietary Rights

            Lumenon's  future success and ability to compete are  dependent,  in
part,  upon its licensed  and owned  technology.  The Company  relies in part on
patent,  trade secret,  trademark and copyright law to protect its  intellectual
property.  The Company is the  licensee of three patent  applications  under the
terms of a License  Agreement,  which expires in October 2017.  (See,  "Material
Agreements - Agreement with Polyvalor and McGill  University"  for a description
of the terms of this License Agreement) These three patent applications are:

            1.          Title:   "Solvent-assisted  lithographic  process  using
                        photosensitive  sol-gel  derived  glass  for  depositing
                        ridge waveguides on silicon"

                        Use:  Intellectual  property  relating to the  Company's
                        sol-gel  process  used to  make  the  Company's  optical
                        circuit   devices  on  a  broad  range  of   substrates,
                        including silicon through  simplified

                                       13
<PAGE>

                        photolithographic  processes and wet etching techniques,
                        which is  fundamental  to the  success of the  Company's
                        manufacturing process.
                        Country: United States
                        Assignee:McGill University Status: Allowed and issued as
                        patent No. 6,054,253 on April 25, 2000.

            2.          Title:   "Solvent-assisted  lithographic  process  using
                        photosensitive  sol-gel  derived  glass  for  depositing
                        ridge waveguides on silicon"

                        Use:  Intellectual  property  relating to the  Company's
                        sol-gel  process  used to  make  the  Company's  optical
                        circuit   devices  on  a  broad  range  of   substrates,
                        including silicon through  simplified  photolithographic
                        processes   and  wet   etching   techniques,   which  is
                        fundamental    to   the   success   of   the   Company's
                        manufacturing process.
                        Country: Canada
                        Assignee:None
                        Status:   Pending.   The  next   step  in  this   patent
                        application is to file the request for examination.

            3.          Title:    "Self-processing    of   diffractive   optical
                        components in hybrid sol-gel glasses"
                        Use:  Intellectual  property  used to  make  diffraction
                        gratings  in hybrid  glass  without  the need for device
                        development   steps,   which  is  not  material  to  the
                        Company's  present  manufacture  of  products,   but  is
                        relevant and being sought for later generation  products
                        planned for production.
                        Country:    United States
                        Assignee:None
                        Status:  Pending Provisional:  the patent application is
                        pending  but is  incomplete  and the  priority  date for
                        filing the  complete  patent  application  in the United
                        States and for extending the patent application in other
                        countries is October 26, 2000.  The Company is presently
                        in the process of finalizing the application.

Lumenon has also filed the following patent applications:

            4.          Title:      "On-substrate cleaving of sol-gel waveguide"
                        Use: Intellectual property used to make optical coupling
                        between   glass   fiber  and  optical   circuit   device
                        waveguides,  which  is not  material  to  the  Company's
                        present  production  of  products,  but is relevant  and
                        being sought for later  generation  products planned for
                        production.
                        Country:    United States
                        Owner: Co-ownership between Lumenon and Paul Coudray
                        Status:  Pending:  the patent was filed on July 1st 1999
                        and is awaiting  review and comments  from the examiner.
                        The priority  date for filing of the patent  application
                        in other countries was July 1st, 2000.

            5.          Title:  "Sol  gel film  coating  process  using  chilled
                        solution"
                        Use:  Intellectual  property used to make a sol gel film
                        where the thickness and roughness of resulting  film are
                        improved  by  dispensing  a  chilled  sol  gel  solution
                        instead of  conventionally  dispensing such a sol gel at
                        room temperature. Lumenon presently uses this technology
                        in its manufacturing process.
                        Country:    Canada
                        Status:  Pending  Informal:  the patent  application  is
                        pending but is informal and the priority date for filing
                        the  complete  patent  application  in  Canada  and  for
                        extending the patent  application in other  countries is
                        July 28, 2001.

            6.          Title:  "Flattening the response of a planar  wavelength
                        division multiplexer using a Y-junction"
                        Use:  Intellectual property used to flatten the response
                        of a planar wavelength  division  multiplexer


                                       14
<PAGE>
                        through  a  Y-junction.   Lumenon  presently  uses  this
                        technology in its manufacturing process.
                        Country: Canada
                        Status:  Pending  Informal:  the patent  application  is
                        pending but is informal and the priority date for filing
                        the  complete  patent  application  in  Canada  and  for
                        extending the patent  application in other  countries is
                        August 4, 2001.

            There can be no assurance  that any patents will be issued under the
Company's current or future patent  applications or that any issued patents will
not be invalidated, circumvented, challenged or licensed to others. In addition,
there can be no assurance  that the rights  granted  under any such patents will
provide  competitive  advantages to the Company.  There can be no assurance that
any patents issued to the Company will be adequate to safeguard and maintain the
Company's  proprietary  rights,  to  deter  misappropriation  or to  prevent  an
unauthorized third party from copying the Company's technology, designing around
the patents owned by the Company or otherwise  obtaining and using the Company's
products,  designs or other information.  In addition, there can be no assurance
that others will not  develop  technologies  that are similar or superior to the
Company's  technology,  see "Risk  Factors - Risks  Relating  to Our  Business,"
thirteenth risk factor.

            Lumenon  also relies on  confidentiality  agreements  to protect its
proprietary  rights.  It is  the  Company's  policy  to  require  employees  and
consultants and, when possible, suppliers, to execute confidentiality agreements
upon the commencement of their relationships with the Company. Litigation may be
necessary to enforce the Company's  intellectual  property rights and to protect
the Company's  trade  secrets,  and there can be no assurance  that such efforts
will be successful.  The Company's  inability to protect its proprietary  rights
effectively  would have a material  adverse  effect on the  Company's  business,
financial condition and results of operations.

            Many  participants  in  the  photonics  and  related  communications
industries have a significant number of patents and have frequently demonstrated
a readiness  to commence  litigation  based on  allegations  of patent and other
intellectual  property  infringement.  Although  the Company is not aware of any
claim of infringement or misappropriation  against the Company,  there can be no
assurance  that third  parties  will not assert  such  claims in the future with
respect to the Company's  current or future  products.  The Company expects that
companies will  increasingly be subject to infringement  claims as the number of
products  and  competitors  in the  Company's  industry  segment  grows  and the
functionality of products in different industry segments overlaps. Responding to
such claims, regardless of merit, could cause product shipment delays or require
the Company to enter into  royalty or  licensing  arrangements.  Any such claims
could also lead to  time-consuming,  protracted and costly litigation that would
require  significant  expenditures  of time,  capital and other resources by the
Company  and its  management.  Moreover,  no  assurance  can be  given  that any
necessary  royalty  or  licensing  agreement  will  be  available  or  that,  if
available, such agreement could be obtained on commercially reasonable terms.


Material Agreements

Agreements with Molex

            On May 19 and June 21, 1999, Lumenon entered into several agreements
(the "Molex  Agreements") with Molex (NASDAQ:  MOLX), based in Lisle,  Illinois.
Molex is a 60-year-old global  manufacturer of electronic,  electrical and fiber
optic interconnection  products and systems,  switches,  value-added assemblies,
and application  tooling.  The

                                      -15-
<PAGE>

Molex Agreements  include a Teaming  Agreement,  a Stock Purchase  Agreement,  a
Stock Restriction  Agreement and a Registration  Rights  Agreement.  The Teaming
Agreement was amended on March 3, 2000.

            Under the Teaming Agreement, as amended, Lumenon and Molex agreed to
jointly  develop 8, 16 and  32-channel  DWDM products for use in the DWDM market
and other  photonics  markets.  Subject  to  Lumenon  testing  and  proving  its
technology and its ability to manufacture and deliver certain devices,  Molex is
committed  to purchase  the entire DWDM  production  of Lumenon for the first 12
months of  production,  up to 400 units per month.  Molex also has the option to
buy 50% of the remaining chip production. After the first 12-month period, Molex
will have the  option to  purchase  50% of  Lumenon's  DWDM  production  for the
succeeding  three-year  period.  Any  product  sold by  Lumenon to Molex will be
priced at Lumenon's  gross cost.  In addition,  Molex will pay to Lumenon 30% of
the profits  obtained on final products built from the chips supplied during the
first  twelve  months,   and  thereafter  50%  of  the  profits  from  sales  of
functionally  unmodified  packaged products and 30% of the profits from sales of
other  final  products.  Lumenon  is free to  package  and  sell  any  remaining
products,  with all  profits  going to  Lumenon.  However,  Lumenon  cannot sell
unpackaged chips for telecommunication applications, except for special order or
exploratory purposes, without written agreement from Molex. In the event Lumenon
is unable to  supply  Molex on a timely  basis  with a  commercially  reasonable
quantity of the devices (which may trigger termination of the Teaming Agreement)
or in the  event  there  is a  change  of  control  of  Lumenon,  Molex  has the
non-exclusive right to manufacture all components of the devices in return for a
royalty of 25% of Molex's gross cost.  See - "Risk  Factors - Risks  Relating to
Our  Business,"  sixth risk factor for the risks  associated  with the Company's
dependence  on Molex and  "Business  Strategy"  and  "Technology  and Products -
Manufacturing"  in this Item 1. regarding future  production and marketing plans
for the Company's products.

            Under  the  Stock  Purchase  Agreement,  Molex  agreed  to  purchase
3,000,000  shares of the Common Stock of Lumenon at a price of US$0.50 per share
in two stages.  The first closing was held on June 21, 1999 for 1,500,000 shares
of Common Stock and the second  closing was held in March 2000 for an additional
1,500,000  shares of Common  Stock.  Lumenon  also  issued to Molex a warrant to
purchase  1,666,667  additional shares of Common Stock at a price of US$0.90 per
share, which was exercised on November 15, 1999.

            In addition,  Lumenon issued Molex a Services  Common Stock Purchase
Warrant (the  "Services  Warrant")  to receive  5,800,000  additional  shares of
Common Stock in exchange for certain services to be rendered by Molex to Lumenon
under the Teaming Agreement as part of the development of Lumenon's  technology.
These shares were issued in 2000 as Molex performed services.

            Under the  Stock  Restriction  Agreement,  certain  stockholders  of
Lumenon  have  agreed not to sell their  respective  shares of the  Company to a
competitor of Molex without  Molex's prior consent.  This  agreement  includes a
right of first refusal and certain  preemptive rights in favor of Molex,  except
that  Lumenon  can,  without  Molex's  consent,  issue  up  to  6,000,000  units
(comprising  one common share and a warrant for the purchase of one common share
at a price of not less than  US$0.90 per share) at a price not less than US$0.50
per unit to raise capital  within the 24-month  period ending in June 2001.  The
Stock  Restriction  Agreement  also  requires  the  consent of Molex for certain
extraordinary  actions  relating  to the  governance  of  the  Company  and  its
operations.  Certain rights or restrictions  contained in the Stock  Restriction
Agreement  terminate upon completion of a Public Sale or a Public  Offering,  as
defined in the agreement. The Stock Restriction Agreement will also terminate if
the Teaming Agreement is terminated.

            The net  proceeds of the  issuances  of stock to Molex were added to
the  Company's  working  capital  and are being used in part to  accelerate  the
commercialization of the Company's DWDM products.


                                       16
<PAGE>

Agreement with Polyvalor and McGill University

            Lumenon entered into a license  agreement (the "License  Agreement")
with Polyvalor,  a Canadian limited  partnership,  as represented by its General
Partner,  Polyvalor Inc. and McGill University  (together,  Polyvalor and McGill
University are referred to as the "Licensor") pursuant to which Lumenon acquired
the right to produce,  sell,  distribute and promote products derived from using
the patents and know-how (as such terms are defined in the License Agreement) of
the Licensor  subject only to the license  granted to QPS Technology Inc. in May
1998. To date, QPS Technology Inc. has not demonstrated any desire or capability
to utilize its license for  production  of any related  technology  or products.
These  patents  and  know-how  are based on the work of Dr. Iraj Najafi at Ecole
Polytechnique  and Dr. Mark Andrews at McGill  University  and their  respective
team of collaborators.  Lumenon will pay a royalty of 5% on gross sales, up to a
maximum cumulative amount of US$2,367,104  (CDN$3,500,000) to the Licensor until
October 2017 at which time the License  Agreement will expire.  The Company does
not believe that the rights granted it thereunder  will be of significant  value
after that date.  If this is not the case,  the Company would seek to extend the
term  of  the  License  Agreement.  Polyvalor  is a  company  created  by  Ecole
Polytechnique  for the  purpose  of  commercializing  the  technology  in  which
Polytechnique has an interest.

            In connection with the License Agreement, the Company issued to each
of McGill  University  and  Polyvalor  750,000  shares of the  Common  Stock and
granted them jointly the right to nominate one director to the  Company's  Board
of Directors.


Agreement with Polaroid

            Lumenon  has  entered  into an  agreement  dated July 21,  2000 with
Polaroid  Corporation  for the  irrevocable  non-exclusive  license  of  certain
patents  held by  Polaroid  in  connection  with AWG.  Lumenon  agreed to pay to
Polaroid  an initial  licensing  fee of US $395,000  (CDN$584,047).  In addition
Lumenon  will pay  royalties  on the net selling  price of its  products,  at an
annual rate of 5% for aggregate  net selling  prices of five million US dollars,
3.5% for  aggregate  net  selling  prices  over five and up to forty  million US
dollars,  and 1.75% for  aggregate  net  selling  prices  over forty  million US
dollars, for each year of the agreement.


Convertible Note Financing

            On July 25,  2000,  the  Company  consummated  the  purchase  by two
institutional  investors (the  "Purchasers") of  US$35,000,000  (CDN$51,751,000)
aggregate principal amount of convertible notes due July 25, 2005 (the "Notes").
The Notes bear  interest at the per annum rate of 7 1/2%,  which is payable upon
the earlier to occur of the repayment or conversion of the Notes.  The Notes are
convertible from and after issuance into shares of Common Stock at a price equal
to the  average  of the  closing  bid  prices of the  Common  Stock for the five
consecutive trading days ending immediately prior to conversion, but in no event
less than US$7.00 nor more than  US$25.00 per share  (unless a default under the
Notes  shall have  occurred).  Commencing  30 months  after the  issuance of the
Notes,  the Company may require  their  conversion  provided  certain  specified
Common Stock pricing and trading  volume  criteria and certain resale and market
criteria are satisfied.  The Notes provide for various events of default,  which
would entitle  their  holders to require the  immediate  repayment of the Notes,
together with an additional  default  amount.  The holders of the Notes may also
require their repayment,  together with an additional  redemption  amount,  upon
certain  extraordinary  events, such as a merger, a sale of all or substantially
all assets and a change of control.

            The proceeds of sale of the Notes are being used in part to complete
the buildout of the Company's  new  manufacturing  facility.  Such proceeds will
also be used to pursue the Company's  overall growth strategy and to finance its
research and development program.

                                       17
<PAGE>

            In  connection  with  the  financing,  the  Company  issued  to  the
Purchasers five year warrants (the "Investor Warrants") to purchase an aggregate
of 5,000,800  shares of Common Stock,  vesting 18 months after  issuance,  based
upon the volume weighted average price of the Common Stock (the "Volume Weighted
Average Price") during the five consecutive  trading days preceding vesting.  If
the Volume  Weighted  Average Price is equal to or less than US$30.00,  then the
exercise price will be US$10.00.  If the Volume  Weighted  Average Price is more
than US$30.00,  but less than US$70.00,  then the exercise price will be the sum
of US$10.00,  plus one-half of the excess over US$30.00.  If the Volume Weighted
Average Price is more than  US$70.00,  then the exercise price will be US$30.00.
The number of shares of Common  Stock  issuable  upon  exercise of the  Investor
Warrants  and the  exercise  price  of the  Investor  Warrants  are  subject  to
adjustment  upon the occurrence of certain  dilutive  issuances of the Company's
securities.  In the event of a  default  under  the  Notes or in  certain  other
obligations of the Company to the Purchasers,  vesting of the Investor  Warrants
may be accelerated.

            The Company agreed with the Purchasers that for a period of 180 days
after the issuance of the Notes, it would not,  without the prior consent of the
Purchasers,  obtain additional equity or equity-linked  financing and that for a
further  period  of 180  days,  should it  propose  to  engage in any  equity or
equity-linked  financing,  it would  offer the  Purchasers  the  opportunity  to
provide such financing upon the terms and conditions proposed. Such agreement is
not applicable to business combinations or firm commitment public offerings. The
Company  also  agreed to submit for the  approval of its  stockholders  prior to
November 30, 2000 the  agreements  under which the Notes and  Investor  Warrants
were issued.

            The Company also agreed with the  Purchasers  to register for resale
under the Securities Act of 1933, as amended,  8,800,000  shares of Common Stock
issuable upon conversion of the Notes and exercise of the Investor Warrants. The
registration is to be effected as promptly as is practicable.


Customer Relations

            In addition to the relationship  created under the Molex Agreements,
the  manufacture  of DWDM  products  implies that the Company will work in close
association with DWDM system manufacturers.  Examples of these manufacturers are
Nortel  Networks,  Cisco,  Alcatel,  Lucent  Technologies,  and  Ciena.  Lumenon
believes  that  it will be  important  to its  success  to work  with  customers
directly to meet performance requirements in the design of its DWDM products and
devices  throughout  the entire life cycle of its products.  This will allow the
Company to foster a strong commitment to service,  and to gain insights into its
customers'  future  plans and  needs,  identify  emerging  industry  trends  and
consequently deliver high-performance,  cost-effective products with wide market
appeal.


Competition

            There are several competitors producing DWDM products on the market.
Lumenon  believes  that it will  distinguish  itself  from  the  competition  by
producing  DWDMs in high volume,  while  retaining high  performance  standards.
Manufacturers   of  DWDM  systems  that  may  use  AWG  devices  include  Lucent
Technologies,  Ciena, Alcatel, Cisco, Nortel, NEC and Fujitsu.  Several of these
systems  manufacturers  (Lucent,  Ciena, Alcatel, and NEC) also manufacture DWDM
products.  Other DWDM  component  suppliers  include,  but are not  limited  to,
JDS-Uniphase, Gould, Instruments SA, Corning OCA, Ditech, DiCon, Sumitomo, Bosch
Kymata Ltd., Lightwave Microsystems Corp. (LMC), and Bookham Technology Limited.
Lumenon believes that it can compete  effectively  because it will be capable of
manufacturing its products in high volumes and in a cost effective  manner.  The
Company  has  developed  materials  and  processes  that use volume  coating and
optical circuit fabrication processes that it believes are simpler than those of
its  competitors.  The  photonic  chip  approach  adopted by Lumenon  offers the
advantage of  compactness at the larger channel counts since there is no need to
cascade. Lumenon's compact devices will allow manufacturers of DWDM systems more
flexibility with the design of more compact products. Moreover, Lumenon believes
that its  Platform  Technology  will  allow it to  produce  a  broader  range of
products in the photonic  components  markets related to optical networking than
that of other  competitors.  This broader range of products may include photonic
chips that can be used for  interconnection,  power division and  combination in
personal computers,  where price sensitivity is an issue.

                                       18
<PAGE>

Lumenon  believes  that it is in a strong  position  to  become a  technological
leader in the industry by introducing its new processes and by defining industry
standards  for  volume  photonic  chip   manufacturing   through  the  Company's
low-temperature,  low cost processing of compact chips and its  customization of
products.  See the  "Business  Strategy"  section  of the Item 1. and the  "Risk
Factors"  section  generally for risks relating to the Company's  technology and
efforts to become a technology leader.

            The  Company  expects  competition  to  increase  in the future from
existing competitors and from companies that may enter the Company's existing or
future markets,  with similar or substitute solutions that may be less costly or
provide  better  performance  or features  than the  Company's  products.  To be
successful  in the  future,  Lumenon  must  continue  to  respond  promptly  and
effectively to changing customer performance,  feature and pricing requirements,
technological change and competitors'  innovations.  The Company is reliant upon
its  licensed  sol-gel  manufacturing  process  under the  terms of its  License
Agreement,  described  more  fully in  "Material  Agreements  -  Agreement  with
Polyvalor and McGill  University,"  for the  development  and  production of its
products.

            The photonics  industry has been marked by the emergence of start-up
companies  offering  products at the component,  sub-system and systems  levels.
Larger  companies  have been  aggressive  in acquiring  start-ups  for preferred
competitive technological edge, to circumvent issues of increasing technological
complexity, and to accelerate time-to-market product introduction,  avoiding the
cost and delay that would  otherwise  be inherent in  in-house  development.  To
date,  no  acquisition  offers  have  been  made  to the  Company  nor  are  any
anticipated by the Company in the foreseeable future. The Company's success will
depend on its customers' acceptance of outsourcing as an alternative to in-house
development  by larger  companies.  Many of Lumenon's  potential  customers have
substantial technological  capabilities and financial resources. These customers
may currently be developing,  or may in the future decide to develop or acquire,
products  or  technologies  that are  similar to or may be  substituted  for the
Company's products and, this may diminish purchases of the Company's products.

            A number of Lumenon's current and potential  competitors have longer
operating histories,  greater name recognition,  access to larger customer bases
and significantly  greater financial,  technical,  marketing and other resources
than the Company.  As a result, they may be able to adapt more quickly to new or
emerging  technologies and changes in customer requirements or to devote greater
resources to the promotion and sale of their products. In addition,  current and
potential competitors may determine,  for strategic reasons, to consolidate,  to
lower the price of their products substantially or to bundle their products with
other  products.  Current and  potential  competitors  have  established  or may
establish financial or strategic relationships among themselves or with existing
or potential  customers,  resellers or other third parties.  Accordingly,  it is
possible that new  competitors or alliances among  competitors  could emerge and
rapidly acquire  significant market share.  Increased  competition may result in
price reductions, reduced gross margins and loss of market share.

            Lumenon believes that its ability to compete successfully depends on
a number of  factors,  both  within and  outside of its  control.  Such  factors
include  including the price,  performance  and quality of the Company's and its
competitors'  products,  the  timing  and  success of new  product  and  feature
introductions by the Company,  its customers and its competitors,  the emergence
of new standards in the optical  communications  industry,  the  development  of
technical  innovations,  the  availability  of raw materials,  the efficiency of
production,  the rate at which the  Company's  customers  design  the  Company's
products into their products, the number and nature of the Company's competitors
in a given market,  the assertion of  intellectual  property  rights and general
market and economic conditions.


                                       19
<PAGE>

Sales, Marketing and Technical Support

            The Company is party to an agreement  with Molex that  reserves most
of the  Company's  first  year of  production  for Molex and also  provides  the
Company with access to Molex's  global  distribution  network.  This reliance on
Molex  poses an  operating  risk to the  Company.  See,  "Risk  Factors  - Risks
Relating  to  Our  Business,"  sixth  risk  factor.   In  the  event  that  this
relationship  changes and Molex is not able to provide Lumenon access to Molex's
distribution network,  Lumenon will be selling its products directly through its
in house selling and  marketing.  The Company plans to develop an  international
network that would include offices in North America, Europe, and Asia-Pacific.

            The Company presently  promotes its developing product line in trade
journals to generate advance interest. Over the next 12 months, the Company will
hire  additional  internal  marketing  and sales  personnel  to assist  with the
Company's  efforts.  See the "Plan of Operations - Employee  Growth"  section of
this Item 1. regarding the Company's plans for additional hiring.

            Lumenon  believes  that  providing  its clients  with  comprehensive
product service and support is critical to maintaining a competitive position in
the optical communications market. (See - "Industry  Background.") The Company's
practice will be to work closely with its  customers to monitor the  performance
of its product designs and to provide application design support and assistance.
The Company will also provide a valuable  technical  resource for  consulting on
photonic component trends and  implementations.  Technical data will be provided
to customers through the Company's applications  engineers,  technical marketing
and factory  applications  engineers  and, if necessary,  product  designers and
architects or system  designers.  Local field support will be provided in person
or by telephone.

            Lumenon  intends  to provide  support  at crucial  stages of product
development.  During the design phase, the Company may sell software  simulation
models of each photonic  component or device, to allow customers to simulate the
performance  of the product in their entire system  before  committing to it. In
the future, the Company may also offer a line of evaluation  modules,  which are
subsystems that are  representative of a typical customer design.  These modules
would enable  customers to evaluate the device,  as well as hardware  design and
software development functions,  without significant development effort on their
part,  thereby  facilitating rapid  time-to-market.  Lumenon believes that close
contact  with these  customers  will allow the Company to tailor its products to
the market and technical needs defined by key OEMs. Understanding its customers'
particular  problems enables the Company to design and develop  solutions in its
next generation of products.


History of Company

            Lumenon's  principal  place of business  is located in the  Montreal
suburb  of Ville St.  Laurent.  The  Company  was  incorporated  in the state of
Delaware in February 1996 under the name of WWV Development,  Inc. In July 1998,
under  an  acquisition  plan,  the  Company  acquired  all  of  the  issued  and
outstanding shares of Lumenon Innovative Lightwave Technology,  Inc., a Canadian
corporation  ("LILT")  founded in March 1998 by  Professor S. Iraj Najafi of the
Ecole  Polytechnique,  Montreal (an engineering  school),  and Professor Mark P.
Andrews of McGill  University,  Montreal.  Upon  consummation of the acquisition
plan,  the  Company  changed  its name from WWV  Development,  Inc.  to  Lumenon
Innovative Lightwave Technology, Inc. As consideration for such acquisition, the
Company issued  12,200,000  shares of Common Stock to the  shareholders of LILT,
which  resulted  in a  change  in  control  of  the  Company.  Under  applicable
accounting rules and policies,  LILT is deemed the acquiring corporation and the
financial  information  contained  herein is that of LILT, as consolidated  with
Lumenon.

                                       20
<PAGE>

RISK FACTORS

The  purchase of our common  stock  involves a high  degree of risk;  you should
regard it as speculative  and you should  consider it only if you can reasonably
afford a loss of your  entire  investment.  You should  carefully  consider,  in
addition to the other  information  contained in this prospectus,  the following
risk factors  relating to the Company and its business before deciding to invest
in our common stock.

                    Risks Relating to Our Financial Condition

We are a development stage company.

            We were founded in 1998. We are a development  stage company and, to
date,  have not had any  revenues  from  sales of our  products.  Our  operating
history  provides no basis for evaluating us and our prospects.  We must,  among
other  things,   successfully  develop  and  commercialize  our  products,  meet
competition,  attract,  retain  and  motivate  qualified  employees,  expand our
operations  and market and sell products  using our technology in volume to have
significant revenues and to be profitable.

            Our future will depend on our  ability to develop,  manufacture  and
commercialize  products based upon our licensed  proprietary  technologies.  Our
first product,  the DWDM optical chip, has only recently  entered  production in
limited quantities and we expect to make only limited shipments of the prototype
chips in 2000. Even if our products appear promising when introduced,  potential
customers may not accept them, they may be difficult to produce in large volumes
at an acceptable  cost, fail to perform as expected,  cost too much or be barred
from production by the proprietary rights of others.


We project future losses.

            We expect to spend  considerable  sums to develop and market our new
products.  We expect our  operating  expenses  to  increase  as we  develop  our
technology and products,  increase our sales and marketing activities and expand
our assembly  operations.  We will not have  revenues  from product sales before
2001.  The amount that we will lose and when,  if ever,  we will have profits is
highly uncertain. If we become profitable,  we do not know how much we will earn
and our profits may vary significantly from quarter to quarter.

                         Risks Relating to Our Business

We have limited working capital;  we may be unable to obtain funding to meet our
future capital needs.

            We will require substantial additional funding over the next several
years to develop our technology,  to broaden and  commercialize our products and
to expand  assembly  capacity.  Our  capital  needs  will  depend on a number of
factors, including:

            o   How many new products we develop
            o   How fast we  develop  and  commercialize  our  technologies  and
                products and expand our assembly operations
            o   The response of competitors
            o   The level of acceptance of our products
            o   Competing technological developments
            o   Changes in market demand.

            In  addition,  if we develop or  commercialize  our  technology  and
products more slowly than we expect, we may need substantially more funding, and
we may be required to spend our cash faster than we currently plan.

                                       21
<PAGE>

            We expect to raise  additional  working  capital  primarily from the
following sources:

            o   Sales of equity or debt securities
            o   Equipment leasing and other secured debt financing
            o   Manufacturing and other strategic partners.

            If we borrow funds,  we may become subject to restrictive  financial
covenants and our interest  obligations  will increase.  If we issue more stock,
our present stockholders may experience substantial dilution.

            We do not know  whether  additional  funding  will be  available  on
favorable  terms,  or at all. If it is not, we may have to delay or abandon some
or all of our anticipated expenditures, to curtail our operations significantly,
to sell assets, or to license to third parties potentially valuable technologies
that we currently plan to commercialize ourselves.


The market for our products requires us to adapt to rapid  technological  change
and to continue new product development.

            We  must  become  a key  supplier  of  components  to the  photonics
industry to be  successful.  Our target markets are highly  competitive  and are
marked by rapidly  changing  technology  and industry  standards  and  declining
average selling prices. We must:

            o   Anticipate  what our clients and their  end-users  will need and
                demand in the manufacture of products, both for general industry
                use and specific custom-made usage
            o   Incorporate  those  anticipated  features and functions into our
                products
            o   Meet specific and exacting design requirements
            o   Price our products competitively
            o   Introduce our products at the right time to meet market demand.

The success of our new products will depend on many factors, including:

            o   The proper product definition
            o   The timely completion and introduction of designs
            o   The ability of our  customers  to  incorporate  our product into
                theirs
            o   The quality and performance of our products
            o   The   differentiation   of  our  products   from  those  of  our
                competitors
            o   The acceptance of our products and those of our customers.

Our products are  generally  incorporated  into our  customers'  products at the
design stage. Even if our products are accepted by our customers, their products
may not be commercially successful.


                                       22
<PAGE>

The  market for our  products  is  characterized  by short  product  lifecycles,
declining average selling prices and fluctuating industry conditions.

            Our target  markets are subject to continuous,  rapid  technological
change,  including  changing industry  standards,  frequent  introduction of new
products,  anticipated and unanticipated decreases in average selling prices and
fierce  price  competition.  This means that the life cycle of a product we make
may be short, we must introduce new products on a timely basis and we must spend
a great deal to develop new products.  Other competing technologies may force us
to sell our  products  at lower  prices  than we expect.  Thus,  we will need to
introduce  new  products  to compete  effectively  and to  maintain  our selling
prices.  This may require greater development time and expense than we presently
anticipate.  We could experience delays in introducing new products because they
are complex.


Our products have certain risks in their manufacture and assembly.

            The assembly of our chips is a  sophisticated  process,  requiring a
clean room and precision assembly equipment.  Very small amounts of contaminants
in assembly,  defects in  components,  difficulties  in the assembly  process or
other factors can cause a significant  number of chips to be nonfunctional or to
have  unacceptable  defects.  Many of these  problems are  difficult to find and
require much time and/or expense to fix.

            We  have  never  assembled  large  amounts  of  products.  It may be
difficult for us to do this.

            Using our own plant could involve significant risks,  including lack
of adequate  capacity,  technical  difficulties and events limiting  production,
such as  fires  or  other  damage.  Furthermore,  if  demand  for  our  products
increases,  we will  have to  build  another  facility  and may  have to rely on
contractors to manufacture our products for us. Building  another  facility will
cost a great  deal and  will  involve  the  risks  found  in all  manufacturing,
including poor production  yields,  technical  difficulties  and events limiting
production.

            The  manufacture  of  our  products  involves  complex  and  precise
processes.  Changes in our manufacturing processes or those of our suppliers, or
their inadvertent use of defective  materials,  could  significantly  reduce our
manufacturing  yields and  product  reliability.  Because  the  majority  of our
manufacturing costs are relatively fixed,  manufacturing  yields are critical to
our results of  operations.  Lower than expected  production  yields could delay
product  shipments and impair our gross  margins.  We may not obtain  acceptable
yields in the future.

            Because we plan to introduce  new products and product  enhancements
regularly, we must effectively transfer production information from our research
and development department to our manufacturing group and coordinate our efforts
with those of our suppliers to rapidly achieve volume production.  If we fail to
effectively  manage this  process or if we  experience  delays,  disruptions  or
quality  control  problems in our  manufacturing  operations,  our  shipments of
products to our customers could be delayed.


We are dependent on equipment suppliers and contract manufacturers.

            We rely on outside suppliers for certain equipment to be used in our
manufacturing process. We do not maintain long-term agreements with any of them.
If  important  manufacturing  equipment  were to  malfunction,  we  would,  at a
minimum, experience delays in the shipment of our products and could be required
to find  another  manufacturer.  Delays in shipment  could result in the loss of
customers and reductions in our revenues.

            We may rely on third party  manufacturers for certain  components of
our products.  Risks  associated with our potential  dependence upon third party
manufacturing relationships include:

            o   Reduced control over delivery schedules

                                       23
<PAGE>

            o   Lack of quality assurance
            o   Poor manufacturing yields and high costs
            o   Potential  lack of adequate  capacity  during  periods of excess
                demand
            o   Potential misappropriation of our intellectual property.

            We do not  know  if we  will  be able  to  enter  into  third  party
manufacturing  contracts on favorable  terms,  if at all, or that our current or
future  third  party  manufacturers  will  meet our  requirements  for  quality,
quantity or timeliness.

Dependence on Strategic Relationship.

            We have  entered  into  certain  agreements  with Molex  pursuant to
which,  among other things,  we are to jointly  develop  certain  products.  The
agreements  with Molex contain  certain  restrictions on our ability to sell our
products  and grant to Molex  preferential  rights to acquire  our  products  at
favorable prices. See "Business-Material Agreements."

There will be a small number of customers for our products.

            For the foreseeable future, we intend to market our products to only
a limited number of leading original equipment  manufacturer  ("OEM") customers.
We will rely on our OEM customers to develop their own systems,  creating demand
for our products.  OEM customers may be expected to exert considerable  leverage
in negotiating purchases from us. The  telecommunications  equipment industry, a
principal industry  customer,  is dominated by a small number of large companies
with few optical components  suppliers.  Existing suppliers could exert pressure
to keep out new entrants.


The market for our products is very competitive;  our competition may be able to
more effectively develop and market their products.

            The photonics  industry is highly competitive and is marked by rapid
technological  change and product  obsolescence.  We expect such  conditions  to
continue.

            Our  competitors  include large  companies  that have  substantially
greater  financial,  technical,  marketing,  distribution  and other  resources,
broader   product  lines,   greater  name   recognition   and  longer   standing
relationships with customers than we do. Our competitors  include both companies
already   manufacturing   large  volumes  of  products   based  on   established
technologies,  as well as companies  selling emerging  technological  solutions.
Potential competitors could also include our own customers,  which may decide to
manufacture products competitive with ours, rather than purchasing our products.
Potential competitors may develop technology and products comparable or superior
to ours.


We do not know if we can effectively manage the growth of our business.

            Our success will depend on the expansion of our  operations  and the
effective  management of growth,  which will place a  significant  strain on our
management,  operations and financial  resources.  In particular,  once we begin
volume  assembly of our  products,  our  operations  are  anticipated  to expand
substantially.   To  achieve  our  plan,  we  must  hire  and  train  additional
engineering,  manufacturing,  marketing,  sales,  administrative  and management
personnel, and buy additional equipment, facilities,  information technology and
other  infrastructure.   We  must  also  continue  to  develop  our  management,
operational and financial systems,  procedures and controls. Because we have had
little  history  with the  assembly,  marketing or sale of our products in large
quantities,  we do not know if we will be able to expand  our  business  rapidly
enough or adequately manage this growth. If we do not accurately  predict demand
for our products,  we may have too much or too little production capacity. If we
overestimate demand, we may incur fixed production expenses that are excessive.


                                       24
<PAGE>

We are  dependent  on key  personnel;  we  need to  attract,  train  and  retain
additional qualified personnel.

            Our success will depend to a  significant  degree upon the continued
services of key management,  technical, and scientific personnel,  including Dr.
S. Iraj Najafi, our President and Chief Executive Officer, Dr. Mark Andrews, our
Chief Technical Officer, and Dr. Chia-Yen Li, our Chief Operating Officer. We do
not currently maintain key-man life insurance on any of our personnel.

            Our success  will also  depend on our ability to attract,  train and
retain additional management and other highly skilled personnel.  Currently,  we
are seeking to hire skilled engineers for our assembly process.  Our competitors
for qualified personnel are often long-established,  highly profitable companies
and the process of hiring qualified  personnel is often lengthy.  Our management
and other employees may voluntarily leave us at any time.


We lack  sales and  marketing  history  and may not be able to retain  qualified
salespeople.

            We have no  history  in  marketing,  selling  and  distributing  our
products.  Our future  profitability  will  depend on our  ability to develop an
effective  sales  force.  Competition  for  employees  with sales and  marketing
experience  is intense.  We do not know if we will be able to attract and retain
qualified  salespeople  or if we can  build an  effective  sales  and  marketing
organization.


We  are  subject  to  additional  risks  related  to  international   sales  and
operations.

            We expect that  international  sales will account for a  significant
portion of our total revenues. International sales and operations are subject to
a number of risks, including:

            o   Imposition of government controls
            o   Export license requirements
            o   Restrictions on the export of critical technology
            o   Political and economic instability or conflicts
            o   Trade restrictions, changes in tariffs and taxes
            o   Challenges to patents and other intellectual property rights
            o   Difficulties in staffing and managing international operations
            o   Problems in establishing or managing distributor relationships
            o   General economic conditions.

            In addition,  as we expand our international  operations,  we may be
required  to  invoice  our  sales in local  currencies,  the  value of which may
fluctuate in relation to the Canadian and U.S. dollars.


We lack patent protection of our products.

            The patent  positions of technology  companies,  including ours, are
uncertain and involve  complex  legal and factual  questions.  In addition,  the
coverage claimed in a patent  application can be significantly  reduced before a
patent is  issued.  We do not know if our  patent  applications  will  result in
patents  being issued or that any patents  issued to us will provide  protection
against competing  technologies or will be held valid if challenged.  Others may
independently  develop  products  similar to ours or design  around or otherwise
avoid patents issued to us.

                                       25
<PAGE>

            Others may assert claims  against us that will result in litigation.
Litigation,  regardless of its outcome,  would result in significant cost to us,
as well as diversion of  management  time.  If we were to infringe  upon a valid
patent,  we might have to change our products or obtain licenses from the patent
owners. We do not know if such licenses would be available on terms favorable to
us or that we would be  successful  in any  attempt  to change our  products  or
processes to avoid infringement. In addition, we could be liable for significant
monetary damages.

            We also rely on trade  secret and  copyright  law,  and employee and
third-party  nondisclosure  agreements  to  protect  our  intellectual  property
rights.  We can  not be  sure  whether  agreements  and  measures  will  provide
meaningful  protection  of our trade  secrets,  copyrights,  know-how,  or other
proprietary  information in the event of  infringement  by others or that others
will not independently develop similar technologies.

            The  laws  of  certain   foreign   countries   do  not  protect  our
intellectual  property  rights to the same  extent as do the laws of the  United
States. Our intellectual property may be at additional risk in such markets.


We must comply with environmental regulations, which could be costly.

            Our  operations  and  assembly  processes  are  subject  to  certain
federal,  provincial and local  environmental  protection laws and  regulations.
These relate to our use,  handling,  storage,  discharge and disposal of certain
hazardous materials and wastes, the pre-treatment and discharge of process waste
waters  and the  control  of  process  air  pollutants.  We have put into  place
procedures  to comply  with  these  laws and  regulations.  We also have  safety
programs,  including  training of  personnel  on safe  storage  and  handling of
hazardous  materials  and wastes.  We believe that we are in  compliance  in all
material respects with applicable environmental regulations.  Environmental laws
and  regulations,  however,  may become more  stringent over time. If we fail to
comply  with  either  present  or future  regulations,  we may have  significant
expenses and may be subject to fines and production halts.

                           Corporate Governance Risks

We are  controlled  by insiders,  which may prevent a change of control or other
corporate transactions.

            As of the date hereof, our management,  Molex,  Polyvalor and McGill
University  collectively  own in excess of 50% of our outstanding  common stock.
Together,  they determine the  composition of the Board of Directors and will be
able to  determine  the  outcome  of  corporate  actions  requiring  stockholder
approval. This ability may have the effect of delaying or preventing a change in
control  that may be  favorable  to other  stockholders  or  causing a change of
control that may not be favorable to by other stockholders.

            Under  the   agreements   with   Molex,   Molex  will   acquire  the
non-exclusive  right to manufacture and sell certain jointly  developed  optical
chip products in the event we have a change in control. Molex also has rights of
first refusal with respect to any sale of stock by certain of our  stockholders.
Such rights of Molex may have the effect of delaying or  preventing  a change in
control that may be favorable to stockholders other than Molex.


                                       26
<PAGE>

Certain  provisions  of our  corporate  documents  and state law may  prevent or
hinder a change of control.

            Certain  provisions of our certificate of incorporation  and by-laws
and of Delaware law could make it more difficult for another party to acquire us
or  discourage  another party from  attempting  to acquire us. For example,  our
certificate of incorporation and by-laws permit us to issue preferred stock with
rights  senior to the common stock in respect of voting and dividend  rights and
rights upon liquidation without any further vote or action by stockholders,  and
provide for a classified  Board of Directors.  Although we have no present plans
to issue preferred  stock, the issuance of preferred stock could have the effect
of delaying,  deterring or preventing a change of control and could make it more
difficult  for holders of our common  stock to take certain  corporate  actions,
including  the  replacement  of  incumbent  directors.  Additionally,  any  such
preferred  stock may have  preference over and harm the rights of the holders of
common stock.


We have a significant  number of outstanding  warrants and options,  which could
adversely  affect  the  price  of our  common  stock  and  our  ability  to sell
additional common stock.

            As of June 30, 2000, we had outstanding  options to purchase a total
of 2,277,150  shares of common  stock at a weighted  average  exercise  price of
US$9.97 per share and outstanding warrants to purchase an aggregate of 3,091,211
shares of our common stock at a weighted  average  exercise price of US$2.05 per
share.  Subsequent  to June 30,  2000,  we issued  the  Notes  and the  Investor
Warrants.  The exercise of  outstanding  options and warrants and the conversion
notes of the Notes  will  dilute the then  current  stockholders'  ownership  of
common  stock.  Sales in the public  market of common stock  acquired  upon such
exercise of options and warrants  could  depress the price of our common  stock.
The holders of options and warrants  can be expected to exercise  them at a time
when we would be able to sell common  stock on terms more  favorable  than those
provided by such options and warrants.  This may adversely affect our ability to
sell common stock.

                                   Other Risks

We do not pay dividends.

            We have never paid any  dividends  on our  common  stock.  We do not
anticipate  paying such  dividends in the  foreseeable  future.  We will use any
future earnings to finance our growth.


The market price of our common stock may increase or decrease significantly.

            The  market  price  of our  common  stock  has  both  increased  and
decreased  significantly.  Such  market  price  could be subject to  significant
future changes in response to various factors and events including:

            o   The depth and  liquidity  of the  trading  market for the common
                stock
            o   Quarter-to-quarter variations in our operating results
            o   The  correlation of operating  results with the  expectations of
                stockholders and the investment community
            o   The introduction of our products
            o   Conditions in our industry.

            In  addition,  from  time  to  time,  the  public  markets,  and  in
particular the shares of high technology companies, have experienced broad price
and  volume  fluctuations  that  often  have  been  unrelated  to the  operating
performance of issuers.

                                       27
<PAGE>

We can give no assurances that our forward looking statements will be correct.

            Certain forward-looking  statements,  including statements regarding
our expected financial  position,  business and financing plans are contained in
this  prospectus or are  incorporated  in documents  annexed as exhibits to this
prospectus.  These forward-looking  statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions  identify  forward-looking  statements.
Although we believe  that the  expectations  reflected  in such  forward-looking
statements are reasonable,  we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from such  expectations are disclosed in this prospectus.  All
subsequent written and oral  forward-looking  statements  attributable to us are
expressly qualified in their entirety by the cautionary  statements.  We caution
readers not to place undue reliance on these forward-looking  statements,  which
speak only as of their dates.  We undertake no obligations to publicly update or
revise any forward-looking  statements,  whether as a result of new information,
future events or otherwise.

Currency Exchange Rates

            All  dollar  amounts  stated in this Form 10-K are in U.S.  dollars,
except where otherwise specifically  indicated.  The following table sets forth,
for the dates indicated,  the rates at the specific date for the Canadian dollar
per one U.S.  dollar,  each expressed in Canadian  dollars and based on the noon
buying  rate in New  York  City for  cable  transfers  in  Canadian  dollars  as
certified for customs purposes by the Federal Reserve Bank of New York:

                                       Fiscal Year Ended June 30
                                       1998       1999       2000
                                       ----       ----       ----

Rate at end of period                 1.4717     1.5070     1.4798
Average rate during the period        1.4178     1.5105     1.4732
High of the period                    1.4721     1.5770     1.5079
Low for the period                    1.3690     1.4512     1.4350


            On August 31,  2000,  the noon  buying rate in the New York City for
cable  transfers in Canadian  dollars as certified  for customs  purposes by the
Federal Reserve Bank of New York was CDN$1.4720 = US$1.00.

ITEM 2. PROPERTIES

            Lumenon's corporate and technical  headquarters are located in Ville
St. Laurent, near Montreal,  Canada in a facility of approximately 53,000 square
feet. Approximately 64% of the space will be occupied by Lumenon's cleanroom and
manufacturing areas and the remainder by its offices.

            The  lease for the Ville  St.  Laurent  facility  is for a period of
twelve years  ending in July 31 2012,  with annual rent in the amount of US$7.10
(CDN$10.50)  net per square foot, or US$379,483  (CDN$561,103)  in the aggregate
for each of the first six  years.  Thereafter,  the  annual  rent is  US$426,612
(CDN$630,789).  Operating  expenses,  including  all  expenses  incurred  by the
landlord of such facility in connection with the operation,  maintenance, repair
and  replacement  of the exterior of the facility and all insurance with respect
to the  facility,  and auxiliary  structures  and  improvements  on the land are
estimated  to be  US$2.84  (CDN$4.20)  per  square  foot  for  the  first  year,
US$151,762  (CDN$224,396) in the aggregate.  Lumenon has the option to renew the
lease for an additional period of five years at a rate equal to the then current
market  price  for  comparable  space.  The  construction  of the  building  was
completed  in  July  2000.   Lumenon  is  currently   completing   the  internal
construction  of  the  production  facility,   including  the  clean  rooms  and
associated   laboratories  and  installing   manufacturing   equipment.   It  is
anticipated  that the production  facility  should be operational at the rate of
500 units per day in 2001.  Additional  equipment  and staff  should  bring this
facility to its full capacity of 1,000 units per day by 2002.

            Lumenon's  Dorval facility has an existing  capacity of 20 units per
day and  will be used to  manufacture  products  until  the  Ville  St.  Laurent
facility  is  operational.  Once  the  second  facility  is  operational,  it is
Lumenon's  intention to reconfigure  the Dorval facility as an R&D facility with
an ancillary production capability.  The lease for such facility is for a period
of five years ending in January 2004,  with annual rent in the amount of US$3.10
(CDN$4.59)  net per square foot,  or US$22,193  (CDN$32,814)  in the  aggregate.
Taxes and expenses are estimated at US$1.26 (CDN$1.87) per square foot per year,
US$9,042  (CDN  $13,369) in the  aggregate.  Lumenon has the option to renew the
lease for an additional period of five years at a rate equal to the then current
market price for comparable space in the same building. As of June 30, 2000, the
Company  had  spent  US$287,788   (CDN$425,523)  on  leasehold  improvements  to
construct and equip the Dorval facility.

            The  Company   believes  that  the  Ville  St.  Laurent  and  Dorval
facilities  will be adequate  for its  business  as is proposed to be  conducted
until at least the Spring of 2002.


ITEM 3.                 LEGAL PROCEEDINGS

            The  Company  is  not  currently  involved  in  any  material  legal
proceedings.  From  time to time,  however,  it may be  subject  to  claims  and
lawsuits arising in the normal course of business.

                                       28
<PAGE>

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

            Not applicable.

                                     PART II


ITEM 5.                 MARKET FOR COMPANY'S  COMMON STOCK AND RELATED  SECURITY
                        HOLDER MATTERS

            The  Company's  Common Stock has been traded on the NASDAQ  National
Market under the symbol "LUMM" since April 13, 2000. From July 27, 1998 (the day
on which trading in the Common Stock  commenced)  through  January 19, 2000, the
Common Stock was quoted on the Over The Counter Bulletin Board  ("OTCBB").  From
January 19, 2000 to March 8, 2000,  pending the  effectiveness  of the Company's
Registration  Statement on Form 10,  trading in the Common Stock was reported by
the National  Quotation  Bureau in the Pink  Sheets.  From March 9, 2000 through
April 12, 2000,  the Common Stock was quoted on the OTCBB.  The following  table
sets out the high and low bid prices of the  Common  Stock  during the  calendar
year periods indicated.  Such prices through April 12, 2000 reflect inter-dealer
prices, without retail mark-up,  markdown or commissions and may not necessarily
represent actual transactions.




                                                     High             Low
                                                     ----             ---

1998
----

Third Quarter (from July 27th)....................   $4.00          $0.63

Fourth Quarter....................................   $1.50          $0.25



1999
----

First Quarter.....................................   $1.56          $0.25

Second Quarter....................................   $3.50          $0.44

Third Quarter.....................................  $14.25          $1.63

Fourth Quarter....................................  $49.00          $3.50



2000
----

First Quarter.....................................  $51.00         $14.16

Second Quarter....................................  $51.00          $9.13

Third Quarter (to August 31st)....................  $28.50         $14.50

                                       29
<PAGE>

Holders

            As of August 31,  2000,  there were 96 holders of record,  including
depositories, of the Company's Common Stock.


Dividends

            The Company has never  declared  or paid any cash  dividends  on its
Common Stock and presently anticipates that all future earnings, if any, will be
retained for the  development of its business.  The payment of future  dividends
will be at the  discretion of the  Company's  Board of Directors and will depend
upon, among other things, future earnings,  capital requirements,  the financial
condition of the Company, and general business conditions.


Recent Sales of Unregistered Securities

            The  following  unregistered  securities  were issued by the Company
during the quarter ended June 30, 2000:

<TABLE>
<CAPTION>
                                                                                Number of Shares          Offering/
          Date of                        Description of                       Sold/Issued/Subject          Exercise
       Sale/Issuance                    Securities Issued                    To Options or Warrants    Price Per Share
       -------------                    -----------------                    ----------------------    ---------------
<S>                         <C>                                                      <C>                   <C>
      April 14, 2000         Warrants to purchase shares of Common Stock             26,000                US$6.00
                             to Groome Capital. com, Inc., an accredited
                                             investor

       May 8, 2000           Warrants to purchase shares of Common Stock            150,000                US$0.90
                              issued to Lavery, de Billy as nominee for
                                        accredited investors

       May 19, 2000          Warrants to purchase shares of Common Stock            200,000                US$0.90
                              issued to Lavery, de Billy as nominee for
                                        accredited investors

         Various             Shares issued to Molex, and accredited investor       5,800,000              US$26.38
                             upon the exercise of the Services Warrant
</TABLE>


            The  issuance  of these  securities  was  exempt  from  registration
pursuant  to  Section  4(2)  of the  Securities  Act of  1933,  as  amended,  as
transactions by the Company not involving a public offering. All such securities
were deemed

                                       30
<PAGE>

by the Company to be restricted  securities and were appropriately  legended and
restricted  as to  subsequent  transfer.  No  underwriter  was  involved in such
transactions.


ITEM 6.                 SELECTED FINANCIAL DATA

            The  following  table sets  forth  selected  financial  data for the
Company for the periods indicated, derived from financial statements prepared in
accordance with generally  accepted  accounting  principles in the United States
that have been audited by KPMG LLP,  Montreal,  Canada,  for the periods  ending
June 30, 2000,  June 30, 1999 and  December  31, 1998.  The data set forth below
should be read in conjunction with the Company's financial  statements and notes
thereto and  "Management's  Discussion  and Analysis of Financial  Condition and
Results of Operations"  included elsewhere herein.  Unless otherwise  indicated,
all dollar amounts in this Form 10-K are expressed in United States dollars.

            The Company  changed its fiscal  year end to June 30,  effective  in
1999.  Amounts  reported  for fiscal year 1999 are for the six months ended June
30, 1999.


                             SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                              December 31,       June 30,         June 30,            June 30,
                                 1998              1999             2000                2000
                              ------------       --------         --------            --------


                                          (in Canadian dollars)                    (in U.S. dollars)


<S>                           <C>               <C>             <C>                  <C>
Current Assets                $  552,912        $2,044,584      $ 6,058,929          $4,097,745

Capital Assets                      --           1,492,495        4,602,682           3,112,865

Total Assets                     553,155         3,547,080       12,199,898           8,250,978

Liabilities                      119,349         1,002,582        1,606,715           1,086,645

Stockholders'                    433,806         2,544,498       10,314,497           6,975,853
  Equity
</TABLE>

<TABLE>
<CAPTION>
                             Fiscal Year      From Inception                        Fiscal Year
                               Ended          to December 31,  Six Months Ended        Ended
                            June 30, 2000         1998           June 30, 1999     June 30, 2000
                            -------------     --------------   ----------------    -------------

                                        (in Canadian dollars)                    (in U.S. dollars)

<S>                          <C>                   <C>              <C>             <C>
Research and
  Development               $148,091,681          $ 12,291      $   162,370        $218,968,358
  Expenditures (1)

General and
  Administrative (2)           3,323,130           290,435          569,507           4,913,579

Other Income (Loss)              216,301            15,217          (17,674)            319,823

Net Loss                     151,198,510           287,509          749,551         223,562,114

Loss Per Share (2)          $       5.95          $   0.03      $      0.04        $       8.80
</TABLE>

--------------------------

            (1)         Amounts  shown are net of tax  credits  and  grants  and
                        include non-cash expenses resulting from the issuance of
                        Common Stock upon exercise of the Services  Warrant (see
                        "Management's   Discussion  and  Analysis  of  Financial
                        Condition and Results of Operations").

            (2)         Including  depreciation of US$604,369  (CDN$893,620) for
                        the year ended June 30, 2000 and none before.

            (3)         As of  December  31,  1998,  June 30,  1999 and June 30,
                        2000,  the  Company  had   16,455,000,   20,215,000  and
                        32,970,039 issued and outstanding shares,  respectively.
                        The  Company  has never  paid  dividends  on its  Common
                        Stock.

                                       31
<PAGE>

            At December 31, 1998,  June 30, 1999 and June 30, 2000, the exchange
rate between the Canadian dollar and the US dollar were CDN$1.533, CDN$1.472 and
CDN$1.4786 to US$1.00, respectively, based on the rate as of each date issued by
the Bank of Canada.


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


Forward-Looking Statements and Uncertainty of Financial Projections

            Forward-looking  statements are not based on historical  information
but  relate  to  future  operations,  strategies,  financial  results  or  other
developments.  Forward-looking  statements are necessarily  based upon estimates
and assumptions that are inherently  subject to significant  business,  economic
and competitive  uncertainties and  contingencies,  many of which are beyond the
Company's control and many of which, with respect to future business  decisions,
are subject to change.  These  uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any  forward-looking  statements made by, or on behalf of, the Company.  Such
uncertainties  include,  among others,  the following:  (i)  competition and the
pricing and mix of products  offered by the  Company and its  competitors;  (ii)
difficulties of few product development;  (iii) technology changes;  (iv) market
acceptance  of the  Company's  products;  (v) the  ability to attract and retain
qualified  personnel;  (vi) changes in the Company's  development  plans;  (vii)
larger than expected  fluctuations in demand for the Company's products;  (viii)
general economic  conditions;  (ix) economic and business conditions specific to
the  photonics  market;  and (x) the other risk factors  referenced in this Form
10-K.

            From inception (March 2, 1998) to December 31, 1998, activities were
mainly  oriented  to the  organization  of the  Company.  Due to the  change  of
year-end,  figures of 1999  reflect a  six-month  period.  During  that  period,
highlights of the activities are represented by certain  financial  arrangements
entered  into in  conenction  with the  construction  of the pilot plant and the
acquisition of related capital assets. This management's discussion and analysis
focuses on year ended June 30, 2000  compared to the period  from  inception  to
June 30, 1999.


Results of Operations

            The Company is a Development Stage Enterprise, which has not, during
the  periods  presented  in the  Selected  Financial  Data above,  realized  any
revenues from operations.

            Research and  development  expenses in 2000,  net of tax credits and
grants, were US$148,091,681  (CDN$218,968,358).  Of these costs,  US$147,003,070
(CDN$217,358,739)  are non-cash  expenses  resulting from the issuance of Common
Stock in consideration of certain services  rendered by Molex under the terms of
the Teaming Agreement. In connection with such agreement,  the Company issued to
Molex an aggregate of 5,800,000 shares upon the exercise of the Services Warrant
granted to Molex under the Teaming  Agreement.  These  expenses were recorded at
the average monthly market price of the shares issued during the period in which
the services were rendered.  The Services  Warrant has been exercised in full as
of June 30, 2000.

            The  Company's  research and  development  expenditures,  other than
those recorded under the Services Warrant,  net of tax credits and grants,  were
US$1,088,611 (CDN$1,609,619) during the twelve-month period ended June 30, 2000,
compared to US$118,655  (CDN$174,661)  for the period from inception to June 30,
1999,  an increase of  US$969,956  (CDN$1,434,958).  From  inception to June 30,
1999, the Company  incurred little research and development  expenses because it
was not yet engaged in full  operations.  At June 30,  2000,  the Company had an
existing  operation  consisting of a sizeable research and development  group, a
facility and an expansion project underway. During the year ended June 30, 2000,
Lumenon designed new DWDM and WWDM products,  developed  materials and processes
and produced prototype devices.

                                       32
<PAGE>

            General    and    administrative    expenses    were    US$2,718,761
(CDN$4,019,959)  in 2000,  compared to US$584,200  (CDN$859,942)  for the period
from  inception to June 30, 1999, an increase of  US$2,134,561  (CDN$3,160,017).
The charges for the period from  inception to June 30, 1999,  consist  mainly of
salaries as a result of the  increased  number of  administrative  personnel and
related expenses to manage the Company's  expansion  project and the increase in
activities  resulting from such project.  In 2000,  the Company has,  during the
year,  built a corporate  structure  consisting  of teams in Corporate  Finance,
Research and  Development,  Manufacturing,  Business  Development  and Corporate
Development.

            Other  income,  net of interest  expense,  consisting of interest on
cash and term  deposits  and gain on foreign  exchange,  earned  during the year
ended June 30, 2000 amounted to US$216,301  (CDN$319,823)  compared to a loss of
US$1,669 (CDN$2,457) for the period from inception to June 30, 1999, an increase
of  US$217,970  (CDN$322,280).  The increase is due to the fact that the Company
had more  cash on hand  during  fiscal  2000 than in the  preceding  period as a
result of capital raised through private placements and the exercise of warrants
and options and because of a favorable  variation in the  exchange  rate between
the Canadian and the US dollar.

            As a result of the above,  the  Company's  overall loss for the year
ended June 30, 2000  amounted  to  US$151,198,510  (CDN$223,562,114)  or US$5.95
(CDN$8.80) per share, compared to US$704,524 (CDN$1,037,060) for the period from
inception to June 30, 1999.


Financial Condition, Liquidity and Capital Resources


            From its inception to June 30, 1999, the Company had been engaged in
capital raising, developmental and organizational activities and construction of
its  pilot  plant.  During  the year  ended  June 30,  2000,  the  Company  made
significant  investments in staffing and equipment.  These investments and costs
have been financed mainly through proceeds of private  placements,  the exercise
of warrants  issued in such private  placements and the exercise of options.  In
2000, the Company  realized net proceeds of US$9,213,670  (CDN$13,623,333)  from
these sources.

            In July 1999, Lumenon issued 960,000 units at a price of US$1.00 per
unit.  Each unit  comprised  one share of Common  Stock and one  warrant for the
purchase of one  additional  share at a price of US$1.50  per share  before June
2001.

            In September  1999,  Lumenon  issued 407,000  additional  units at a
price of US$4.00 per unit. Each unit comprised one share of Common Stock and one
warrant for the purchase of one additional share at a price of US$6.00 per share
before  September  2000. Of these  warrants,  125,000 were  exercised in October
1999.

            In  September  1999,  Lumenon  issued  400,000  additional  units to
holders of the  convertible  notes issued in March 1999 upon the full conversion
of their notes.  Each unit  comprised  one share of Common Stock and one warrant
for the purchase of one additional  share at a price of US$0.90 per share before
September  30, 2001.  Lumenon  issued an  additional  30,000 units for US$15,000
(CDN$22,179) to the underwriter who had placed the securities upon conversion of
the  notes  into  units.  The  warrants  included  in the  units  issued  to the
underwriter   were   exercised  in  December  1999  for  proceeds  of  US$27,000
(CDN$39,922).

            In November 1999,  Lumenon issued 21,500 units at a price of US$7.00
per unit.  Each unit comprised one share of Common Stock and one warrant for the
purchase  of one  additional  share  at a price  of  US$9.00  per  share  before
September 30, 2000.

            In November 1999,  Lumenon issued 10,000 additional units at a price
of US$10.50  per unit.  Each unit  comprised  one share of Common  Stock and one
warrant for the  purchase  of one  additional  share at a price of US$15.50  per
share before October 31, 2000.


                                       33
<PAGE>

            In November 1999, Molex exercised warrants issued to it in June 1999
to acquire  1,666,667  shares at a price of US$0.90 per share for total proceeds
of US$1,500,000 (CDN$2,217,900).

            In January 2000,  Lumenon issued 86,022  additional units at a price
of US$23.25 per unit for a total consideration of US$2,000,000  (CDN$2,957,200).
Each unit  comprised  one share of Common  Stock and one half of a common  share
purchase warrant per share of Common Stock purchased. Each of these warrants can
be  exercised  to acquire one half share of Common  Stock at a price of US$30.00
per share before December 7, 2000.

            The second  closing under the Stock  Purchase  Agreement with Molex,
which was  subject to Lumenon  proving  out its  technology  and its  ability to
manufacture and deliver certain  devices,  took place in March 2000 and resulted
in the issuance of 1,500,000 common shares for cash  consideration of US$750,000
(CDN$1,108,950).

            Options to acquire a total of 742,850 shares were  exercised  during
the  twelve-month  period ended June 30, 2000 for total  proceeds of  US$742,850
(CDN$1,098,378).

            Additionally,  warrants to acquire a total of  2,747,667  (including
1,666,667  shares  issued to Molex upon  exercise of its  warrants)  shares were
exercised in the  twelve-month  period ended June 30, 2000 for total proceeds of
US$3,348,000 (CDN$4,950,352).

            The funds raised through the above  financing  activities  have been
partially   offset   by   operating   activities   amounting   to   US$3,641,421
(CDN$5,384,204).  The  Company has  disbursed  US$1,974,110  (CDN$2,918,919)  in
property and equipment  during the  twelve-month  period ended June 30, 2000 and
made deposits of US$1,031,495  (CDN$1,525,168)  on lease agreement and equipment
ordered.

            At June  30,  2000,  the  Company  had  cash  on hand of  US$761,113
(CDN$1,125,382).  In addition,  the Company had US$2,907,891  (CDN$4,299,608) in
term  deposits  with  maturity  dates no later than  August 23, 2000 and with no
restriction  in their use. At June 30, 2000, the market value  approximated  the
carrying value.

            The above  balances in cash and term  deposits,  along with proceeds
from a financing of a US$35,000,000  (CDN$51,751,000) five-year convertible note
on July 25, 2000 (see "Material  Agreements - Financing  Agreements" in Item 1),
should,  in  management's  estimation,  be  sufficient  to  meet  the  Company's
financial needs to at least December 31, 2001, excluding unforeseen  significant
capital  expenditures.  The Company has no financial obligations of significance
as at June 30, 2000 other than  operating  lease  commitments  for its  existing
premises and equipment, and employment agreements.  Minimum lease payments under
operating lease agreements for premises and equipment for the next twelve months
amount to US$661,773 (CDN$978,497).

            The Company does not believe that  inflation  has had a  significant
impact on its results of operations.


Subsequent Event

            On July 25, 2000,  the Company sold  US$35,000,000  (CDN$51,751,000)
aggregate  principal  amount  of  convertible  notes  due July  25,  2005 to two
institutional  investors  (see "Material  Agreements - Financing  Agreements" in
Item 1 for a detailed description).


                                       34

<PAGE>

Foreign Currency Transactions

            Because the Canadian  dollar is primary in the economic  environment
in which the Company operates,  the Canadian dollar is its functional  currency.
Accordingly,  amounts  presented in US dollars are provided,  for convenience of
reference only and are based on the closing  exchange rate at December 31, 1998,
June 30, 1999 and June 30, 2000, which were CDN$1.533, CDN$1.472 AND CDN $1.4786
per US dollar, respectively. The rate stated is from the Bank of Canada for each
respective date.


ITEM 7A.                QUANTITATIVE AND QUALITATIVE  DISCLOSURES  ABOUT MARKET
                        RISK

            The  Company is exposed to  immaterial  levels of market  risks with
respect to  changes  in foreign  currency  exchange  rates.  Market  risk is the
potential loss arising from adverse changes in market rates and prices,  such as
foreign  currency  exchange  rates.  To the extent that the Company  consummates
financings  outside of Canada,  the Company receives  proceeds in currency other
than the Canadian dollar.  Most of the Company's operating expenses are incurred
in Canadian  dollars.  Thus, the Company's results of operations will tend to be
adversely  affected if there is a strong Canadian  dollar.  The Company does not
enter into derivatives or other financial instruments for trading or speculative
purposes,  nor does it enter into financial instruments to manage and reduce the
impact of changes in foreign currency exchange rates.


ITEM 8.                 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

            See Index to Financial Statements.


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

            Not applicable.

                                       35
<PAGE>

                                    PART III

ITEM 10.                DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY


            The directors and executive  officers of Lumenon as of June 30, 2000
and their positions with the Company were:

Name                     Age   Position
----                     ---   --------

Dr. S. Iraj Najafi        46   Director, Chief Executive Officer and President

Dr. Mark P. Andrews       48   Director, Vice President, Chief Technical Officer
                               and Secretary

Dr. Anthony L. Moretti    48   Director

Denis N. Beaudry          56   Director

Pierre-Paul Allard        40   Director

Guy Brunet                48   Director

Gilles Marcotte           61   Director

Pierre-Andre Roy          59   Director

Dr. Chia-Yen Li           38   Chief Operating Officer

Vincent Belanger          33   Vice President-Finance and
                               Chief Financial Officer

Reginald J.N. Ross        39   Vice President of Corporate Development

            Dr.  Iraj  Najafi  joined  the  Company  in July  1998 as  Director,
President and Chief Executive Officer.  He was a co-founder of LILT Canada Inc.,
a  wholly-owned  subsidiary of the Company in 1998,  with Dr. Mark Andrews.  Dr.
Najafi received B.Sc and M.Sc.  Degrees in physics from Shiraz  University and a
Ph.D.  in  Physics  from  the  Ecole  Centrale  in  Paris.  After  two  years of
postdoctoral  research at the  University  of Florida,  Gainesville,  Dr. Najafi
joined the Department of Electrical  Engineering at the Ecole  Polytechnique  in
Montreal in 1986,  as a  researcher  and  subsequently  as  professor,  where he
developed an international  reputation as a pioneer in glass integrated  optics.
He also founded the Photonics  Research  Group at the Ecole  Polytechnique.  Dr.
Najafi has co-authored more than 300 articles,  patents, book chapters and books
and taken a leadership role in over 25 international conferences.  He has been a
guest editor for Applied Optics and associate editor of Optical Engineering. Dr.
Najafi is a member of the International  Society for Optical  Engineering (SPIE)
and has been  elected a Fellow of the SPIE.  Dr.  Najafi is on leave  from Ecole
Polytechnique  until January 2001. He may extend his leave for an additional two
years.

            Dr. Mark P.  Andrews  joined the  Company in July 1998 as  Director,
Vice President,  Chief Technical Officer and Secretary of the Company.  He was a
co-founder  of LILT Canada  Inc.  Dr.  Andrews  received  his Ph.D.  in physical
inorganic  chemistry from the University of Toronto. In 1984, Dr. Andrews joined
the staff of AT&T Bell  Laboratories  (now Lucent  Technologies)  as a Principal
Investigator in the Materials  Research  Division where his research  focused on
the study of non-linear  optical properties of polymer  composites.  In 1990, he
joined the Department of Chemistry at McGill University,  where he developed new
photonic glasses and polymers.  Dr. Andrews has been an Assistant  Professor and
currently is an Associate  Professor at McGill University,  from which he took a
leave of absence from commencing  February 1, 2000 in order to devote all of his
time to the  growth of the  Company.  He is a member of the  Materials  Research
Society and the International Society for Optical Engineers (SPIE).

            Dr.  Anthony L.  Moretti  became a Director  in December  1999.  Dr.
Moretti  has been  employed  in various  executive  capacities  with Molex Fiber
Optics    Inc.,    Chicago,    Illinois,    since   1997.    He   is   currently
Director-Optoelectronic  Development,  Molex Fiber Optics Inc, a  subsidiary  of
Molex.  Prior  to  working  at  Molex,  Dr.  Moretti  worked  as an

                                       36
<PAGE>

independent  consultant  for high  tech  companies  from  1994 to 1997 and prior
thereto was the Technical Director of Amoco Corporation's  research  laboratory,
which designed and developed optical AWG devices.

            Mr. Denis N. Beaudry  became a Director in June 1999. Mr. Beaudry is
President of Polyvalor,  Montreal,  Quebec, Canada, a limited partnership formed
by the Ecole  Polytechnique for the purpose of commercializing  its intellectual
property.  Since 1984, he has occupied the position of Director of the Centre de
Developpement   Technologique  of  the  Ecole   Polytechnique  whose  sphere  of
activities includes technology  transfer,  licensing of technology and software,
joint  creation  with private  industry of  laboratories  and research  centers,
strategic alliances, research partnerships,  industrial chairs and the emergence
of high technology  enterprises.  In 1998, he joined  Polyvalor as President and
General  Manager.  His role consists of enhancing the value of research  results
for  commercial  use by  means  of  start-up  of  high-tech  companies  in which
Polyvalor  holds a participation  or interest.  Mr. Beaudry was President of the
Quebec Association of University Research Directors in 1992, and is at present a
member of the Board of Directors of the Centre des  Technologies  Textiles,  the
College Rosemont, the Corporation de Financement de l'Institut de Cardiologie de
Montreal, the Centre de Technologies du Gaz Naturel, the Corporation Commerciale
de Materiaux  Composites,  the Centre de Developpement  Rapide de Produits et de
Procedes,  and the firms  Sinlab  Inc.,  BioSyntech  Inc.,  a  biopharmaceutical
company, Phytobiotech Inc., Polyplan Inc., Odotech Inc. and COESI Inc.

            Mr.  Pierre-Paul  Allard  became a Director  in December  1999.  Mr.
Allard is General  Manager  of Cisco  Systems,  Canada,  a  subsidiary  of Cisco
Systems Inc., an Internet  infrastructure  firm. Mr. Allard has been employed in
various executive capacities with Cisco since 1993.

            Dr. Chia-Yen Li joined the Company in August 1999 as Chief Operating
Officer. Dr. Li received his Ph.D. in Materials Science and Engineering from the
University  of  California  in Los  Angeles  (UCLA).  Dr.  Li has  10  years  of
experience in the  development of sol-gel  materials for photonics.  From August
1994 to August  1995,  Dr. Li was a  Visiting  Scholar at the  Optical  Services
Center of the  University of Arizona  where he conducted  research on integrated
optical  devices and materials on a short-term  basis.  From August 1995 to July
1997,  Dr. Li was a Staff  Scientist  at NZ  Applied  Technologies,  researching
federally funded projects relating to photonics materials and devices. From July
1997 until  joining the Company,  Dr. Li was a Senior  Scientist  at  MicroTouch
Systems  Incorporated,  which is a  supplier  of touch and pen  sensitive  input
systems, including touchscreens and electronic whiteboards. Dr. Li was in charge
of designing and implementing manufacturing processes on behalf of MicroTouch.

            Mr.  Vincent  Belanger  joined  the  Company  in June  1999 as Chief
Financial  Officer  and  Treasurer.  In  August  2000,  he  was  elected  to the
additional  office  of  Vice  President-Finance.  Mr.  Belanger  is a  chartered
accountant.  From 1989 until  September  1998, Mr.  Belanger was employed in the
corporate   finance   department  of  KPMG  LLP,  one  of  the  world's  leading
professional advisory firms, in Montreal.  From September 1998 until joining the
Company,  Mr.  Belanger was employed as Vice  President  Finances and  Corporate
Controller of Viper  International  Holdings Ltd., a holding company established
for the purpose of making acquisitions.

            Mr.  Reginald  Ross joined the Company in November  1999 as the Vice
President of Corporate Development and Chief of Strategic  Operations.  Mr. Ross
has a B.Eng  (Electrical)  from Royal  Military  College of Canada and is both a
Professional Engineer (Ontario) and a Certified Project Management Professional.
Mr. Ross has a history of over 20 years in  information  technology  project and
program  management  both within the  industry  and the  Department  of National
Defense of Canada.  From September  1999 through  December 1999, Mr. Ross was an
independent   consultant  assisting  companies  in  the  information  technology
industry, focusing on optics and photonics. From June 1999 to September 1999, he
was Chief Executive Officer and President of Fiberview  Technologies  Limited, a
company  producing  optical systems  devices;  from August 1998 to May 1999, Mr.
Ross was  Program  Manager  for  SpaceBridge  Networks  Corporation,  a  company
providing broadband satellite  communications systems; and prior to August 1998,
Mr. Ross was a  communications  officer in the  Department  of National  Defense
retiring at the rank of Major. Through his recent experience as a consultant and
executive,  Mr. Ross also brings  considerable  expertise in strategic analysis,
planning and executive management within the high-tech start-up environment.


                                       37
<PAGE>

            Mr.  Pierre-Andre Roy became a Director in May 2000. Mr. Roy studied
Administration and Accounting at Laval University (Quebec City) and at Ecole des
Hautes Etudes Commerciales (Montreal). Mr. Roy joined Bombardier Inc. in 1980 as
Vice President of Finance and  Administration in its Mass Transit  Division.  In
1987, he became Controller for Bombardier's  Transportation  Equipment Group and
then became Controller for Bombardier Inc. In 1989, Mr. Roy joined  Bombardier's
Aerospace  Group as Vice President of Finance where he was also  responsible for
Information  Technologies  and  Sales  Financing  activities.  In  1992,  he was
promoted to President and General  Manager of the Aerospace  Group's  Amphibious
Aircraft  Division.  In 1993,  Mr. Roy assumed the role of President and COO for
Bombardier Capital.  From 1995 to 1996, he served in a dual role as President of
Bombardier Capital and Treasurer of the holding corporation, Bombardier Inc. Mr.
Roy  relinquished  his position as Treasurer in May 1996 to focus on  developing
Bombardier Capital business interests. He retired in February 2000.

            Mr. Guy Brunet became a Director in March 2000.  Mr. Brunet has been
an  Investment  Advisor for RBC Dominion  Securities  Wood Gundy and  Richardson
Greenshields, investment banking firms, for over twenty years.

            Mr. Gilles  Marcotte  became a Director in March 2000. He has a MSc.
degree in Commerce at the  University  of Sherbrooke  and is a Fellow  Chartered
Accountant.  He was a partner at KPMG and its  predecessor  firms since 1979 and
retired in 1998 at the age of 58. Prior to retirement,  he was Partner-in-charge
of KPMG's  Quebec  City  office and has been on the Board of  Directors  of KPMG
Canada. Mr. Marcotte sits on the Board of Directors of a number of companies and
is President of the Quebec Symphony Orchestra and Caisse Populaire Desjardins of
Charlesbourg. Mr. Marcotte also chairs Lumenon's Audit Committee.

            Dr.  Moretti  is  the  nominee  of  Molex  which,  under  the  Molex
Agreements,  has the right to appoint one nominee to the Board of Directors. Mr.
Beaudry is the nominee of Polyvalor  and McGill  University,  which jointly have
the right to appoint one nominee to the Board of Directors.  There are no family
relationships among directors and executive officers.

            Commencing  with the 1999 annual  meeting of  stockholders  (held on
December 7, 1999),  directors were divided into three classes,  with the initial
term  of  office  of (i)  Class  I to  expire  at the  2000  annual  meeting  of
stockholders,   (ii)  Class  II  to  expire  at  the  2001  annual   meeting  of
stockholders,  and  (iii)  Class III to expire  at the 2002  annual  meeting  of
stockholders. Commencing with the 2000 annual meeting of stockholders, directors
elected to succeed those directors whose terms then expire will be elected for a
term of office to expire at the third succeeding  annual meeting of stockholders
after their election. At the 1999 annual meeting of stockholders, Dr. Najafi and
Mr. Allard were elected as Class I directors, Mr. Beaudry was elected as a Class
II director and Dr. Andrews and Dr. Moretti were elected as Class III directors.
Messrs.  Roy,  Brunet  and  Marcotte,  each of whom was  elected by the Board of
Directors subsequent to the 1999 Annual Meeting of stockholders, were designated
as a  Class  I  director,  a  Class  II  director  and  a  Class  III  director,
respectively.


ITEM 11.                EXECUTIVE COMPENSATION

            The  following  table sets  forth,  for the periods  indicated,  all
compensation  awarded  to,  earned  by or paid to the  chief  executive  officer
("CEO").  No other  executive  officer of the Company  received  compensation in
excess of US$100,000 in 2000.

                                       38

<PAGE>
                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                                                          Long-Term
                                                                                          ---------
                                                     Annual Compensation                 Compensation
                                                     -------------------                 ------------
Name and Principal Position             Year(1)           Salary(2)        Bonus         # of Options
---------------------------             -------           ---------        -----         ------------

<S>                                     <C>              <C>               <C>            <C>
S. Iraj Najafi                          2000             US$121,736         -                   -
Chief Executive Officer and President   1999(3)          US$36,798          -             200,000
                                        1998             US$31,311          -                   -
</TABLE>

------------------------

(1)         The Company commenced operations in 1998.

(2)         Certain of the executive  officers of the Company  routinely receive
            other benefits from the Company,  the amounts of which are customary
            in  the  Company's  industry.  The  Company  has  concluded,   after
            reasonable  inquiry,  that the  aggregate  amounts of such  benefits
            during  each of the  periods  reflected  in the table  above did not
            exceed  the  lesser  of  US$50,000   (CDN$73,600)   or  10%  of  the
            compensation set forth above in respect of any such period.

(3)         Represents solely the six-month period ended June 30, 1999.


Compensation of Directors

            No  remuneration  or  directors  fees were paid to  directors of the
Company during the year ended June 30, 2000, with the exception of reimbursement
of expenses.  During the fiscal year ended June 30, 2000, non-employee directors
were granted the following options to purchase Common Stock:

            Guy Brunet was granted an option to acquire 50,000 shares at a price
            of US$28.00 per share  vesting  over two years in equal  tranches of
            25,000,  exercisable  for a period of two years after their  vesting
            dates of March 28, 2001 and March 28, 2002, respectively.

            Gilles  Marcotte was granted an option to acquire 50,000 shares at a
            price of US$28.00 per share vesting over two years in equal tranches
            of 25,000, exercisable for a period of two years after their vesting
            dates of March 28, 2001 and March 28, 2002, respectively.

            The  Board of  Directors  will  determine  the  remuneration  of the
directors and officers of the Company during the current and  subsequent  fiscal
years.


Employment Agreements

            Dr.  Chia-Yen  Li is  employed  by the  Company  as Chief  Operating
Officer pursuant to an employment  agreement effective August 1, 1999 for a term
of five years.  The  agreement  provides for an initial base salary of US$84,539
(CDN$125,000)  annually. The Company also granted Dr. Li an option to acquire up
to 250,000 shares of Common Stock.  Throughout  the employment  period and for a
period of three years  thereafter,  the agreement  restricts Dr. Li's ability to
engage  in  activities  competitive  with  those of the  Company.  In  addition,
throughout the employment period and for a period of two years  thereafter,  Dr.
Li has agreed  that he will not  solicit  any person  employed by the Company to
leave the  Company,  or employ or  solicit  for  employment  any  person  who is
employed by the Company.  The  agreement may be terminated by the Company (i) in
the event of the bankruptcy, liquidation, or dissolution of the Company, (ii) if
Dr. Li commits  certain  acts  constituting  cause or (iii) if he is in material
breach of the  agreement.  Dr. Li may terminate the  employment  agreement  upon
three months' prior written notice to the Company.

                                       39
<PAGE>

            Vincent  Belanger  is  employed  by the  Company as Chief  Financial
Officer pursuant to an employment  agreement  effective June 14, 1999 for a term
of five years.  The  agreement  provides for an initial base salary of US$84,539
(CDN$125,000)  annually.  The Company  also  granted  Mr.  Belanger an option to
acquire up to 300,000 shares of Common Stock.  Throughout the employment  period
and for a  period  of  three  years  thereafter,  the  agreement  restricts  Mr.
Belanger's  ability  to  engage  in  activities  competitive  with  those of the
Company.  In addition,  throughout the employment period and for a period of two
years  thereafter,  Mr.  Belanger has agreed that he will not solicit any person
employed  by the  Company  to leave  the  Company,  or  employ  or  solicit  for
employment  any person who is  employed by the  Company.  The  agreement  may be
terminated by the Company (i) in the event of the  bankruptcy,  liquidation,  or
dissolution  of  the  Company,   (ii)  if  Mr.  Belanger  commits  certain  acts
constituting  cause or (iii) if he is in material  breach of the agreement.  Mr.
Belanger may terminate the  employment  agreement upon one month's prior written
notice to the Company.

            Reginald J.N. Ross is employed by the Company as the Vice  President
of  Corporate  Development  and Chief of  Strategic  Operations  pursuant  to an
employment  agreement  effective  December 1, 1999 for a term of five years. The
agreement  provides  for an  initial  base  salary  of  US$84,539  (CDN$125,000)
annually.  The Company  also granted Mr. Ross an option to acquire up to 300,000
shares of Common Stock.  Throughout  the  employment  period and for a period of
three years thereafter,  the agreement  restricts Mr. Ross' ability to engage in
activities  competitive with those of the Company.  In addition,  throughout the
employment period and for a period of two years thereafter,  Mr. Ross has agreed
that he will not  solicit  any  person  employed  by the  Company  to leave  the
Company,  or employ or solicit for  employment any person who is employed by the
Company.  The agreement may be terminated by the Company (i) in the event of the
bankruptcy,  liquidation,  or  dissolution  of the  Company,  (ii) if he commits
certain  acts  constituting  cause or (iii) if he is in  material  breach of the
agreement.  Mr. Ross may terminate  the  employment  agreement  upon one month's
prior written notice to the Company.

Stock Options

            The Company has created a stock option plan (the "Plan") for its key
employees,  its  Directors  and  officers and certain  consultants.  The Plan is
administered  by the Board of Directors of the Company.  The Board may from time
to time designate individuals to whom options to purchase shares of common stock
of the  capital  stock of the Company may be granted and the number of shares to
be optioned to each. The total number of common shares to be optioned to any one
individual may not exceed 5% of the total of the issued and outstanding  shares.
The option price per share for common stock that is the subject of any option is
fixed by the Board when such option is granted and cannot  involve a discount to
the market price at the time the option is granted.  The period  during which an
option  is  exercisable  may not  exceed  10 years  from the date the  option is
granted.  Options may not be assigned or  transferred  and expire within a fixed
period from the  termination of employment or death of the  beneficiary.  In the
event of certain  basic  changes in the  Company,  including  a  reorganization,
merger or consolidation of the Company,  or the purchase of shares pursuant to a
tender offer for shares of Common Stock of the Company, in the discretion of the
Board,  each  option  may  become  fully and  immediately  exercisable.  Options
enabling  their  beneficiaries  to  acquire a total of  2,277,150  shares of the
Company's Common Stock were outstanding  under the Plan as of June 30, 2000. The
number of shares of Common  Stock as to which  options may be granted  under the
Plan has been  increased  from  2,500,000 to  6,000,000,  subject to approval by
stockholders of the Company at the 2000 annual meeting of stockholders.

            The Company  has never  granted any stock  appreciation  rights.  No
stock options were granted by the Company to the Chief Executive  Officer during
the fiscal year ended June 30, 2000.

Option Exercised and Option Values

            The  following  table  provides   information   related  to  options
exercised by the Chief Executive  Officer and the number of and value of options
held by the Chief Executive Officer on June 30, 2000.


                                       40
<PAGE>

<TABLE>
<CAPTION>

                         Securities        Aggregate Value                                     Value of Unexercised in the
                          Acquired           Realized          Unexercised Options as at           money optionsas at
          Name           On Exercise           ($)                 June 30, 2000 (#)                June 30, 2000 ($)
          ----           -----------           ---                 -----------------                -----------------

                                                             Exercisable     Unexercisable       Exercisable    Unexercisable
                                                             -----------     -------------       -----------    -------------
<S>                        <C>               <C>
     S. Iraj Najafi        200,000         US$5,100,000         -                -                   -               -
                                         (CDN$7,540,860)
</TABLE>



Other Compensation Plans

            The Company has no pension plan or other  compensation plans for its
executive officers or directors.


ITEM 12.                SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
                        AND MANAGEMENT

            The voting securities of the Company outstanding as of June 30, 2000
consisted of 32,970,039  shares of Common Stock.  The following table sets forth
information concerning ownership of Common Stock as of June 30, 2000 by (i) each
director,  (ii) each  executive  officer,  (iii)  all  directors  and  executive
officers as a group,  and (iv) each person who, to the knowledge of the Company,
owned beneficially more than 5% of the Common Stock. Unless otherwise indicated,
the  address of each such  holder is in care of the  Company,  8851  Transcanada
Highway,  Ville  Saint-Laurent,  Quebec,  Canada  H4S 1Z6.  Except as  otherwise
indicated,  and subject to applicable  community  property laws, each person has
sole  investment  and voting power with respect to the shares  shown.  Ownership
information is based upon  information  furnished by the respective  holders and
contained in the Company's records.

<TABLE>
<CAPTION>
                                                                      Number of Shares
                    Directors, Nominees, Executive             of Common Stock Beneficially      Percentage
                      Officers and 5% Stockholders                       Owned (1)               -----------
                      -----------------------------                   ---------------

<S>                                                                     <C>                          <C>
Dr. S. Iraj Najafi.....................................                 5,037,500(2)                 15.3%

Najafi Holding Inc.(2).................................                 5,037,500(2)                 15.3%

Dr. Mark P. Andrews....................................                 4,812,500(3)                 14.6%

Andrewma Holding Inc...................................                 4,687,500                    14.2%

Anthony L. Moretti(4)..................................                10,314,667(5)                 31.3%

Molex Incorporated(4)..................................                10,314,667                    31.3%

Denis N. Beaudry(6)....................................                    50,000(6)                  (7)

Dr. Chia-Yen Li........................................                    55,650(8)                  (7)

Vincent Belanger.......................................                    44,150(9)                  (7)

Reginald J.N. Ross.....................................                    50,000(10)                 (7)

Guy Brunet.............................................                         -(11)                  --
</TABLE>

                                       41

<PAGE>

<TABLE>
<CAPTION>
                                                                      Number of Shares
                    Directors, Nominees, Executive             of Common Stock Beneficially        Percentage
                      Officers and 5% Stockholders                       Owned (1)                 -----------
                      -----------------------------                   ---------------

<S>                                                                  <C>                               <C>
Gilles Marcotte........................................                   1,000(11)                      --

Pierre-Paul Allard.....................................                       -(11)                      --

Pierre-Andre Roy.......................................                           -                      --

All directors and executive officers as a group........              20,609,617(12)                    62.0%
------------------------------------
</TABLE>

(1)         A person is deemed to be the beneficial  owner of voting  securities
            that can be acquired  by such  person  within 60 days after June 30,
            2000  upon the  exercise  or  conversion  of  options,  warrants  or
            convertible securities. Each beneficial owner's percentage ownership
            is determined by assuming  that  options,  warrants and  convertible
            securities  that are held by such  person (but not those held by any
            other person) and that are exercisable or convertible within 60 days
            after June 30, 2000 have been exercised or converted.
(2)         Dr. Najafi is the sole stockholder of Najafi Holding Inc.
(3)         Includes (i) 75,000 shares of Common Stock issuable upon exercise of
            options  held by Dr.  Andrews  and (ii)  4,687,500  shares  owned by
            Andrewma   Holdings   Inc.,  of  which  Dr.   Andrews  is  the  sole
            shareholder.
(4)         The  address  of Molex and Dr.  Moretti  is 2222  Wellington  Court,
            Lisle, Illinois 60532.
(5)         Dr.  Anthony  L.  Moretti  is the  representative  of  Molex  on the
            Company's  Board of  Directors.  The shares  reflected  in the table
            above represent the shares  beneficially owned by Molex. They do not
            include  50,000 shares of Common Stock  issuable upon exercise of an
            option held by Dr. Moretti.
(6)         Denis N. Beaudry is the representative of Polyvalor ("Polyvalor"), a
            Canadian limited partnership,  and McGill University ("McGill"),  on
            the Company's Board of Directors.  The shares reflected in the table
            above do not include the shares  beneficially owned by Polyvalor and
            McGill as to which Mr. Beaudry disclaims beneficial ownership.
            They do include 50,000 shares of Common Stock issuable upon exercise
            of options held by Mr. Beaudry.
(7)         Less than 1%.
(8)         Includes  50,000 shares of Common Stock  issuable upon exercise of
            options  held by Dr. Li. Does not include  200,000  shares  issuable
            upon exercise of additional options.
(9)         Represents  44,150 shares of Common Stock  issuable upon exercise of
            options  held by Mr.  Belanger.  Does  not  include  240,000  shares
            issuable upon exercise of additional options.
(10)        Represents  50,000 shares of Common Stock  issuable upon exercise of
            options held by Mr. Ross.  Does not include  250,000 shares issuable
            upon exercise of additional options.
(11)        Does not  include  50,000  shares  of  Common  Stock  issuable  upon
            exercise of options held by each of Mr. Brunet, Mr. Marcotte and Mr.
            Allard.
(12)        Includes (i) an aggregate of 269,150 shares of Common Stock issuable
            upon  exercise of options and (ii)  10,314,667  shares  beneficially
            owned by Molex.


ITEM 13.                CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

            On July 7,  1998,  the  Company  entered  into  agreements  with the
shareholders of LILT,  including  Najafi Holdings Inc., a company  controlled by
Dr. S. Iraj  Najafi,  who has since  become the Chief  Executive  Officer  and a
director of the Company, and Andrewma Holdings Inc., a company controlled by Dr.
Mark  Andrews,  who has since  become a Vice  President  and a  director  of the
Company,  pursuant  to  which  the  Company  acquired  all  of  the  issued  and
outstanding  shares  of the  capital  stock of LILT in  exchange  for a total of
12,200,000 shares of Common Stock.

                                       42


<PAGE>

            On May 19 and  June 21,  1999,  the  Company  entered  into  several
agreements (the "Molex  Agreements") with Molex. The Molex Agreements  include a
Teaming Agreement, a Stock Purchase Agreement, a Stock Restriction Agreement and
a  Registration  Rights  Agreement.  The Teaming  Agreement was amended in March
2000.  Under the Teaming  Agreement as amended,  the Company and Molex agreed to
jointly  develop  certain  DWDM  products  related to the DWDM  market and other
photonics markets. Under the Stock Purchase Agreement, Molex purchased 3,000,000
shares of Common  Stock at a price of US$0.50 per share in two  stages.  Lumenon
also issued to Molex a warrant to purchase 1,666,667 additional shares of Common
Stock at a price of US$0.90 per share,  which was exercised in November 1999. In
addition,  the Company issued the Services Warrant,  which was exercised in full
during the past fiscal year to Molex. Under the Stock Restriction Agreement, (i)
the consent of Molex is required for certain  extraordinary  actions relating to
the governance of the Company and its  operations and (ii) certain  stockholders
of the Company have agreed not to sell their respective shares of the Company to
a competitor of Molex without Molex's prior consent.  Dr. Moretti, an officer of
Molex Fiber Optics Inc., is a director of the Company.

            The Company  has  entered  into a license  agreement  (the  "License
Agreement") with Polyvalor, a limited partnership, as represented by its General
Partner,  Polyvalor Inc. and McGill University  (together,  Polyvalor and McGill
University referred to as the "Licensor") pursuant to which Lumenon acquired the
right through  October 2017 to produce,  sell,  distribute and promote  products
derived  from using the patents and  know-how,  as such terms are defined in the
License  Agreement,  of the Licensor.  Using a licensed  sol-gel  process of the
Licensor,  Lumenon will design and develop  integrated  optical devices for DWDM
and  Plastic  Optical  Fiber  devices  for  the   telecommunications   and  data
communications markets. Lumenon will pay a royalty of 5% on gross sales, up to a
maximum of US$2,367,104  (CDN$3,500,000) over the term of the License Agreement.
Additionally,  the  Company  issued  750,000  shares of Common  Stock to each of
Polyvalor and McGill  University.  Mr.  Beaudry,  an officer of Polyvalor,  is a
director of the Company.


                                       43

<PAGE>

                                    PART IV

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

(a)         The following documents are filed as part of this Report:

            (1)         Financial Statements.

            See index to financial statements, which appears on page F-1 herein.

            (2)         Exhibits.

            2.1         Amended Plan of  Reorganization,  Merger and Acquisition
                        by which WWV Development,  Inc. (a Delaware corporation)
                        acquired  and  merged  into  itself  Lumenon  Innovative
                        Lightwave   Technology,   Inc.   (a   Canadian   federal
                        corporation),  and  acquired  Dequet  Capital,  Inc.  (a
                        Nevada corporation) as wholly-owned subsidiaries,  dated
                        July 7, 1998 (incorporated by reference to the Company's
                        Registration Statement on Form 10, Exhibit 2.1).

            3.1         Amended and Restated  Certificate  of  Incorporation  of
                        Lumenon   Innovative    Lightwave    Technology,    Inc.
                        (incorporated by reference to the Company's Registration
                        Statement on Form 10, Exhibit 3.1).

            3.2         Amended and Restated By-Laws  (incorporated by reference
                        to the  Company's  Registration  Statement  on Form  10,
                        Exhibit 3.2).

            4.1         Specimen   Certificate   for  Shares  of  Common   Stock
                        (incorporated by reference to the Company's Registration
                        Statement on Form 10, Exhibit 4.1).

            4.2         Lumenon  Innovative  Lightwave  Technology,  Inc.  Stock
                        Option Incentive Plan  (incorporated by reference to the
                        Company's  Registration  Statement  on Form 10,  Exhibit
                        4.2).

            4.3         Form of Lumenon Innovative  Lightwave  Technology,  Inc.
                        Warrant  to  Acquire   Shares  of  Common  Voting  Stock
                        (incorporated by reference to the Company's Registration
                        Statement on Form 10, Exhibit 4.3).

            4.4         Form  of   Convertible   Note   dated   July  25,  2000
                        (incorporated  by  reference  to the  Company's  Current
                        Report on Form 8-K, filed July 28, 2000, Exhibit 4.1).

            4.5         Form of Stock  Purchase  Warrant,  dated  July 25,  2000
                        (incorporated  by  reference  to the  Company's  Current
                        Report on Form 8-K, filed July 28, 2000, Exhibit 4.2).

            10.1        License  Agreement by and between  Polyvalor  and McGill
                        University and Lumenon Innovative Lightwave  Technology,
                        Inc.   (incorporated   by  reference  to  the  Company's
                        Registration Statement on Form 10, Exhibit 10.1).

            10.2        Teaming  Agreement  between Molex  Incorporated  and its
                        subsidiary   Molex  Fiber  Optics,   Inc.,  and  Lumenon
                        Innovative  Lightwave  Technology,  Inc.  and its wholly
                        owned  subsidiary  LILT Canada Inc.,  dated May 19, 1999
                        (incorporated by reference to the Company's Registration
                        Statement on Form 10, Exhibit 10.2).

                                       44
<PAGE>

            10.3        Stock  Purchase  Agreement  between Molex  Incorporated,
                        Lumenon Innovative Lightwave Technology,  Inc., and LILT
                        Canada,  Inc.,  dated  May  19,  1999  (incorporated  by
                        reference  to the  Company's  Registration  Statement on
                        Form 10, Exhibit 10.3).

            10.4        Stock Restriction  Agreement between Molex Incorporated,
                        Lumenon Innovative Lightwave Technology,  Inc., and LILT
                        Canada, Inc., Andrewma Holding, Inc., and Najafi Holding
                        Inc., dated June 21, 1999  (incorporated by reference to
                        the Company's Registration Statement on Form 10, Exhibit
                        10.4).

            10.5        Registration Rights Agreement between Lumenon Innovative
                        Lightwave Technology,  Inc. and Molex Incorporated dated
                        June  21,  1999   (incorporated   by  reference  to  the
                        Company's  Registration  Statement  on Form 10,  Exhibit
                        10.5).

            10.6        Securities  Purchase  Agreement  by  and  among  Lumenon
                        Innovative Lightwave Technology,  Inc., Capital Ventures
                        International  and Castle Creek Partners LLC, dated July
                        25, 2000  (incorporated  by reference  to the  Company's
                        Current Report on Form 8-K, filed July 28, 2000, Exhibit
                        10.1).

            10.7        Registration  Rights  Agreement  by  and  among  Lumenon
                        Innovative Lightwave Technology,  Inc., Capital Ventures
                        International  and Castle Creek Partners LLC, dated July
                        25, 2000  (incorporated  by reference  to the  Company's
                        Current Report on Form 8-K, filed July 28, 2000, Exhibit
                        10.2).

            10.8        Agreement of Lease  between  Liberty Sites Ltd. and LILT
                        Canada, Inc., dated May 19, 2000.

            10.9        License Agreement between Polaroid  Corporation and LILT
                        Canada,   Inc.,  a  subsidiary  of  Lumenon   Innovative
                        Lightwave Technology, Inc., dated July 21, 2000.

            21          Subsidiaries of the Company  (incorporated  by reference
                        to the  Company's  Registration  Statement  on Form  10,
                        Exhibit 21).

            23          Consent of KPMG, LLP.

            27          Financial Data Schedule.

(B)         Reports  on Form  8-K  filed in the  fourth  quarter  of the  period
            covered by this Report.

            None.


                                       45



<PAGE>

                                   SIGNATURES

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



                                   LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.

                                   By: /s/ S. Iraj Najafi,
                                      ---------------------------------------
                                        S. Iraj Najafi,
                                        President and Chief Executive Officer



                                               September 6, 2000
                                               -----------------
                                                      Date


                                POWER OF ATTORNEY

            Know all men by these  presents,  that each person  whose  signature
appears below hereby  constitutes  and appoints S. Iraj Najafi,  Mark P. Andrews
and Vincent Belanger his true and lawful  attorney-in-fact  and agent, with full
power of  substitution  and  resubstitution  for him and in his name,  place and
stead,  in any and all  capacities,  to sign any and all amendments to this Form
10-K and to file the  same,  with  exhibits  thereto,  and  other  documents  in
connection therewith, with the Securities and Exchange Commission, granting unto
said  attorney-in-fact and agent full power and authority to do and perform each
and every act and thing  requisite  and  necessary  to be done,  as fully to all
intents and  purposes as he might or could do in person,  hereby  ratifying  and
confirming all that said  attorney-in-fact and agent or either of them, or their
or his substitute or substitutes,  may lawfully do or cause to be done by virtue
hereof.

            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
Company and in the capacities and on the date indicated.



/s/  S. Iraj Najafi                                  September 6, 2000
------------------------------------------           --------------------------
S. Iraj Najafi                                       Date
President, Chief Executive Officer
and Director (Principal Executive Officer)



/s/  Mark P. Andrews                                 September 6, 2000
------------------------------------------           --------------------------
Mark P. Andrews                                      Date
Vice President, Chief Technical Officer,
Secretary and Director

                                      F-1
<PAGE>

/s/  Anthony Moretti                                 September 6, 2000
------------------------------------------           --------------------------
Anthony Moretti                                      Date
Director




/s/  Denis N. Beaudry                                September 6, 2000
------------------------------------------           --------------------------
Denis N. Beaudry                                     Date
Director




------------------------------------------           --------------------------
Pierre-Paul Allard                                   Date
Director



/s/  Vincent Belanger                                September 6, 2000
------------------------------------------           --------------------------
Vincent Belanger                                     Date
Vice President-Finance and
Chief Financial Officer (Principal Financial
and Accounting Officer)



/s/  Guy Brunet                                      September 6, 2000
------------------------------------------           --------------------------
Guy Brunet                                           Date
Director



/s/  Gilles Marcotte                                 September 6, 2000
------------------------------------------           --------------------------
Gilles Marcotte                                      Date
Director


/s/  Pierre-Andre Roy                                September 6, 2000
------------------------------------------           --------------------------
Pierre-Andre Roy                                     Date
Director


                                       F-2
<PAGE>

kpmg




LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Financial Statements

Year ended June 30, 2000,  six-month period ended June 30, 1999 and periods from
inception (March 2, 1998) to December 31, 1998 and to June 30, 2000



Financial Statements

      Consolidated Balance Sheets.........................................  F-3

      Consolidated Statements of Operations...............................  F-4

      Consolidated Statements of Cash Flows...............................  F-5

      Consolidated Statements of Stockholders' Equity.....................  F-6

      Notes to Consolidated Financial Statements..........................  F-7


                                      F-1
<PAGE>









AUDITORS' REPORT TO THE SHAREHOLDERS



We have audited the consolidated  balance sheets of Lumenon Innovative Lightwave
Technology,  Inc. (the  "Corporation") as at June 30, 2000 and June 30, 1999 and
the consolidated  statements of operations,  cash flows and stockholders' equity
for the year ended June 30, 2000,  the six-month  period ended June 30, 1999 and
for the periods from inception  (March 2, 1998) to December 31, 1998 and to June
30, 2000. These financial statements are the responsibility of the Corporation's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with Canadian  generally accepted auditing
standards.  Those standards  require that we plan and perform an audit to obtain
reasonable  assurance  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.

In our opinion,  these consolidated  financial statements present fairly, in all
material respects,  the consolidated financial position of the Corporation as at
June 30, 2000 and June 30, 1999 and the  consolidated  results of its operations
and cash  flows for the year ended June 30,  2000 and for the  six-month  period
ended  June 30,  1999 and for the  periods  from  inception  (March 2,  1998) to
December 31, 1998 and to June 30, 2000, in accordance with accounting principles
generally accepted in the United States of America.






Chartered Accountants



Montreal, Canada

July 21, 2000, except as to note 11 (b)
   which is as of July 25, 2000


                                      F-2

<PAGE>



LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>

==========================================================================================================================
                                                                 June 30,             June 30,              June 30,
                                                                     2000                 2000                  1999
--------------------------------------------------------------------------------------------------------------------------
                                                                    (US$)               (CAN$)                (CAN$)
                                                             (note 2 (a))
<S>                                                        <C>                    <C>                    <C>
Assets

Current assets:
      Cash                                                 $     761,113          $   1,125,382          $ 1,722,871
      Term deposits                                            2,907,891              4,299,608                 --
      Interest and sales tax receivable                          247,487                365,934              237,539
      Research tax credits receivable                            128,990                190,724               34,218
      Prepaid expenses                                            52,264                 77,281               49,956
      --------------------------------------------------------------------------------------------------------------------
      --------------------------------------------------------------------------------------------------------------------
                                                               4,097,745              6,058,929            2,044,584

Deposits (note 7)                                              1,031,495              1,525,168                 --
Property and equipment (note 4)                                3,112,865              4,602,682            1,492,495
Other assets                                                       8,873                 13,119               10,001

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
                                                           $   8,250,978          $  12,199,898          $ 3,547,080
==========================================================================================================================

Liabilities and Stockholders' Equity

Current liabilities:
      Accounts payable                                     $     708,157          $   1,047,082          $   523,550
      Accrued liabilities                                        150,615                222,700              172,812
      Accrued vacation                                            68,918                101,902                7,500
      Obligations under capital leases (note 5)                  158,955                235,031                 --
      Convertible promissory notes                                  --                     --                298,720
      --------------------------------------------------------------------------------------------------------------------
      --------------------------------------------------------------------------------------------------------------------
                                                               1,086,645              1,606,715            1,002,582

Obligations under capital leases (note 5)                        188,480                278,686                 --

Stockholders' equity:
      Share capital (note 6)                                      33,239                 49,147               30,330
      Additional paid-in capital (notes 3 and 6 (a))         158,842,502            234,864,524            3,404,408
      Deposit on subscription of shares                             --                     --                146,820
      Accumulated deficit during the development
         stage                                              (151,899,888)          (224,599,174)          (1,037,060)
      --------------------------------------------------------------------------------------------------------------------
      --------------------------------------------------------------------------------------------------------------------
                                                               6,975,853             10,314,497            2,544,498

Commitments (note 7)
Subsequent events (note 11)

--------------------------------------------------------------------------------------------------------------------------
                                                           $   8,250,978          $  12,199,898          $ 3,547,080
==========================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

On behalf of the Board:

______________________ Director

______________________ Director


                                       F-3
<PAGE>



LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>

====================================================================================================================================
                                                       Year              Year        Six-month              From              From
                                                      ended             ended     period ended      inception to      inception to
                                                    June 30,          June 30,         June 30,      December 31,          June 30,
                                                       2000              2000             1999              1998              2000
------------------------------------------------------------------------------------------------------------------------------------
                                                      (US$)            (CAN$)           (CAN$)            (CAN$)            (CAN$)
                                               (note 2 (a))

<S>                                            <C>               <C>               <C>              <C>               <C>
Expenses:
      Research and development:
            External research
               (note 3)                        $ 147,019,020     $ 217,382,323     $     25,000     $        --       $ 217,407,323
            Internal research                      1,270,292         1,878,253          169,439            14,440         2,062,132
            Tax credits and grants                  (197,631)         (292,218)         (32,069)           (2,149)         (326,436)
      -----------------------------------------------------------------------------------------------------------------------------
                                                 148,091,681       218,968,358          162,370            12,291       219,143,019

      General and administrative                   2,718,761         4,019,959          569,507           290,435         4,879,901
      Depreciation                                   604,369           893,620             --                --             893,620
      -----------------------------------------------------------------------------------------------------------------------------
                                                   3,323,130         4,913,579          569,507           290,435         5,773,521

Other income (expenses):
      Interest, net                                  160,257           236,956            1,172             7,869           245,997
      Gain (loss) on foreign exchange                 56,044            82,867          (18,846)            7,348            71,369
      -----------------------------------------------------------------------------------------------------------------------------
                                                     216,301           319,823          (17,674)           15,217           317,366

------------------------------------------------------------------------------------------------------------------------------------
Net loss                                       $ 151,198,510     $ 223,562,114     $    749,551     $     287,509     $ 224,599,174
====================================================================================================================================

Net loss per share:
   Basic and diluted                           $        5.95     $        8.80     $       0.04     $        0.02
====================================================================================================================================

Weighted average number
   of shares outstanding                          25,415,601        25,415,601       17,480,967        14,972,188
====================================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.




                                       F-4
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>

===================================================================================================================================
                                                           Year            Year       Six-month              From             From
                                                          ended           ended    period ended      inception to     inception to
                                                       June 30,        June 30,        June 30,      December 31,          June 30,
                                                           2000            2000            1999              1998             2000
-----------------------------------------------------------------------------------------------------------------------------------
                                                          (US$)          (CAN$)          (CAN$)            (CAN$)            (CAN$)
                                                   (note 2 (a))

<S>                                                <C>             <C>             <C>             <C>              <C>
Cash flows from:

Operations:
      Net loss                                     $(151,198,510)  $(223,562,114)  $  (749,551)    $   (287,509)    $(224,599,174)
      Adjustment for item not
         involving cash:
            Compensation cost
               (note 6 (b) (ii))                          34,709          51,321       241,058             --             292,379
            Common shares issued
               for services (note 3)                 147,003,070     217,358,739          --               --         217,358,739
            Depreciation                                 604,369         893,620          --               --             893,620
      Change in operating assets and liabilities:
            Interest and sales tax
               receivable                                (86,836)       (128,395)     (216,446)         (21,093)         (365,934)
            Research tax credits
               receivable                               (105,847)       (156,506)      (32,069)          (2,149)         (190,724)
            Prepaid expenses                             (18,480)        (27,325)      (49,956)            --             (77,281)
            Accounts payable and
               accrued liabilities (note 9)              126,104         186,456       584,513          119,349           890,318
      ---------------------------------------------------------------------------------------------------------------------------
                                                      (3,641,421)     (5,384,204)     (222,451)        (191,402)       (5,798,057)
Financing:
      Proceeds from issuance of
         common shares                                 9,695,938      14,336,414     2,764,297              372        17,101,083
      Cash from the acquisition of a
         subsidiary                                         --              --            --            814,322           814,322
      Share issue expenses                              (482,268)       (713,081)     (291,932)         (93,379)       (1,098,392)
      Principal repayments of capital
         lease obligations                               (60,736)        (89,805)         --               --             (89,805)
      Deposit on subscription of shares                     --              --         146,820             --             146,820
      Proceeds from issuance of
         convertible promissory notes                       --              --         298,720             --             298,720
      ---------------------------------------------------------------------------------------------------------------------------
                                                       9,152,934      13,533,528     2,917,905          721,315        17,172,748
Investments:
      Additions to property
         and equipment (note 9)                       (1,974,110)     (2,918,919)   (1,492,495)            --          (4,411,414)
      Additions to other assets                           (2,109)         (3,118)       (9,758)            (243)          (13,119)
      Deposits                                        (1,031,495)     (1,525,168)         --               --          (1,525,168)
      Purchase of term deposits                      (13,399,870)    (19,813,048)         --               --         (19,813,048)
      Disposal of term deposits                       10,491,980      15,513,440          --               --          15,513,440
      ---------------------------------------------------------------------------------------------------------------------------
                                                      (5,915,604)     (8,746,813)   (1,502,253)            (243)      (10,249,309)

---------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash                             (404,091)       (597,489)    1,193,201          529,670         1,125,382

Cash, beginning of period                              1,165,204       1,722,871       529,670             --                --

---------------------------------------------------------------------------------------------------------------------------------
Cash, end of period                                $     761,113   $   1,125,382   $ 1,722,871     $    529,670     $   1,125,382
=================================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.


                                       F-5

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity

Periods from inception (March 2, 1998) to June 30, 2000
(in Canadian dollars)
<TABLE>
<CAPTION>

====================================================================================================================================
                                                                   Additional                    Deposit on
                                                                     paid-in    Accumulated     subscription
                                        Shares      Par value        capital      deficit         of shares             Total
------------------------------------------------------------------------------------------------------------------------------------

<S>                                   <C>            <C>           <C>              <C>              <C>             <C>
Issue of common shares
   at inception                          255,000    $   372    $        --       $        --       $    --       $         372

Issue of common shares                16,200,000     24,430          789,892              --            --             814,322

Share issue expenses                        --         --            (93,379)             --            --             (93,379)

Net loss for the period                     --         --               --            (287,509)         --            (287,509)

------------------------------------------------------------------------------------------------------------------------------------
Balance as at December 31,
 1998                                 16,455,000     24,802          696,513          (287,509)         --             433,806

Issue of common shares                 3,760,000      5,528        2,758,769              --            --           2,764,297

Share issue expenses                        --         --           (291,932)             --            --            (291,932)

Compensation cost related to
   stock options granted                    --         --            241,058              --            --             241,058

Net loss for the period                     --         --               --            (749,551)         --            (749,551)

Deposit on subscription
   of shares                                --         --               --                --         146,820           146,820

------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 1999           20,215,000     30,330        3,404,408        (1,037,060)      146,820         2,544,498

Issue of common shares                12,755,039     18,817      232,121,876              --        (146,820)      231,993,873

Share issue expenses                        --         --           (713,081)             --            --            (713,081)

Compensation cost related
   to stock options granted                 --         --             51,321              --            --              51,321

Net loss for the period                     --         --               --        (223,562,114)         --        (223,562,114)

------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 2000           32,970,039    $49,147    $ 234,864,524     $(224,599,174)    $    --       $  10,314,497
====================================================================================================================================

Balance as at June 30, 2000
   in US dollars (note 2 (a))         32,970,039    $33,239    $ 158,842,502     $(151,899,888)    $    --       $   6,975,853
====================================================================================================================================
</TABLE>


See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>



LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


1.    Organization and business activities:

      Lumenon Innovative Lightwave Technology, Inc. ("Lumenon") was incorporated
      in  the  State  of  Delaware  in  February  1996  under  the  name  of WWV
      Development Inc. as a shell company.

      In July 1998, under an acquisition plan, Lumenon acquired LILT Canada Inc.
      ("LILT"), a Canadian  corporation,  by issuing 12,200,000 common shares to
      the  shareholders  of LILT  which  resulted  in the  change in  control of
      Lumenon.  Accordingly,  LILT has been determined the acquiring corporation
      and  these  consolidated  financial  statements  present  the  results  of
      operations and cash flows of LILT since its inception, March 2, 1998.

      Under the plan mentioned above,  Lumenon issued 4,000,000 common shares to
      acquire Dequet Capital, Inc., a Nevada corporation. Dequet Capital, Inc.'s
      only asset was cash in the amount of $814,322  (US$540,000).  This company
      was subsequently dissolved.

      The Corporation's  principal  business activity is to design,  develop and
      build  integrated  optic  devices  in the  form of  compact  hybrid  glass
      circuits on silicon chips.  Lumenon activities are performed through LILT,
      in Canada.  In 1999,  its year-end  has been changed from  December 31, to
      June 30.

      The  Corporation  is  subject to a number of risks,  including  successful
      development  and marketing of its  technology and attracting and retaining
      key  personnel.  In order to achieve its business  plan,  the  Corporation
      anticipates the need to raise additional capital (see notes 3 and 11).


2.    Significant accounting policies:

      These financial  statements have been prepared by management in accordance
      with accounting  principles  generally  accepted in the United States. The
      significant accounting principles are as follows:

      (a)   Consolidated financial statements and basis of presentation:

            The  consolidated  financial  statements  include  the  accounts  of
            Lumenon and the accounts of LILT. All intercompany  transactions and
            balances have been eliminated.

            US dollar  amounts  presented on the  consolidated  balance  sheets,
            consolidated  statements of  operations  and cash flows are provided
            for  convenience  of  reference  only and are  based on the  closing
            exchange rate at June 30, 2000,  which was $1.4786  Canadian  dollar
            per US dollar.

            The functional currency of the Corporation is the Canadian dollar.

                                       F-7
<PAGE>



LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


2.    Significant accounting policies (continued):

      (b)   Cash and cash equivalents:

            The  Corporation  considers all  investments  that are highly liquid
            with an  original  maturity  of three  months  or less  and  readily
            convertible  into cash to be cash  equivalents.  As at June 30, 2000
            and 1999, there were no cash equivalents.

      (c)   Property and equipment:

            Equipment   and  leasehold   improvements   are  recorded  at  cost.
            Depreciation and  amortization are provided using the  straight-line
            method and the following periods:

            ====================================================================
            Asset                                                        Period
            --------------------------------------------------------------------

            Computer equipment and software                             3 years
            Office equipment and fixtures                               5 years
            Leasehold improvements                                Term of lease
            Laboratory and pilot plant equipment                        3 years

            ====================================================================


      (d)   Other assets:

            Other assets,  consisting of license and patent costs,  are recorded
            at cost when  acquired and are being  amortized  on a  straight-line
            basis over  their  economic  useful  lives or their  legal  terms of
            existence,  ranging between 10 and 20 years. The capitalized  amount
            with  respect to those  assets does not  necessarily  reflect  their
            present or future  value and the amount  ultimately  recoverable  is
            dependent  upon  the  successful  commercialization  of the  related
            products.

      (e)   Research and development costs:

            Research and development costs and the cost of intangibles, that are
            purchased from others for use in research and development activities
            and that have no alternative  future uses, are expensed as incurred.
            Research  tax  credits on  eligible  research  expenses  incurred in
            Canada are accounted for as a reduction of research and  development
            expenses.


                                       F-8

<PAGE>


LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)


================================================================================

2.    Significant accounting policies (continued):

      (f)   Foreign exchange:

            The Canadian dollar is the functional  currency of the  Corporation.
            Foreign  denominated  monetary assets and liabilities are translated
            at the  rate of  exchange  prevailing  at the  balance  sheet  date.
            Non-monetary  assets and  liabilities  are translated at the rate of
            exchange  prevailing  at the date of the  transaction.  Revenues and
            expenses  are  translated  at  the  monthly  average  exchange  rate
            prevailing during the period.  Foreign exchange gains and losses are
            included in the determination of net earnings.

      (g)   Income taxes:

            The  Corporation  uses the asset and liability  method of accounting
            for  income  taxes.  Under  this  method,  deferred  tax  assets and
            liabilities are recognized for the estimated future tax consequences
            attributable to differences between the financial statement carrying
            amounts of existing assets and liabilities and their  respective tax
            bases.  This  method also  requires  the  recognition  of future tax
            benefits such as net  operating  loss  carryforwards,  to the extent
            that realization of such benefits is more likely than not.  Deferred
            tax assets and  liabilities  are  measured  using  enacted tax rates
            expected  to apply to  taxable  income in the  years in which  those
            temporary  differences are expected to be recovered or settled.  The
            effect on  deferred  tax assets and  liabilities  of a change in tax
            rates is  recognized  in the  statement of  operations in the period
            that includes the enactment date.

      (h)   Comprehensive income:

            Since  its  inception  on March 2,  1998,  the  Corporation  adopted
            Statement  of  Financial  Accounting  Standards  No. 130,  REPORTING
            COMPREHENSIVE  INCOME, which establishes new rules for the reporting
            and display of comprehensive income and its components. The adoption
            of this statement had no impact on the  Corporation's  net income or
            stockholders' equity.

      (i)   Stock option plan:

            The  Corporation   applies  the  intrinsic   value-based  method  of
            accounting prescribed by Accounting Principles Board ("APB") Opinion
            no.  25,  ACCOUNTING  FOR STOCK  ISSUED TO  EMPLOYEES,  and  related
            interpretations  for stock options  granted to  employees.  As such,
            compensation  expense would be recorded on the date of grant only if
            the then current market price of the  underlying  stock exceeded the
            exercise price.


                                       F-9
<PAGE>



LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


2.    Significant accounting policies (continued):

      (i)   Stock option plan (continued):

            The   Corporation   applies  FASB  Statement  123,   ACCOUNTING  FOR
            STOCK-BASED  COMPENSATION  ("SFAS 123") for stock options granted to
            non-employees. As such, compensation expense is recorded at the date
            of  grant,  based  on the  fair  value  as at that  date  using  the
            Black-Scholes option - pricing model.

      (j)   Impairment of long-lived assets and long-lived assets to be disposed
            of:

            The  Corporation  accounts for long-lived  assets in accordance with
            the  provisions of SFAS No. 121,  ACCOUNTING  FOR THE  IMPAIRMENT OF
            LONG-LIVED  ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This
            statement  requires that long-lived assets and certain  identifiable
            intangibles be reviewed for impairment whenever events or changes in
            circumstances  indicate that the carrying amount of an asset may not
            be  recoverable.  Recoverability  of  assets  to be held and used is
            measured  by a  comparison  of the  carrying  amount  of an asset to
            future net cash flows expected to be generated by the asset. If such
            assets  are  considered  to  be  impaired,   the  impairment  to  be
            recognized is measured by the amount by which the carrying amount of
            the  assets  exceeds  the fair  value of the  assets.  Assets  to be
            disposed of are reported at the lower of the carrying amount or fair
            value less costs to sell.

      (k)   Net loss per share:

            Net loss per share is computed using the weighted  average number of
            shares outstanding  during the period.  Under the accounting for the
            LILT  transaction  described in note 1, the  12,200,000  shares have
            been  considered to be  outstanding  on a retroactive  basis for all
            periods  presented.

      (l)   Use of estimates:

            The preparation of 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 and disclosure of contingent  liabilities at the date of
            the financial  statements  and the reported  amounts of revenues and
            expenses during the reporting  periods.  Actual results could differ
            from those estimates.


                                      F-10
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================

3.    The Molex agreement:

      Under the terms of a Teaming  Agreement,  Lumenon  and Molex  Incorporated
      ("Molex")  agreed to jointly develop certain products related to the Dense
      Wavelength Division Multiplexing market and other photonic devices.  Under
      the terms of the agreement, Molex is committed to provide services towards
      the development of the products. In connection therewith,  Lumenon granted
      to Molex a warrant to receive  5,800,000  common shares  issuable as Molex
      fulfills its obligations  pursuant to the Teaming Agreement.  For the year
      ended  June 30,  2000,  an amount  of  $217,358,739  (US$147,003,070)  was
      recorded under research and  development  expenses and shares  pursuant to
      the warrant  were  issued  (see note 6 (a) (vi)).  Under the terms of this
      agreement  amended  during 2000,  Molex is committed to purchase a certain
      number of photonic  devices of Lumenon for the first twelve months.  After
      the twelve-month  period, Molex will have the option to purchase up to 50%
      of the excess  capacity of Lumenon  and both  Lumenon and Molex will share
      Molex's profit upon resale of those devices.  Under certain circumstances,
      Molex may have the right to  manufacture  all components of the devices in
      return of a royalty as defined in the agreement.


4.    Property and equipment:

      ==========================================================================
                                                         June 30, 2000
                                            ------------------------------------
                                                          Accumulated   Net book
                                                Cost     depreciation      value
      --------------------------------------------------------------------------

      Computer equipment and software      $  407,294   $   45,756    $  361,538
      Office equipment and fixtures           198,002       13,506       184,496
      Leasehold improvements                1,051,538       78,582       972,956
      Laboratory and pilot plant equipment  3,839,468      755,776     3,083,692

      --------------------------------------------------------------------------
                                           $5,496,302   $  893,620    $4,602,682
      ==========================================================================

      Equipment  held under capital leases for which the cost and net book value
      amount to $603,522 (US$408,171) and $542,557  (US$366,940),  respectively,
      are included in laboratory and pilot plant equipment.

                                      F-11
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


4.    Property and equipment (continued):

      ==========================================================================
                                                         June 30, 1999
                                               ---------------------------------
                                                          Accumulated   Net book
                                                  Cost   depreciation      value
      --------------------------------------------------------------------------

      Computer equipment and software        $   40,250    $  --      $   40,250
      Office equipment and fixtures              17,618       --          17,618
      Leasehold improvements                    191,807       --         191,807
      Laboratory and pilot plant equipment    1,242,820       --       1,242,820

      --------------------------------------------------------------------------
                                             $1,492,495    $  --      $1,492,495
      ==========================================================================

      All property and equipment  were  purchased  during the  six-month  period
      ended June 30, 1999. No  depreciation  was recorded for the same period as
      the installation was completed in July 1999.


5.    Obligations under capital leases:

      Future minimum lease payments under capital leases are as follows:

      --------------------------------------------------------------------------

      2001                                                            $  284,823
      2002                                                               175,726
      2003                                                               135,832
      --------------------------------------------------------------------------
      Total minimum lease payments                                       596,381

      Less amount representing interest (at rates varying
      from 11.75% to 18.85%)                                              82,664
      --------------------------------------------------------------------------
      Present value of net minimum capital lease payments                513,717

      Current portion of obligations under capital leases                235,031

      --------------------------------------------------------------------------
      Long-term portion of obligations under capital leases           $  278,686
      ==========================================================================


                                      F-12
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


6.    Share capital:

      ==========================================================================
                                                          June 30,     June 30,
                                                             2000         1999
      --------------------------------------------------------------------------

      Authorized:
            1,000,000 preferred shares, par value of
               US$0.001 per share
            100,000,000 common shares, par value
               of US$0.001 per share

      Issued and outstanding:
            32,970,039 common shares (1999 - 20,215,000)   $ 49,147   $ 30,330
      --------------------------------------------------------------------------


      (a)   Issue of shares:

            As  mentioned  in  note 1,  Lumenon  acquired  LILT in 1998  under a
            reorganization  and acquisition  plan by issuing  12,200,000  common
            shares  to the  shareholders  of that  corporation.  At the  date of
            acquisition, there were 255,000 outstanding common shares of Lumenon
            at an amount of $372 (US$255). In addition, Lumenon issued 4,000,000
            common shares to the shareholders of Dequet Capital,  Inc. Assets of
            the latter consisted of cash in the amount of $814,322 (US$540,000).

            1999
            ----

            During the  six-month  period ended June 30, 1999,  the  Corporation
            entered  into a Stock  Purchase  Agreement  with Molex who agreed to
            purchase from Lumenon 3,000,000 common shares at $0.74 (US$0.50) per
            share in two  transactions.  The first closing was held in June 1999
            for  1,500,000  common  shares.  In total,  the  Corporation  issued
            3,760,000  common shares during the period for a cash  consideration
            of $2,764,297 (US$1,880,000) along with warrants for the purchase of
            3,926,667 common shares at a price of $1.32 (US$0.90) per share.


                                      F-13

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================

6.    Share capital (continued):

      (a)   Issue of shares (continued):

            2000
            ----

            During the year ended June 30, 2000, the  Corporation  concluded the
            following share capital transactions:

            (i)    1,484,522 common shares were issued for a cash  consideration
                   of $7,099,319  (US$4,843,500),  of which $146,820 (US$99,297)
                   was received prior to June 30, 1999;

            (ii)   promissory  notes were  converted  into 400,000 common shares
                   with a value of $298,720 (US$200,000);

            (iii)  in connection  with the issuance of common shares referred to
                   in  (i)  and  (ii),  1,912,211  warrants  were  issued  to be
                   exercised at prices  varying  from $1.33  (US$0.90) to $44.36
                   (US$30.00) per share;

            (iv)  the second closing of the Stock Purchase Agreement with Molex,
                  which was subject to Lumenon  proving out its  technology  and
                  its ability to manufacture and deliver certain  devices,  took
                  place in March 2000 for an additional  1,500,000 common shares
                  and related cash consideration of $1,093,125 (US$750,000);

            (v)    3,570,517 common shares were issued upon exercise of warrants
                   and   options   for   cash    consideration   of   $6,103,916
                   (US$4,171,350);

            (vi)  5,800,000 common shares were issued for services received from
                  Molex in the amount of $217,358,739 (US$147,003,070). Value of
                  the shares  issued has been  recorded as Molex  fulfilled  its
                  obligations  pursuant to the Teaming  Agreement  (see note 3).
                  The  transaction was accounted for by using the average market
                  price of the shares of the Corporation  during the periods the
                  services were rendered by Molex.

            Under  the  terms  of a  Stock  Restriction  Agreement,  no  primary
            stockholders  can sell any  share to  competitors  of Molex  without
            Molex's prior  consent.  The agreement  includes  certain  rights of
            first  refusal and  preemptive  rights except that Lumenon can issue
            6,000,000  units to raise capital  within 24 months from the date of
            the  agreement,  being June 21,  1999.  One unit is comprised of one
            common share and a warrant for the purchase of one common share. The
            common  share can be sold at a price not less than  $0.74  (US$0.50)
            and the  warrant  can be  exercised  at a price not less than  $1.33
            (US$0.90) per share.

            Certain rights or restrictions terminate upon completion of a Public
            Sale or a Public Offering as defined in the agreement.

                                      F-14
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================

6.    Share capital (continued):

      (b)   Stock option plan:

            Under a stock option  incentive  plan  established  in May 1999, the
            Corporation  may grant  options  to  purchase  common  shares to key
            employees,  directors,  officers and  service-providers.  The terms,
            number  of  common  shares  covered  by each  option  as well as the
            permitted frequency of the exercise of such options is determined by
            the Board of  Directors.  The plan  contemplates  that a maximum  of
            4,000,000 common shares may be optioned under the stock option plan.
            No optionee can hold options to purchase  more than 5% of the number
            of shares issued and outstanding at any time. The subscription price
            for each share covered by an option is  established  by the Board of
            Directors but such price shall not be lower than the market value at
            the date of grant.

            Options  for the  purchase  of  3,190,000  common  shares at a price
            ranging  from $1.47  (US$1.00) to $41.40  (US$28.00)  per share have
            been granted to June 30, 2000.

            Options  granted  have to be exercised  over a period not  exceeding
            seven years.  At June 30, 2000,  1,031,650  outstanding  options are
            exercisable and 1,245,500  outstanding options vest over a period of
            one to five years.

            (i)   Changes in outstanding options for the period were as follows:

<TABLE>
<CAPTION>
                  ================================================================================
                                                                                 Weighted average
                                                             Number      exercise price per share
                  --------------------------------------------------------------------------------

<S>                                                       <C>             <C>             <C>
                  Options outstanding, January 1, 1999           -        $                    -
                  Granted                                 1,940,000            1.44     (US$0.98)

                  --------------------------------------------------------------------------------
                  Options outstanding, June 30, 1999      1,940,000

                  Granted                                 1,250,000       $   25.41    (US$17.18)
                  Exercised                                (822,850)           1.40     (US$0.95)
                  Cancelled                                 (90,000)           2.29     (US$1.56)

                  --------------------------------------------------------------------------------
                  Options outstanding, June 30, 2000      2,277,150
                  ================================================================================

</TABLE>

                                      F-15
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================

6.    Share capital (continued):

      (b)   Stock option plan (continued):

            (ii)  The  following   table   summarizes   significant   ranges  of
                  outstanding options as at June 30, 2000:
<TABLE>
<CAPTION>

            ================================================================================
                                        Options outstanding            Options exercisable
                               ------------------------------------   ----------------------
                                             Weighted      Weighted                Weighted
            Range of                          average       average                 average
            exercise                        remaining      exercise                exercise
            prices               Options         life         price     Options       price
            --------------------------------------------------------------------------------

<S>         <C>                <C>          <C>          <C>          <C>         <C>
            $1.47 - $11.83     1,212,150    2.7 years    $    2.01    1,031,650   $   1.47
            $16.28 - $29.57      680,000    5.0 years        24.63         --           --
            $32.53 - $41.40      385,000    3.6 years        36.41         --           --

            ================================================================================
</TABLE>


            (iii) Stock-based compensation:

                  The Corporation  applies APB Opinion 25,  ACCOUNTING FOR STOCK
                  ISSUED TO EMPLOYEES,  in accounting for its stock option plan.
                  The exercise price of all stock options is equal to the market
                  price of the stock at the date of grant and,  accordingly,  no
                  compensation  cost  has  been  recognized  for  stock  options
                  granted  to  employees  in  the  financial   statements.   Had
                  compensation cost for the Corporation's stock option plan been
                  determined  based on the fair  value at the  grant  dates  for
                  awards  under  the plan  consistent  with the  method  of FASB
                  Statement 123, ACCOUNTING FOR STOCK-BASED  COMPENSATION ("SFAS
                  123"), the  Corporation's net loss would have been adjusted to
                  the pro-forma amounts indicated below:

<TABLE>
<CAPTION>
                  ==========================================================================================================
                                                             Year       Six-month              From               From
                                                            ended           ended      inception to       inception to
                                                         June 30,        June 30,      December 31,           June 30,
                                                             2000            1999              1998               2000
                  ----------------------------------------------------------------------------------------------------------

<S>                                                <C>               <C>               <C>             <C>
                  Net loss          As reported    $  223,562,114    $    749,551      $  287,509      $   224,599,174
                                    Pro-forma         225,874,543       1,120,362         287,509          227,282,414

                  ----------------------------------------------------------------------------------------------------------
                  Pro-forma
                     compensation                  $    2,312,429    $    370,811      $       -       $     2,683,240
                  ==========================================================================================================

</TABLE>
                  US dollars
                     (note 2 (a))   As reported    $  151,198,510
                                    Pro-forma         152,762,439

                  ------------------------------------------------
                                                   $    1,563,929
                  ================================================


                                      F-16
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================

6.    Share capital (continued):

      (b)   Stock option plan (continued):

            (iii) Stock-based compensation (continued):
<TABLE>
<CAPTION>

                  =============================================================================
                                                             Year     Six-month            From
                                                            ended         ended    inception to
                                                         June 30,      June 30,    December 31,
                                                             2000          1999            1998
                  -----------------------------------------------------------------------------

<S>                                                      <C>          <C>        <C>
                  Pro-forma net loss per share:
                        Basic and diluted                $  8.89      $  0.06    $    0.02
                        U.S dollars                         6.01

                  =============================================================================
</TABLE>


                  The fair value of each option grant was  estimated on the date
                  of grant using the Black-Scholes option-pricing model with the
                  following weighted-average assumptions:  risk-free interest of
                  approximately  5.8%, dividend yield of 0%, expected volatility
                  of 200% and  expected  life of 2 to 5 years  (1999 - risk-free
                  interest rate of  approximately  5.5%,  dividend  yield of 0%,
                  expected volatility of 90%, and expected life of 3 years). The
                  per share weighted average fair value of stock options granted
                  during  2000  and  1999  was  $27.07   (US$18.31)   and  $0.87
                  (US$0.59), respectively.

                  Compensation  costs of  $51,321  (1999 -  $241,058)  for stock
                  options granted to  non-employees  have been recognized in the
                  financial statements.

      (c)   Warrants:

            The following warrants are outstanding at June 30, 2000:

            ====================================================================
                Warrants        Expiry date         Exercise price per share*
--------------------------------------------------------------------------------

               1,060,000        August 2000        $       1.33    (US$0.90)
                 296,700     September 2000                8.87    (US$6.00)
                  21,500     September 2000               13.12    (US$9.00)
                  10,000       October 2000               22.92   (US$15.50)
                  43,011      December 2000               34.00   (US$30.00)
                 760,000          June 2001                2.22    (US$1.50)
                 500,000        August 2001                1.33    (US$0.90)
                 400,000       October 2001                1.33    (US$0.90)

--------------------------------------------------------------------------------
               3,091,211
--------------------------------------------------------------------------------

              *   The warrants are exercisable in US$.

                                      F-17
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================

7.    Commitments:

      (a)   Under the terms of a license  agreement  entered  into in July 1998,
            Lumenon  has the rights to  produce,  sell,  distribute  and promote
            products  derived from the know-how  relating to integrated  optical
            components for Dense  Wavelength  Division  Multiplexing and Plastic
            Optical Fibre devices for  telecommunications,  data  communications
            and sensor applications. Lumenon is committed to pay a royalty of 5%
            on gross sales up to a maximum  amount of $3,500,000  (US$2,367,104)
            until October 2017.

      (b)   The Corporation  leases  premises under  operating lease  agreements
            that expire in January 2004 and July 2012.  The first lease contains
            a  renewal  option  for a  period  of five  years  at the end of the
            initial  term.  Those  leases  require  the  Corporation  to pay all
            executory costs such as maintenance  and insurance.  Rental payments
            under the terms of these leases are secured by a deposit of $750,000
            (US$507,000), of which $75,000 (US$50,700) is refundable per year.

            In  addition,   the  Corporation   leases  certain  equipment  under
            operating  leases.  Minimum lease  payments  under  operating  lease
            agreements  for premises and  equipment  for the next five years and
            thereafter are as follows:

            ====================================================================

            2001                                                  $     978,497
            2002                                                        902,828
            2003                                                        866,462
            2004                                                        839,728
            2005                                                        802,300
            Thereafter                                                6,211,447

            --------------------------------------------------------------------
                                                                  $  10,601,262
            ====================================================================


                                      F-18


<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


7.    Commitments (continued):

      (c)   The Corporation is committed to purchase  equipment in the amount of
            $4,377,917  (US$2,960,853),  for  which  $775,168  (US$524,258)  was
            disbursed as at June 30, 2000 and recorded under deposits.

            In addition,  the  Corporation  is  committed  to acquire  equipment
            through  capital  leases in the amount of  $1,133,485  (US$766,593).
            Estimated future repayments including interest are as follows:

            ====================================================================

            2001                                                 $     375,376
            2002                                                       462,780
            2003                                                       398,238
            2004                                                        55,133

            --------------------------------------------------------------------
                                                                 $   1,291,527
            ====================================================================

      (d)   The following schedule shows the composition of total rental expense
            for all operating leases:

            ====================================================================
                                                                      Six-month
                                                   Year ended      period ended
                                                     June 30,          June 30,
                                                         2000              1999
            -------------------------------------------------------------------

            Minimum rental payments            $       78,168    $       26,735
            ====================================================================


            There was no rental agreement before the six-month period ended June
            30, 1999.


                                      F-19
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================
8.    Income taxes:

      Details of the components of income taxes are as follows:
<TABLE>
<CAPTION>

      ------------------------------------------------------------------------------------------------------
                                                                               Six-month     From inception
                                                           Year ended       period ended                 to
                                                             June 30,           June 30,       December 31,
                                                                 2000               1999               1998
      ------------------------------------------------------------------------------------------------------

<S>                                                    <C>                 <C>               <C>
      Net loss:
            US operations                              $  217,736,986      $      241,058    $          -
            Canadian operations                             5,825,128             508,493          287,509
      ------------------------------------------------------------------------------------------------------
                                                          223,562,114             749,551          287,509


      Less:
            Compensation cost not deductible
               for tax purposes                                51,321             241,058               -
            Expense related to the Teaming
               Agreement no deductible for tax
               purposes                                   210,510,490                  -                -
      ======================================================================================================
                                                            8,000,303             508,493          287,509
      ------------------------------------------------------------------------------------------------------
      Basic income tax rate                                       38%                 38%              38%

      ------------------------------------------------------------------------------------------------------
                                                            3,040,115             193,227          109,253

      Adjustment in income taxes resulting from:
            Loss carryforwards and unclaimed
               deductions not recognized                    3,040,115             193,227          109,253

      ------------------------------------------------------------------------------------------------------
                                                       $           -       $           -     $          -
      ======================================================================================================
</TABLE>


      In  assessing  the  realizability  of  deferred  tax  assets,   management
      considers  whether it is more likely than not that some  portion or all of
      the deferred tax assets will not be realized.  The ultimate realization of
      deferred tax assets is dependent  upon the  generation  of future  taxable
      income and tax planning strategies. Since the Corporation is a development
      stage corporation, the generation of future taxable income is dependent on
      the successful commercialization of its products and technologies.

      At  June  30,  2000,  Lumenon  and  its  subsidiary,  LILT,  the  Canadian
      Corporation,   had  accumulated   scientific   research  and  experimental
      development   expenditures  and  other  unclaimed   deductions  which  are
      available to reduce future years' taxable income.

                                      F-20
<PAGE>



LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


8.    Income taxes (continued):

      Details of the available deductions are as follows:

      ==========================================================================
<TABLE>
<CAPTION>

                                                           Lumenon                          LILT
                                                                               ---------------------------------
                                                                              Federal              Provincial
      ----------------------------------------------------------------------------------------------------------

<S>                                                    <C>                <C>                 <C>
      Research and development expenditures,
         without time limitation                       $          -       $   7,963,000       $     8,394,000

      Excess of net book value of property and
         equipment over the undepreciated
         capital cost                                             -          (2,944,569)           (3,154,954)

      Losses carried forward:
            Expiring      - 2006                                  -             315,000               358,000
                          - 2007                                  -           1,494,000             1,725,000
                          - 2020                           2,175,000                 -                     -

      ==========================================================================================================
</TABLE>

      In  addition,  research  tax  credits,  not  recorded in the  accounts and
      available  to  reduce  future  Federal  income  taxes  payable,  amount to
      $258,000 and $654,000 and expire in 2009 and 2010, respectively.

      In accordance  with Statement of Financial  Accounting  Standards No. 109,
      ACCOUNTING   FOR  INCOME  TAXES,   the  income  tax  effect  of  temporary
      differences  that give rise to the net  deferred  tax assets is  presented
      below:

<TABLE>
<CAPTION>
      =================================================================================================
                                                                   June 30,              June 30,
                                                                      2000                  1999
      -------------------------------------------------------------------------------------------------

<S>                                                            <C>                    <C>
      Scientific research and experimental development         $    3,064,730         $    79,420
      Non-capital losses                                            1,415,000             228,000
      Excess of net book value of equipment over
         the undepreciated capital cost                            (1,137,866)                 -
      Investment tax credits                                          912,000             280,000
      Less valuation allowance                                     (4,253,864)           (587,420)

      -------------------------------------------------------------------------------------------------
                                                               $           -          $        -
      =================================================================================================
</TABLE>


                                      F-21
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


9.    Supplemental cash flow disclosure:

      Non-cash investing and financing activities:

      Acquisition  of property and equipment  through  capital leases amounts to
      $603,522 (US$408,171) at June 30, 2000 (1999 - nil).

      Capital  expenditures  of $481,366  (US$325,555)  are included in accounts
      payable at June 30, 2000 (1999 - nil).


10.   Financial instruments:

      (a)   Foreign currency risk management:

            Options and  warrants are  exercisable  in US dollars and payable in
            such  currency.  Ultimate  proceeds  upon  exercise  of options  and
            warrants may vary due to  fluctuations  in the value of the Canadian
            dollar relative to the US currency.

      (b)   Credit risk:

            Financial  instruments that  potentially  subject the Corporation to
            significant  concentrations  of credit risk consist  principally  of
            short-term investments and accounts receivable.

            The  Corporation has investment  policies that require  placement of
            short-term investments in financial institutions evaluated as highly
            creditworthy.

            In the normal  course of business,  the  Corporation  evaluates  the
            financial  condition  of the parties  with which it  contracts  on a
            continuing  basis  and  reviews  the  creditworthiness  of  all  new
            parties.  The  Corporation  determines  an  allowance  for  doubtful
            accounts to reflect specific risks.


                                      F-22
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


10.   Financial instruments (continued):

      (c)   Fair values:

            The following table presents the carrying amounts and estimated fair
            values of the Corporation's  financial  instruments at June 30, 2000
            and 1999. The fair value of a financial  instrument is the amount at
            which the  instrument  could be exchanged  in a current  transaction
            between  willing  parties.  Fair  value  estimates  are made as of a
            specific  point  in  time  using  available  information  about  the
            financial  instrument.  These estimates are subjective in nature and
            often cannot be determined with precision.

<TABLE>
<CAPTION>
            ==========================================================================================================
                                                                         June 30,                          June 30,
                                                                             2000                              1999
            ----------------------------------------------------------------------------------------------------------

                                                          Carrying           Fair         Carrying             Fair
                                                            amount          value           amount            value
            ----------------------------------------------------------------------------------------------------------

<S>                                                   <C>            <C>             <C>               <C>
            Financial assets:
                  Cash                                $  1,125,382   $  1,125,382    $   1,722,871     $  1,722,871
                  Term deposits                          4,299,608      4,299,608               -                -
                  Interest and sales tax receivable        365,934        365,934          237,539          237,539

            Financial liabilities:
                  Accounts payable                       1,047,082      1,047,082          523,550          523,550
                  Accrued liabilities                      324,602        324,602          180,312          180,312
                  Convertible promissory note                   -              -           298,720          298,720

            ==========================================================================================================
</TABLE>


            The  carrying  amounts  shown  in  the  table  are  included  in the
            consolidated balance sheet under the indicated captions.

            The following  method and assumption  were used to estimate the fair
            value of each class of financial instruments:

            The carrying  amounts  approximate  fair value  because of the short
            maturity of these instruments.


                                      F-23
<PAGE>

LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued

Year ended June 30, 2000 and  six-month  period  ended June 30, 1999 and periods
from  inception  (March 2, 1998) to  December  31, 1998 and to June 30, 2000 (in
Canadian dollars)

================================================================================


11.   Subsequent events:

      (a)   On July 21,  2000,  the  Corporation  entered  into a  non-exclusive
            license  agreement with a third party.  The Corporation is committed
            to pay an initial license fee of $584,047 (US$395,000) and royalties
            on sales of products as defined in the agreement.

      (b)   On July 25, 2000, the Corporation  closed a financing  involving the
            issuance of $51,751,000 (US$35 million) five-year  convertible notes
            bearing  interest at 7.5% per annum.  Interest  is payable  upon the
            earlier to occur of the repayment or  conversion  of the notes.  The
            notes  are  convertible  into the  Corporation's  common  stock at a
            conversion  price based on the closing bid price of the common stock
            at the  time of  conversion  with a floor  as  $10.35  (US$7)  and a
            ceiling  of  $36.96  (US$25)  and a  floor  of  $10.35  (US$7).  The
            investors also received  five-year  common stock  purchase  warrants
            entitling them to acquire a total of 5,000,800  shares at a price to
            be  established  in 18 months;  the investors will have the right to
            purchase  shares of Lumenon at a maximum price of $44.36 (US$30) per
            share if  Lumenon's  shares  are then  traded  at a value  exceeding
            $103.50  (US$70).  If the stock price is between  $44.36 (US$30) and
            $103.50  (US$70),  the price  will be the then  traded  value of the
            shares minus $44.36 (US$30), divided by two, plus $14.78 (US$10). If
            the stock price is under  $44.36  (US$30),  the price will be $14.78
            (US$10).

                                      F-24