<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS
                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

(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, 2002

                                       OR

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

For the transition period from __________________ to ___________________

                        Commission File number 000-27977

                  LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
             (Exact Name of Registrant as Specified in Its Charter)

<TABLE>
<S>                                                          <C>
                      Delaware                                    98-0213257
           (State or Other Jurisdiction of                     I.R.S. Employer
           Incorporation or Organization)                    Identification No.)

8851 Trans-Canada Highway, St-Laurent, Quebec, Canada              H4S 1Z6
      (Address of Principal Executive Offices)                    (Zip Code)
</TABLE>

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

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

Securities registered pursuant to Section 12(g) of the Act:
                                                  Common Stock, $0.001 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 [ ]
<PAGE>

      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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

      The aggregate market value of the voting stock held by nonaffiliates of
the registrant, as of September 20, 2002, based on the last sale price of the
registrant's common stock at the close of business on September 20, 2002, was
US$5,396,812. The registrant has no non-voting stock. There were 41,145,197
shares of common stock, US$0.001 par value, of the registrant outstanding as of
September 20, 2002.

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of the Registrant's definitive Proxy Statement for its 2002
Annual Meeting of Stockholders scheduled to be held on December 11, 2002, which
will be filed with the Securities and Exchange Commission no later than 120 days
after June 30, 2002, are incorporated by reference into Part III of this Annual
Report on Form 10-K.

                           FORWARD-LOOKING STATEMENTS

      This Annual Report on Form 10-K includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 that are subject to a number of risks and
uncertainties. All statements, other than statements of historical facts,
included in this Annual Report on Form 10-K regarding our strategy, future
operations, financial position, estimated revenues, projected costs, prospects,
plans and objectives of management are forward-looking statements. When used in
this Annual Report on Form 10-K, the words "will", "believe", "anticipate",
"intend", "estimate", "expect", "project" and similar expressions are intended
to identify forward-looking statements. Our forward-looking statements do not
reflect the potential impact of any future acquisitions, mergers, dispositions,
joint ventures or strategic alliances. Our actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including risks described in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this Annual Report on Form 10-K. We do not assume any obligations to update any
of the forward-looking statements we make.

                                WEB SITE ADDRESS

      Our web site address is www.lumenon.com. References in this Annual Report
on Form 10-K to www.lumenon.com or any variations of the foregoing or any other
uniform resource locator or URL are inactive textual references only. The
information on our web site or at any other URL is not incorporated by reference
into this Annual Report on Form 10-K and should not be considered to be a part
of this document.

                                   TRADEMARKS

      Lumenon(TM) and PHASIC(TM) are trademarks of Lumenon Innovative Lightwave
Technology, Inc. Other product, company or organization names cited in this
Annual Report on

<PAGE>
Form 10-K may be service marks, trademarks or trade names of their respective
companies or organizations.
<PAGE>
                                TABLE OF CONTENTS

<TABLE>
<S>                                                                                        <C>
PART I...............................................................................       1

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

   Item 2.      Properties...........................................................       7

   Item 3.      Legal Proceedings....................................................       8

   Item 4.      Submission of Matters to a Vote of Security Holders..................       8

PART II..............................................................................       9

   Item 5.      Market for Registrant's Common Equity and Related Stockholder
                Matters..............................................................       9

   Item 6.      Selected Financial Data..............................................      10

   Item 7.      Management's Discussion and Analysis of Financial Condition and
                Results of Operations................................................      12

   Item 7A.     Quantitative and Qualitative Disclosures about Market Risk...........      28

   Item 8.      Financial Statements.................................................      29

   Item 9.      Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure.................................................      29

PART III.............................................................................      30

   Item 10.     Directors and Executive Officers of the Registrant...................      30

   Item 11.     Executive Compensation...............................................      30

   Item 12.     Security Ownership of Certain Beneficial Owners and Management.......      30

   Item 13.     Certain Relationships and Related Transactions.......................      30

   Item 14.     Controls and Procedures..............................................      30

PART IV..............................................................................      31

   Item 15.     Exhibits, Financial Statement Schedules, and Reports on Form 8-K.....      31
</TABLE>


                                        i

<PAGE>
                                     PART I

ITEM 1. BUSINESS.

OVERVIEW

      Lumenon is a development stage photonics technology company engaged in the
design, development and building of optical components and devices in the form
of compact hybrid glass circuits on silicon chips for equipment providers in the
telecommunications, data communications and cable television markets. Our core
competencies include optical design, materials development and processing and
packaging for enhanced device integration and performance. Our original photonic
hybrid active silica integrated circuit process technology has been trademarked
under the name PHASIC(TM) to encapsulate the concept of an end-to-end technology
platform ranging from design and materials science through manufacturing. Our
primary goal with respect to PHASIC(TM) is to complete the development of
PHASIC(TM) so that products can be manufactured and sold on a commercial basis.

LUMENON HISTORY

      We were incorporated in Delaware in February 1996 under the name WWV
Development, Inc. In July 1998, we acquired all of the issued and outstanding
shares of Lumenon Innovative Lightwave Technology, Inc., a Canadian corporation,
now called LILT, which was founded in March 1998 by Dr. Iraj Najafi and Dr. Mark
P. Andrews. Upon consummation of the acquisition, we changed our name from WWV
Development, Inc. to Lumenon Innovative Lightwave Technology, Inc. Our common
stock is currently listed on The Nasdaq SmallCap Market under the symbol "LUMM".

      Since inception, Lumenon has been engaged in the research and development
of its technology platform and the construction of its optical components
manufacturing facility. Investments and costs have been financed mainly through
various debt and equity financings. As of June 30, 2002, since inception we have
raised CDN$71.6 million through convertible notes, debt and equity financings.

INFRASTRUCTURE

      Lumenon is located in a "photonics corridor" which consists of clusters of
photonics companies in the eastern seaboard of the United States and Canada,
including Montreal and Ottawa, where Nortel Networks Corp. and JDS Uniphase
Corp. are principally headquartered. We are adjacent to five universities in
Montreal, where we make use of selected laboratories provided by the
universities to supplement our research and engineering development activities.
Over the past eighteen months, we have also invested significant effort and
resources to establish and maintain our photonics facility to conduct our
research, development and production.

      Being based in Quebec, Canada, we are able to take advantage of Canadian
provincial and federal research and development tax incentive programs
including, on the provincial level, 20% refundable tax credits on salaries of
employees involved in research and development.


                                       1
<PAGE>
      At the heart of our 53,000 square-foot building in St. Laurent (Montreal,
Quebec) is 13,000 square-feet of class 100 and class 10,000 "clean room" space.
This space hosts our materials research, formulation, micro-fabrication, and
packaging activities. A further 2,500 square-foot laboratory is dedicated to
core programs such as advanced optics and opto-electronics research, reliability
testing for materials and devices, as well as materials characterization
services.

      Recognizing the importance of reliability engineering in the development
and manufacturing of optical devices, we have developed our own reliability
testing laboratories which we believe will allow Lumenon to duplicate both
Telcordia and customer test requirements and accelerate certification test
cycles.

CORE COMPETENCIES

      The development of optical components is a complex process requiring deep
technical knowledge in chemistry, micro-fabrication, optical design,
mechanical/packaging design and reliability engineering. To date, Lumenon has
successfully developed strong departmental expertise in materials science,
micro-fabrication, optical design, mechanical/packaging design and reliability
engineering. We are also developing the expertise in opto-electronics needed to
produce what we believe will be next generation hybrid products.

INDUSTRY SNAPSHOT/MARKET SECTORS

      The success of our business is dependent upon product sales to
telecommunications network system providers. These providers, in turn, are
dependent for their business upon orders for fiber optic systems from
telecommunications carriers. Business fluctuations affecting service providers
and their telecommunication carrier customers have affected and will continue to
affect our business. We are currently in a period of industry-wide overcapacity
and declining demand for our products, with systems providers continuing to
scale back on deployment and equipment manufacturers relying on component
inventories to meet reduced demand.

      Although network deployments were severely curtailed in the years ended
June 30, 2001 and 2002, some network deployment activity continues - but driven
by new industry criteria, like cost-reduction and enhanced product performance
to improve quality of service and reduce provisioning time and operating
expenses. These criteria continue to drive improvements in optical systems, such
as the development of Reconfigurable Optical Add/Drop Multiplexers (ROADM)
equipped with remotely controllable optical switching features. Carriers today
are challenged when it comes to "service-on-demand". They incur significant
expense every time there is a request to provide a new wavelength through the
network. Not only must every internode of the network be manually reconfigured,
but every amplification and retransmission point must be recalibrated and
re-equalized. The next generation of Dense Wavelength Division Multiplexing
(DWDM) will likely be designed with Variable Optical Attenuation Multiplexer
(VMUX), Optical Channel Monitor (OCM) and switch functionality, allowing
carriers to do system configuration remotely and avoiding time-consuming "truck
rolls" through the network.

      RHK Inc. and Communication Industry Researchers Inc. (CIR) suggest that
positive growth in deployment of new optical systems will be stimulated by three
factors: 1) exhaustion


                                       2
<PAGE>
of excess inventory; 2) conclusion of "fire-sales" of used equipment from
defunct competitors; and 3) a plateau in capacity of present networks.

      Communications technologies have altered how consumers and corporations
communicate, retrieve information, transfer data, make purchases or use audio,
video and interactive services. Despite the market downturn, rising internet
traffic, the proliferation of wireless technology, and the adoption of data
intensive applications on telecommunications and cable networks continue to
drive the global demand for bandwidth. Optical fiber deployment has increased in
response to this pressure, and dense wavelength division multiplexing has
emerged as the method of choice to enhance the capacity of fiber to transport
information. This market broadly segments into the domains of long-haul,
metropolitan/core and metropolitan/access.

      THE LONG-HAUL MARKET is dominated by a select group of trans-national and
global carriers that includes companies like Sprint, Quest and WorldCom. It
spans both regional and extended geographic distances (up to thousands of
kilometers). Long-haul networks connect to metropolitan area networks to create
a "global" connectivity among regional domains. The primary use of these
networks is to carry capacity from one metropolitan area to another. Customers
in this market segment are very sensitive to equipment performance, capacity and
scalability, but less sensitive to cost and volume.

      THE METROPOLITAN/CORE MARKET is characterized by networks spanning
distances of up to hundreds of kilometers. This market typically involves large,
concentrated metropolitan areas. Metropolitan core networks bridge the space
between long-haul and metropolitan access networks, connecting
enterprise/private customers in access networks with long-haul service provider
networks. This domain is today's communication network bottleneck. It relies
heavily on single wavelength point to point activity transported on single mode
fiber. The complexity of these networks results from the large number of
different protocols that must be handled and the need to provide and manage
customer services quickly. In this market, customers are driven by performance,
scalability and added functionality (value added to reduce operational cost).
Customers here are more sensitive to cost and volume than their long-haul
counterparts.

      THE METROPOLITAN/ACCESS MARKET is characterized by the widest range of
data transmission protocols and infrastructure. Its networks connect the edge of
the metropolitan core with the end users. These networks have a high percentage
of transient use that requires the capability to offer very low to very high
wavelength channel capacities. This emerging market segment is driven by cost,
scalability and volume, and is thought to be less sensitive to performance.

METROPOLITAN MARKET GROWTH

      To date, long-haul networks have been the growth opportunities for optical
systems and their respective optical components. Though the long-haul market has
experienced significant expansion, we believe it is the metropolitan core and
access markets that will evolve at a more substantial rate and eventually
dominate the optical communications marketplace. This growth will be stimulated
by the increased allocation of existing bandwidth to the end-user in
metropolitan areas.


                                       3
<PAGE>
      The deployment of new "last-mile" copper technologies such as Digital
Subscriber Lines (DSL) and cable modems enhances network access. In turn, access
drives demand for bandwidth that impacts throughout the network. End-user demand
for bandwidth will in part hinge upon the ability of a given service provider to
offer competitively priced services. However, it is the system providers who are
expected to provide efficient transport of communications at all network levels,
running from the " big pipe" in long-haul down to the "little pipe" through the
last mile that connects end-users to the network.

THE LUMENON PLAN

      INITIAL PRODUCT OFFERING. Our plan of operations for the fiscal year
ending June 30, 2003 is to continue to develop our Array Waveguide Grating (AWG)
optical chip - a fundamental element of any integrated optics product solution -
and to aggressively engage the planar optical components market by fully
leveraging the monolithic and hybrid optical and opto-electronic integration of
our material platforms. Initially we are producing 16 Channel, 100 GHz DWDM
sample devices for evaluation and, in alliance with Poly-Scientific (a division
of Northrop Grumman), developing a small footprint ROADM for optical channel
assignment. In response to an industry call for increased "optical intelligence"
for networks, we are also working with Poly-Scientific on the development of an
Optical Channel Monitor (OCM), designed to be the first monitoring product to
accommodate both optics and electronics in the same small package.

      MID-TERM PRODUCT OFFERING. In addition to these initial products, we
intend to expand our portfolio over the next few years to include:

      -     Low-cost metropolitan products (including 200 GHz & 400 GHz DWDM,
            Coarse Wavelength Divisional Multiplexing, Splitters & Couplers);

      -     Higher performance devices with higher channel count and tighter
            channel spacing (including 32 & 40-channel with 50 GHz and 25 GHz
            channel spacing);

      -     Increased device functionality (including variable optical
            attenuator, interleavers, splitters/couplers tunable filters,
            thermal optic switch); and

      -     Increased levels of integration (including VMUX, dynamic gain
            flattening filters, optical add/drop multiplexer).

STRATEGIC CONSIDERATIONS

      We believe that the PHASIC(TM) process, combined with our advanced
material design capabilities, our manufacturing facility and our dynamic and
innovative management and technology teams, position us to become one of the
future market leaders in delivering Planar Lightwave Circuit (PLC) solutions to
the global communications market. Our key advantages include:

      INNOVATIVE MATERIALS SCIENCE. Lumenon may be unique in the industry in
having its own materials science facility for research and development with an
emphasis on specialty optical glasses and processes for PLCs. Lumenon has
developed capabilities that allow it to build


                                       4
<PAGE>
devices out of a broad range of photonic glasses, including silica, spin-on
silicon oxides (silsesquioxanes), sol-gel derived silica, hybrid organic
polymer-modified silica, and organic polymers. Each material fabric has
identifiable strengths. These strengths are enhanced by juxtaposing different,
but complementary, material sets.

      "SMART" PHOTONIC DEVICES FROM "SMART" MATERIALS. Our process is capable of
developing "tunable materials", "smart materials", and "smart photonic devices".
We believe that smart devices may ultimately offer technical and commercial
advantages (fewer parts, reduced or no electronic control, polarization
control). We believe that we are among the first to target smart devices for the
development of integrated optics. We are currently developing "smart" thermal
optical chips that have the potential to eliminate the need for electronic
temperature control, or ease the requirements for active thermal management of
some optical chip functions.

      INNOVATIONS IN PACKAGING. Over the last year we have invested in the
development of advanced testing and packaging solutions by developing
relationships with third parties.

EXECUTIVE OFFICERS OF THE REGISTRANT

      Our executive officers and their respective ages, as of September 25,
2002, are as follows:

<TABLE>
<CAPTION>
Name                                     Age      Positions
----                                     ---      ---------
<S>                                      <C>      <C>
Gary Moskovitz.......................    55       President, Chief Executive Officer, Acting Chief
                                                  Financial Officer, Secretary and Director
Dr. Mark P. Andrews..................    51       Co-founder, Vice President, Chief Technical
                                                  Officer and Director
</TABLE>

         Gary Moskovitz has served as our President and Chief Executive Officer
and a director since May 2001 and as our Secretary since June 2001. He has also
served as our acting Chief Financial Officer since May 2001. Before joining us,
Mr. Moskovitz served as President and Chief Executive Officer of Helisys, Inc.,
a company in the rapid prototyping systems industry, from 1998 to 2000. Mr.
Moskovitz was Executive Vice President and Chief Operating Officer of Quintar
Corporation, a company in the electronic printing and networked image server
industry, from 1992 to 1998.

         Dr. Mark P. Andrews has served as our Vice President and Chief
Technical Officer and as a director since 1998. From 1998 to June 2001, Dr.
Andrews also served as our Secretary. Dr. Andrews served as an Associate
Professor in the Department of Chemistry at McGill University from 1990 to 2000.
Dr. Andrews is also a member of the Materials Research Society and the
International Society for Optical Engineers.


                                       5
<PAGE>
EMPLOYEES

         In the fourth quarter of the fiscal year ended June 30, 2001, we
announced a restructuring plan designed to better align our cost structures with
continued adverse market conditions, that resulted in reductions in our
headcount by approximately 25%.

         In August 2002, we announced a temporary layoff of 37 employees. Of the
50 people we employed as of August 30, 2002, not including those individuals
subject to the temporary layoff, 16 were employed in engineering, test and
manufacturing, 19 were employed in research and development and the remainder
were employed in sales, marketing and administration.

INTELLECTUAL PROPERTY

         We regard much of our intellectual property as proprietary to us and
rely on a combination of patent, trade secret, copyright and trademark law, as
well as contracts with third parties, to establish and maintain proprietary
rights in our technology and products. We are the co-owner of a United States
patent and a pending provisional patent application relating to our technology.
There can be no assurance that our patent application, or any others that may be
filed in the future, will issue, or that upon issuance, the patents will not be
challenged or invalidated. In addition, while we intend to vigorously protect
our rights, there can be no assurance that any such measures will be successful.
We own a number of registered trademarks, including Lumenon and PHASIC, and have
trademark applications pending in the United States.

         All of our scientists and engineers have executed confidentiality and
assignment of invention agreements. In addition, prior to disclosing
confidential information to third parties, we generally require the third party
to sign confidentiality or other agreements restricting the use and disclosure
of our confidential information.

MATERIAL AGREEMENTS

         Lumenon and Poly-Scientific (a division of Northrop Grumman) signed an
agreement on March 15, 2002, which defines a framework for co-operation in the
joint development and marketing of a ROADM. Pursuant to the agreement, the
parties agreed to collaborate to define, develop and introduce various versions
of the ROADM to market. In addition, Lumenon and Poly-Scientific have agreed to
the joint development and marketing of an OCM. The OCM will be incorporated into
the ROADM and will be available as a stand-alone product.

COMPETITION

         A large number of component suppliers produce optical components for
DWDM and Coarse Wavelength Division Multiplexing (CWDM) networks in the market.
A partial list of suppliers include JDS Uniphase Corp., Gould Fiber Optics,
Corning OCA, NTT Electronics Corporation Wave Splitter, Lightwave Microsystems
Corp. and Bookham Technology plc. In addition, several equipment providers, such
as Lucent Technologies, Inc., Alcatel SA, Cisco Systems, Inc., Nortel Networks
Corp., NEC Corp. and Fujitsu Limited, have divisions or companies which produce
optical components. We expect competition to increase in the future from
existing competitors and from companies that may enter our markets with
solutions that


                                       6
<PAGE>
may be less costly or provide better performance or features. To be successful,
we must continue to respond promptly and effectively to changing customer
preferences, feature and pricing requirements, technological change and
competitors' innovations.

         Many of our 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 our products. This
may diminish purchases of our products. A number of our 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 we have. 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, thereby increasing competition for
our 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.

         We believe that our ability to compete successfully depends on a number
of factors, both within and outside of our control. These factors include:

         -     the price, performance and quality of our products and those of
               our competitors;

         -     the timing and success of new product and feature introductions
               by us, our customers and our competitors;

         -     the emergence of new standards in the optical communications
               industry and the development of technical innovations;

         -     the availability of raw materials;

         -     the efficiency of production;

         -     the rate at which our customers integrate our products into their
               products and the number and nature of our competitors in a given
               market;

         -     the assertion of intellectual property rights; and

         -     general market and economic conditions.

ITEM 2.  PROPERTIES

         We currently lease 53,427 square feet in St-Laurent (Montreal, Quebec),
Canada where both our corporate headquarters and our manufacturing and
processing facilities are located. Our manufacturing facility features materials
preparation, fabrication, packaging, optical test and


                                       7
<PAGE>
quality control facilities for our products. Our processing facilities include
modified semiconductor processing equipment, such as lithography, etching, and
analytical measurement and control equipment.

ITEM 3.  LEGAL PROCEEDINGS

         We are the subject of two lawsuits in the Quebec Superior Court by two
former employees, one of which was filed on August 8, 2001 claiming illegal
dismissal and seeking damages in the amount of CDN$256,917.00 and the right to
exercise options for 75,000 shares of common stock, and one of which was filed
on August 15, 2001 claiming dismissal without cause and seeking damages in the
amount of CDN$145,350.02. While we are unable to predict the outcome of these
lawsuits at this time, we believe that the lawsuits are without merit and intend
to vigorously defend these lawsuits.  We recently settled a third lawsuit by a
former employee.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 2002 through the solicitation
of proxies or otherwise.


                                       8
<PAGE>
                                    PART II


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

         Our common stock has been quoted on The Nasdaq SmallCap Market under
the symbol "LUMM" since June 7, 2002. From July 27, 1998, the day on which
trading in our common stock commenced, through January 19, 2000, our common
stock was quoted on the OTC Bulletin Board. From January 20, 2000 to March 9,
2000, pending the effectiveness of our registration statement on Form 10,
trading in our common stock was reported by the National Quotation Bureau on the
pink sheets. From March 10, 2000 through April 12, 2000, our common stock was
quoted on the OTC Bulletin Board. From April 13, 2000 through June 6, 2002, our
common stock was traded on The Nasdaq National Market. The following table sets
out in US dollars the high and low bid prices of our common stock for the two
most recent fiscal years.

<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 2001                                              High                Low
                                                                             ----                ---

<S>                                                                        <C>                   <C>
First Quarter ended September 30, 2000.............................        US$28.94              US$14.38
Second Quarter ended December 31, 2000.............................        US$16.06              US$ 4.03
Third Quarter ended March 31, 2001.................................        US$ 8.63              US$ 1.69
Fourth Quarter ended June 30, 2001.................................        US$ 2.56              US$ 0.50

Fiscal Year Ended June 30, 2002

First Quarter ended September 30, 2001.............................        US$ 0.75              US$ 0.27
Second Quarter ended December 31, 2001.............................        US$ 1.60              US$ 0.30
Third Quarter ended March 31, 2002.................................        US$ 0.84              US$ 0.19
Fourth Quarter ended June 30, 2002.................................        US$ 0.55              US$ 0.17
</TABLE>

HOLDERS OF COMMON STOCK

         On September 27, 2002, there were 136 holders of record of our common
stock.

DIVIDENDS

         We have not paid and do not intend to pay cash dividends on our common
stock. We currently intend to reinvest earnings, if any, in the development and
expansion of our business, and therefore do not anticipate paying any cash
dividends in our common stock for at least the next fiscal year.

SALES OF UNREGISTERED SECURITIES


                                       9
<PAGE>
         We did not issue any unregistered securities during the fourth quarter
of the fiscal year ended June 30, 2002.

ITEM 6.  SELECTED FINANCIAL DATA

         The following table sets forth selected financial data for the periods
indicated, which has been derived from our consolidated 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 ended June 30, 2002, June 30, 2001, June 30, 2000, June 30, 1999 and
from inception to December 31, 1998. Also included in this Annual Report on Form
10-K are financial statements including a consolidated balance sheet for the
periods ending June 30, 2002 and 2001, and a consolidated statement of
operations for the periods ending June 30, 2002 , 2001 and 2000. The data set
forth below should be read in conjunction with our consolidated financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this Annual
Report on Form 10-K.

         We changed our fiscal year end from December 31 to June 30, effective
in 1999.

         Our functional and reporting currency is the Canadian dollar. For
convenience, our most recent financial information has also been presented in US
dollars. The US dollar figures in items 6 and 7 are converted from the Canadian
dollar using the noon buying rate for cable transfers in New York City in
foreign currency as certified by the Federal Reserve Bank of New York as of June
28, 2002 of CDN$1.5190 per US$1.00.

ACCOUNTING STANDARDS/PRACTICES

         With respect to the consolidated financial statements for the years
ended June 30, 2002 and 2001, the audit was conducted in accordance with United
States generally accepted auditing standards. With respect to the consolidated
financial statements for the year ended June 30, 2000, the audit was conducted
in accordance with Canadian generally accepted auditing standards.

         In our auditor's opinion, these consolidated financial statements
present fairly, in all material respects, the consolidated financial position of
the Corporation as at June 30, 2002 and June 30, 2001 and the consolidated
results of its operations and cash flows for the years ended June 30, 2002, 2001
and 2000 and for the period from inception (March 2, 1998) to June 30, 2002, in
accordance with United States generally accepted accounting principles.


                                       10
<PAGE>
                             SELECTED FINANCIAL DATA
               (In thousands of dollars, except per share amounts)


<TABLE>
<CAPTION>
                                         JUNE 30,        JUNE 30,       JUNE 30,        JUNE 30,       JUNE 30,   DECEMBER 31,
                                             2002            2002           2001            2000           1999           1998
                                            (US$)          (CAN$)         (CAN$)          (CAN$)         (CAN$)         (CAN$)
<S>                                   <C>            <C>             <C>            <C>             <C>           <C>
CONSOLIDATED BALANCE SHEET DATA


Current Assets                        $     5,450    $     8,277     $    24,363    $     6,059     $     2,045    $       553
Property and Equipment                     10,793         16,395          21,257          4,603           1,493              -
Total Assets                               16,759         25,456          46,402         12,200           3,547            553
Current Liabilities                         2,586          3,925           4,690          1,607           1,003            119
Convertible Notes                           6,974         10,594          11,267              -               -              -
Obligations under capital                     438            666           1,368            279               -              -
leases
Stockholders' Equity                        6,761         10,271          29,077         10,314           2,545            434
</TABLE>

<TABLE>
<CAPTION>
                                              FISCAL YEAR    FISCAL YEAR   FISCAL YEAR    FISCAL YEAR    SIX MONTHS           FROM
                                                    ENDED          ENDED         ENDED          ENDED         ENDED   INCEPTION TO
                                                 JUNE 30,       JUNE 30,      JUNE 30,       JUNE 30,      JUNE 30,   DECEMBER 31,
                                                     2002           2002          2001           2000          1999           1998
                                                    (US$)         (CAN$)        (CAN$)         (CAN$)        (CAN$)         (CAN$)
<S>                                           <C>           <C>            <C>           <C>            <C>           <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA

Research & Development                        $     2,684   $     4,077    $     8,276   $218,968(2)    $       162    $        12
   Expenses (1)
General & Administrative (3)                       11,020        16,739         25,093         4,914            569            290
Other Expenses (Income) (4)                         2,023         3,073         25,047         (320)             18           (14)
                                              -----------   -----------    -----------   -----------    -----------    -----------
Net Loss                                           15,727        23,889         58,416       223,562            749            288
                                              ===========   ===========    ===========   ===========    ===========    ===========
Loss Per Share                                $      0.40   $      0.61    $      1.58   $      8.80    $      0.04    $      0.02
   Basic and Diluted (5)
</TABLE>

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

(1)  Amounts shown are net of tax credits and grants.

(2)  In 2000, we recorded an amount of CDN$217,359 as a result of the issuance
     of common stock to Molex Incorporated in exchange for services received
     under the terms of a Teaming Agreement (see note 7(a) to our consolidated
     financial statements).

(3)  Includes depreciation of CDN$5.7 million (US$3.8 million) for 2002 compared
     to CDN$4.9 million for 2001 and a write-down of property and equipment of
     CDN$1.5 million (US$975,000) for 2002 compared to CDN$2.5 million for 2001.

(4)  Including interest expense of CDN$1.6 million (US$1.1 million) in 2002 and
     CDN$2.3 million in 2001, financing charges of CDN$2 million (US$1.3
     million) in 2002 and CDN$25.1 million in 2001, interest income of
     CDN$636,000 (US$418,000) in 2002, CDN$2.1 million in 2001, and lost on
     foreign exchange of CDN$80,000 (US$53,000) in 2002, compared to CDN$278,000
     gain on foreign exchange in 2001.

(5)  For the five periods presented, Lumenon had a weighted average of
     39,412,693, 36,957,777, 25,415,601, 17,480,967 and 14,972,188 issued and
     outstanding shares, respectively. We have never paid dividends on our
     common stock.


                                       11
<PAGE>
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
          RESULTS OF OPERATIONS

      The following discussion and analysis of our financial condition and
results of operations should be read in conjunction with "Selected Financial
Data" and the financial statements and notes thereto appearing elsewhere in this
Annual Report on Form 10-K.

OVERVIEW

      Lumenon changed its fiscal year end from December 31 to June 30, effective
in 1999. From inception (March 2, 1998) to December 31, 1998, activities were
oriented towards the organization of Lumenon. During the six-month period ended
June 30, 1999, key activities included certain financial arrangements entered
into in connection with the construction of our pilot plant in Dorval, Quebec,
Canada and the acquisition of related capital assets.

      For the purpose of this Management's Discussion and Analysis, 2002 refers
to the fiscal year ended June 30, 2002, 2001 refers to the fiscal year ended
June 30, 2001 and 2000 refers to the fiscal year ended June 30, 2000.

RECENT DEVELOPMENTS

      In August 2002, we announced a temporary layoff of 37 employees. Of the 50
people we employed as of August 30, 2002, other than the individuals subject to
the temporary layoff, 16 were employed in engineering, test and manufacturing,
19 were employed in research and development and the remainder were employed in
sales, marketing and administration. We expect to incur an accounting charge in
connection with this layoff. However, the magnitude and timing of the accounting
charge will depend upon the duration of the layoff. If the layoff exceeds six
months, we estimate that under Quebec law we would be obligated to make
severance payments of up to CDN$1.2 million (US$775,400) in the aggregate.

      Under the terms of a common stock purchase agreement dated as of August
14, 2002, Lumenon has the option to receive a maximum of US$14,000,000 by
issuing shares of its common stock in a series of periodic draw-downs of funds.
The draw-downs are subject to certain limitations and the fulfillment of certain
conditions, including a provision which limits the investor's holdings to 9.999%
of the outstanding shares of Lumenon common stock at any given time and the
receipt of stockholder approval for draw-downs which will result in the issuance
of common stock in excess of 19.9% of the common stock issued and outstanding as
of the date of the agreement. These limitations and conditions will limit the
amount which Lumenon may draw down from time to time.

      The price of the shares of common stock to be issued to the investor will
be based on a discount of 8% to 13% of the volume weighted average price of the
common stock during the draw-down period as defined in the agreement. Lumenon
has no obligation to draw down the full amount of the commitment.

      In connection with this agreement, Lumenon issued warrants to the investor
to purchase 280,000 shares of Lumenon's common stock at an exercise price of
$0.21 per share.


                                       12
<PAGE>
FINANCIAL HIGHLIGHTS IN 2002

      On October 9, 2001, we agreed with certain of our investors to amend the
terms of the documents related to our July 25, 2000 convertible note financing.
The convertible notes were amended and restated to provide for a fixed
conversion price of US$1.44 per share, to eliminate certain restrictive
covenants and to eliminate certain events of default. As security for the
repayment of the amended and restated convertible notes, we granted the
investors a security interest in all of our present and future moveable
property, rights and assets. This security interest is subordinate to any
equipment lease financing or purchase money security interest into which we may
enter. In addition, warrants to purchase an aggregate of 5,000,800 shares of
common stock issued in the financing were cancelled and the securities purchase
agreement and the registration rights agreement were amended to eliminate
certain restrictive covenants. During the year 2002, CDN$4.3 million (US$2.9
million) of principal (net of debt discount) and accrued interest of the
convertible notes was converted into 2,485,503 shares of common stock.

      On March 15, 2002, we entered into agreements with Poly-Scientific, a
division of Northrop Grumman's Component Technologies sector, to develop and
market a ROADM module and to jointly develop and market an optical channel
monitor. During the fourth quarter of 2002, we met a milestone under the
agreements by delivering our first samples to Northrop Grumman. To date, we have
not derived any revenues from our relationship with Northrop Grumman.

RESULTS OF OPERATIONS

      Lumenon is a development stage enterprise which has not realized any
revenues from operations.

RESEARCH AND DEVELOPMENT EXPENSES

COMPARISON OF 2001 TO 2002

      Research and development expenses net of tax credit, decreased from
CDN$8.3 million in 2001 to CDN$4.1 million (US$2.7 million) in 2002, a decrease
of CDN$4.2 million or 51%. This decrease was principally due to reduced spending
on materials and supplies for research and development activities of CDN$2.5
million, resulting from the consolidation of the research and development
facility in Dorval with our headquarters and manufacturing center in St-Laurent,
in August 2001. During 2001, we extended the exercise period for certain
outstanding options and reduced senior management functions and employee
headcount, resulting in the cancellation of certain outstanding options. As a
result, non-cash stock based compensation cost decreased from CDN$1 million in
2001 to CDN$193,00 (US$127,000) in 2002, a decrease of CDN$837,000 or 81%. We
recorded research tax credits of CDN$954,000 (US$628,000) in 2002, compared to
CDN$113,000 in 2001, an increase of CDN$841,000. As a result of a final tax
assessment for 1999 by Canadian federal and provincial taxation authorities and
the finalization of our 2001 research and development grant, a credit of
CDN$582,000 was recognized in 2002.

COMPARISON OF 2000 TO 2001


                                       13
<PAGE>
      Research and development expenses decreased from CDN$219 million in 2000
to CDN$8.3 million in 2001, a decrease of CDN$210.7 million. This decrease was
principally due to a CDN $217.4 million non-cash expense recorded during 2000,
which resulted from the issuance of shares of our common stock in consideration
of certain services rendered by Molex under the terms of a teaming agreement
with Molex pursuant to which we had agreed to jointly develop dense wavelength
division multiplexing products. The decrease resulting from a non-cash expense
related to stock issuances was partially offset by an increase in the size of
our research and development team during 2001 by 22 additional people, resulting
in an expense of approximately CDN$574,000. The modification of the exercise
period of certain outstanding options granted under our stock option incentive
plan from two to five years and the grant of options with a below market value
exercise price to certain consultants created a total non-cash compensation
expense of CDN$4.9 million, of which CDN$1.0 million was recorded under research
and development expenses. There was no significant expense of this nature in
2000.

GENERAL AND ADMINISTRATIVE EXPENSES

COMPARISON OF 2001 TO 2002

      The general and administrative expenses were CDN$25.1 million in 2001 and
CDN$16.7 million (US$11 million) in 2002, a decrease of CDN$8.4 million or 33%.
During the fourth quarter of 2001, we reduced our workforce and consolidated our
facilities in an effort to align our cost structure with prevailing market
conditions and to create a more flexible and efficient organization. The
decrease in our general and administrative expenses was mainly attributable to
the reduction of expenses associated with a restructuring that included a 25%
reduction in staff at the end of the fiscal year 2001. As a result, for 2002,
salaries, fringe benefits and non-cash compensation decreased by CDN$3.9 million
or 47%. Professional fees also contributed to the decrease with a reduction of
CDN$2.5 million or 57%. However, depreciation charges increased by CDN$796,000
or 16% during 2002. During the fiscal year ended June 30, 2001, we acquired
certain equipment anticipated to be used in production. Subsequently, we
concluded that we needed additional time and efforts to complete the development
of our initial product and, as a result, the recoverability of plant equipment
and laboratory installation to be used in commercial production has been
established on fair value under Statements of Financial Accounting Standards,
known as SFAS, No. 121 Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed of, and a write-down of CDN$2.5 million
recorded during 2001. In conjunction with this matter, we recorded an additional
write-down of CDN $1.5 million during 2002.

COMPARISON OF 2000 TO 2001

      The general and administrative expenses were CDN$4.9 million in 2000 and
CDN$25.1 million in 2001, an increase of CDN$20.2 million. The increase was
mainly attributable to expenses associated with the hiring of 13 administrative
employees and the movement of our headquarters to a new facility in St-Laurent
(Montreal, Quebec), Canada. As a result of our growth, the depreciation charges
increased by CDN$4.0 million during 2001. In addition, during 2001, we acquired
certain equipment anticipated to be used in production. Subsequently, we
concluded that we needed additional time and efforts to complete the development
of our initial product and, as a result, the recoverability of plant equipment


                                       14
<PAGE>
and laboratory installation to be used in commercial production has been
established on fair value under SFAS, No. 121 and a write-down of CDN$2.5
million was recorded during 2001. Finally, part of the increase in general and
administration expenses resulted from a CDN$3.9 million non-cash compensation
expense, arising from the modification of the terms of outstanding options
granted under our stock option incentive plan to our general and administrative
staff and the grant of certain options with a below market value exercise price.

      For the fiscal period ending June 30, 2003 and moving forward we will
comply with the Statement of Financial Standards known as SFAS 144 (Accounting
for the Impairment or Disposal of Long-Lived Assets) and SFAS 146 (Accounting
for Obligations Associated with Disposal Activities).

OTHER EXPENSES OR INCOME

COMPARISON OF 2001 TO 2002

      Other expenses was CDN$25.0 million in 2001 compared to CDN$3.1 million
(US$2.0 million) in 2002, a decrease of CDN$21.9 million or 88%. The decrease is
primarily attributable to financing charges related to the beneficial conversion
feature of the convertible notes issued on July 25, 2000 and the amortization of
the debt discount, a non-cash expense totaling CDN$2.0 million (US$1.3 million)
for 2002 compared to CDN$25.1 million for 2001. In addition, the interest
expense on the convertible notes amounted to CDN$1.6 million (US$1.1 million) in
2002 compared to CDN$2.3 million in 2001. Our interest income also decreased in
2002 to CDN$636,000 (US$419,000) from CDN$2.1 million, a decrease of CDN$1.5
million or 70% due to the decrease in our cash and short-term investments.
Finally, we recognized a loss on foreign exchange of CDN$80,000 (US$53,000) in
2002 compared to a gain of CDN$278,000 in 2001.

COMPARISON OF 2000 TO 2001

      Other income was CDN$320,000 in 2000 compared to other expenses of
CDN$25.1 million in 2001, an increase in expenses of CDN$25.4 million. The
increase in expenses is primarily attributable to financing charges related to
the beneficial conversion feature of the convertible notes issued on July 25,
2000 and the amortization of the debt discount, a non-cash expense totaling
CDN$25.1 million. In addition, the interest expense on the convertible notes
amounted to CDN$2.1 million in 2001. The interest income and the gain on foreign
exchange also increased in 2001 by CDN$2.0 million due to an increase in cash
and short-term investments from equity and debt financing during 2001. In 2000,
other income of CDN$320,000 resulted mainly from interest income and gain on
foreign exchange.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

      During the 18 month period ended June 30, 1999, we had been engaged in
capital raising, developmental and organizational activities and the
construction of our pilot plant in Dorval, Quebec, Canada. In 2000 and 2001, we
made significant investments in staffing and equipment. These investments and
costs have been financed mainly through proceeds from private placements, the
exercise of warrants issued in such private placements and the exercise of stock


                                       15
<PAGE>
options. As at June 30, 2002, we had cash and cash equivalents and commercial
papers and term deposits of CDN$7.0 million (US$4.6 million) as compared to
CDN$22.3 million as of June 30, 2001.

      We do not believe that inflation has had a significant impact on our
results of operations.

      Cash flows generated from investing activities were CDN$12.7 million
(US$8.4 million) for 2002 compared to utilization of CDN$37.1 million in 2001.
These cash flows were mainly derived from disposal of commercial papers and term
deposits in order to support our operations in St-Laurent (Montreal, Quebec),
Canada, our headquarters and manufacturing center. This includes investments of
CDN$878,000 (US$578,000) in property and equipment.

      Cash flows used in financing activities amounted to CDN$1.1 million
(US$755,000) for 2002, resulting from repayments of obligations under capital
leases. During 2001, cash flows of CDN$53.6 million were mainly generated from
the issuance of convertible notes and common stock. Funds raised through our
financing activities in 2001 were partially offset by operating expenses
amounting to CDN$15.2 million and the acquisition of property and equipment for
CDN$22.2 million.

      If the remaining principal of the convertible notes and unpaid interest
calculated at the rate of 7.5% are not converted into additional common stock
upon maturity, on July 25, 2005, we will be required to pay an aggregate of
CDN$13.7 million (US$9.1 million) plus accrued interest to the noteholders. The
convertible notes were amended and restated to provide for a conversion price of
US$1.44 per share, to eliminate certain restrictive covenants and to eliminate
certain events of default. As security for the repayment of the amended and
restated convertible notes, we granted the investors a security interest in all
of our present and future moveable property, rights and assets. This security
interest is subordinate to any equipment lease financing or purchase money
security interest into which we may enter. In addition, the 5,000,800 common
stock purchase warrants issued in the financing were cancelled and the
securities purchase agreement and the registration rights agreement were amended
to eliminate certain restrictive covenants.

      As of June 30, 2002, we had cash and cash equivalents on hand of
CDN$686,000 (US$452,000) as compared to CDN$2.4 million as of June 30, 2001. We
also had CDN$6.4 million (US$4.2 million), as compared to CDN$20 million as of
June 30, 2001, in commercial paper and term deposits with maturity dates no
later than December 31, 2002 and with no restriction in their use. As of June
30, 2002, the market value approximated the carrying value.

      The Auditors' Report to the Stockholders and the accompanying notes set
forth in the financial statements indicate that we have no current source of
revenue and that without the realization of additional capital, it would be
unlikely for us to continue as a going concern. As a pre-revenue, development
stage company, we will require additional funding to maintain operations. If we
are unable to obtain an adequate amount of additional funding we will have to
delay or abandon some or all of our current and anticipated research and
development projects, significantly cut back on our operations, sell some or all
of our assets, license potentially valuable technologies that we currently plan
to commercialize to third parties or cease operations


                                       16
<PAGE>
all together. To that end we have been actively seeking financing and other
possible transactions that could raise the substantial additional funding
required to meet our future capital needs.

      We have no other significant financial obligations at June 30, 2002, other
than operating lease commitments for our premises and equipment and employment
agreements. Minimum lease payments under capital lease, operating lease
agreements and convertible notes for the next 5 years and thereafter are
presented as follows:


<TABLE>
<CAPTION>
                                                          Payments Due by Period
 Contractual Obligations      -------------------------------------------------------------------------------------------
    Less than 1 year             2003            2004            2005            2006            2007           > 2007
                              -----------     -----------     -----------     -----------     -----------     -----------

<S>                           <C>             <C>             <C>             <C>             <C>             <C>
Convertible notes             $        --     $        --     $13,721,610     $        --     $        --     $        --
Capital Lease Obligations     $ 1,307,317     $   619,949     $        --     $        --     $        --     $        --
Operating Leases              $   918,633     $   897,393     $   887,837     $   883,500     $   876,752     $ 4,375,721
</TABLE>

CRITICAL ACCOUNTING POLICIES

      Our discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of revenues and expenses during the reporting periods. Areas where significant
judgments are made include, but are not limited to, the Impairment of Long-Lived
Assets. Actual results could differ materially from these estimates.

      Impairment of Long-Lived Assets. In fiscal 2001, Lumenon concluded it
required additional time and effort to complete the development of its products,
and as a result, commencement of production was delayed. In addition, in
response to a perceive market downturn for optical circuits, Lumenon re-focused
its process of providing only simple passive components to one of offering a mix
of products and services ranging from optical chips to integrated photonic
solutions. As a result, management decided to segregate the assets to be used in
production from those that will not be used in the future. In establishing
recoverable value of property, plant and equipment, management made estimates
about future cash flows to be generated from the sale of the assets. Fair value
has been established under SFAS, No. 121, and because we are a development stage
enterprise, recoverability is based on information obtained from suppliers and
other companies operating in the same field of activities. As a result, a
decrease in value of certain equipment was reflected by a write-down and the
equipment for which management believes there will be no future use due to
technological changes were written-off.


                                       17
<PAGE>
RISK FACTORS

      Investing in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below before purchasing
our common stock. The risks and uncertainties described below are not the only
ones facing our company. Additional risks and uncertainties may also impair our
business operations. If any of the following risks actually occur, our business,
financial condition or results of operations would likely suffer. In that case,
the trading price of our common stock could fall, and you may lose all or part
of the money you paid to buy our common stock.

RISKS RELATED TO OUR BUSINESS AND INDUSTRY

IN ORDER TO REMAIN IN BUSINESS, WE MUST OBTAIN ADDITIONAL FUNDING TO MEET OUR
FUTURE CAPITAL NEEDS. IF WE ARE UNABLE TO OBTAIN SUCH FINANCING, WE WILL BE
REQUIRED TO DELAY OR ABANDON SOME OR ALL OF OUR ANTICIPATED RESEARCH AND
DEVELOPMENT PROJECTS, SIGNIFICANTLY CUT BACK OUR OPERATIONS, SELL ASSETS OR
LICENSE POTENTIALLY VALUABLE TECHNOLOGIES TO THIRD PARTIES OR CEASE OPERATIONS.

      The auditors report covering our audited financial statements which are
included in our Annual Report on Form 10-K for the year ended June 30, 2002
contained going concern modifications. Our auditors noted that we have no
current source of revenue and without the realization of additional capital, it
would be unlikely that we will be able to continue our business as a going
concern. In order to remain in business, we will require substantial additional
funding over the next several years to develop our technology, to broaden and
commercialize our products and to expand our manufacturing capacity. Despite the
fact that we have recently entered into $14 million equity line financing
agreement with Crossover Ventures, amounts available under the equity line may
not be sufficient to meet our cash needs in the future. In addition, business
and economic conditions may make it unfeasible or undesirable to draw down under
the agreement at every opportunity, and only one draw down may occur at a time.
Additional funding may be unavailable on favorable terms, or not be available at
all. If we are unable to obtain sufficient additional funding, we will have to
delay or abandon some or all of our current and anticipated research and
development projects, significantly cut back our operations, sell some or all of
our assets, license potentially valuable technologies to third parties that we
currently plan to commercialize ourselves or cease operations.

      To date, we have received approximately CDN$71.6 million from third
parties through various debt and equity financings. If we borrow more funds, we
may become subject to restrictive financial covenants and our interest
obligations will increase. In addition, if we raise additional capital by
issuing additional equity securities, our existing stockholders would suffer
substantial dilution.

WE ARE A DEVELOPMENT STAGE COMPANY WITH NO EXPERIENCE IN MANUFACTURING AND
MARKETING OUR PRODUCTS, MAKING IT DIFFICULT TO EVALUATE OUR BUSINESS AND YOUR
INVESTMENT.

      We have no history in manufacturing and marketing our products. 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 or our
prospects. We must successfully


                                       18
<PAGE>
develop and manufacture our products, address our competition, attract, retain
and motivate qualified employees, expand our operations and market and sell
products in large volumes to have significant revenues and to become profitable.
We have operated as a development stage company for an extended period of time
and there is no assurance that we will be successful in creating products or
processes that provide the stability, reproducibility, reliability and
performance to be transferred into commercial production.

      Our future success will depend on our ability to develop, manufacture and
commercialize products based upon our licensed proprietary technologies.
Potential customers may not accept our products and these products may be
difficult to produce in large volumes, fail to perform as expected, cost too
much to produce or be barred from production by the proprietary rights of
others, which would delay or prevent us from having significant revenues or from
becoming profitable.

WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND OUR FUTURE
PROFITABILITY IS UNCERTAIN.

      We have incurred operating losses since our inception and, as of June 30,
2002, had an accumulated deficit of approximately CDN$307 million (US$202
million). We expect to spend substantial funds to continue research and product
development, to establish sales, marketing and quality control departments and
for other general corporate purposes. Over at least the next several years, we
expect to continue incurring considerable operating losses and negative cash
flows as we incur significant operating expenses and make capital expenditures
in our business. The amount we will lose and when, if ever, we will have profits
is highly uncertain. If we are unsuccessful at developing, manufacturing and
marketing our products, we will not generate sufficient revenues to become
profitable.

      Even if we do become profitable, we may not be able to sustain or increase
profitability on a quarterly or annual basis. If we fail to become and remain
profitable, the market price of our common stock will decline.

IF THE PRICE OR THE TRADING VOLUME OF OUR COMMON STOCK DOES NOT REACH CERTAIN
LEVELS, WE WILL BE UNABLE TO DRAW DOWN ALL OR SUBSTANTIALLY ALL OF THE $14
MILLION UNDER OUR EQUITY LINE, WHICH MAY FORCE US TO SIGNIFICANTLY CURTAIL THE
SCOPE OF OUR OPERATIONS AND ALTER OUR BUSINESS PLAN.

    The maximum amount of a draw down under our equity line facility will be
equal to 10% of the weighted average price for our common stock for the 60
trading day period immediately prior to the first day of the pricing period
specified in the notice to Crossover of our intention to exercise a draw down
multiplied by the total trading volume with respect to our common stock for such
period. If our stock price and trading volume falls below certain levels, then
either the maximum draw down amount formula or the mandatory threshold price
will probably prevent us from being able to draw down all $14 million pursuant
to the proposed equity line facility with Crossover. For example, during the 60
trading day period ended September 20, 2002, our weighted average stock price
was $0.212 per share and our total daily trading volume was 8,803,500 shares.
Based on this stock price and trading volume, the maximum draw down amount
available to us during such period would have been $186,106. Accordingly, our
stock price and the trading volume of our stock will have to increase
substantially in the future in order for us to have access to the full $14
million under the equity line. If we are unable to draw down


                                       19
<PAGE>
the full $14 million, we may have to curtail the scope of our operations as
contemplated by our business plan.

THE COMMON STOCK PURCHASE AGREEMENT WITH CROSSOVER LIMITS THE NUMBER OF SHARES
OF COMMON STOCK CROSSOVER IS REQUIRED TO HOLD AT ANY ONE TIME TO 9.999%, WHICH
MAY FURTHER LIMIT OUR ABILITY TO DRAW DOWN AMOUNTS THAT WE REQUEST AND WHICH MAY
CAUSE US TO SIGNIFICANTLY CURTAIL THE SCOPE OF OUR OPERATIONS AND ALTER OUR
BUSINESS PLAN.

    The common stock purchase agreement we have entered into with Crossover in
connection with the equity line facility provides that we may not sell shares of
our common stock pursuant to our draw down right under that agreement if the
sale would cause the Crossover to beneficially own more than 9.999% of our
issued and outstanding common stock at any one time. Accordingly, we may have to
significantly curtail the scope of our operations and alter our business plan
if, at the time of one or more draw downs, this 9.999% restriction results in
our inability to draw down some or all of the amounts requested in any draw down
notice. Any resale of our common stock by Crossover would reduce Crossover's
beneficial ownership, reducing the effect of the 9.999% provision on our ability
to exercise drawdowns, but also likely have a dilutive effect on the price of
our common stock.

WE MAY USE THE PROCEEDS OF OUR EQUITY LINE FINANCING IN WAYS WITH WHICH YOU MAY
NOT AGREE.

    Net proceeds to us from any sales to Crossover will be used principally for
the continued development and implementation of our technology, advertising and
marketing and for general corporate purposes. We have not allocated any specific
amount of our net proceeds for any particular purpose. Consequently, our
management will have broad discretion with respect to the expenditure of the net
proceeds of any sales to Crossover, including discretion to use the proceeds in
ways with which you may not agree.

THE TELECOMMUNICATIONS INDUSTRY IS CURRENTLY EXPERIENCING A CHALLENGING PERIOD
AND WILL FOR THE FORESEEABLE FUTURE CONTINUE TO EXPERIENCE THE EFFECTS OF THE
MARKET DOWNTURN. FLUCTUATIONS IN INDUSTRY DEMAND FOR OPTICAL COMPONENTS CREATE
SIGNIFICANT UNCERTAINTIES IN OUR BUSINESS, WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR RESULTS OF OPERATIONS.

      The success of our business is dependent upon product sales to
telecommunications network system providers. These providers, in turn, are
dependent for their business upon orders for fiber optic systems from
telecommunications carriers. Business fluctuations affecting service providers
and their telecommunication carrier customers have affected and will continue to
affect our business. We are currently in a period of industry-wide overcapacity
and declining demand for our products, with systems providers continuing to
scale back on deployment and equipment manufacturers relying on component
inventories to meet reduced demand. This downturn in the industry is
characterized by inventory overcapacity and reduced revenues, which at times
may, if the downturn is sufficiently prolonged or severe, force system providers
and telecommunications carriers to reduce expenditures on our technology and
products. In addition, due to the lead times associated with the production of
telecommunications equipment, a rise or fall in the level of sales of
telecommunications equipment typically lags any downturn or recovery in the
telecommunications market by approximately six to twelve months. Our success
depends upon


                                       20
<PAGE>
increasing demand for products that incorporate our technology and the continued
downturn in the industry has and will continue to negatively impact our business
and results of operations.

IF WE FAIL TO DEVELOP AND MAINTAIN RELATIONSHIPS WITH EQUIPMENT PROVIDERS WHO
INCORPORATE OUR PRODUCTS INTO THEIRS, OUR REVENUES WILL SUFFER.

      We rely on equipment manufacturers to sell our products as part of an
integrated offering. We do not have agreements with any of these equipment
manufacturers. Our business may be adversely affected if these equipment
manufacturers change their business priorities or experience difficulties in
their operations or choose to incorporate another company's products into their
integrated offerings. In addition, we must enter into additional relationships
with other equipment providers in order to be successful. If we fail to enter
into or maintain such relationships, our business, operations and financial
condition could be harmed.

THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH THE MANUFACTURE OF OUR PRODUCTS.

      We must effectively transfer production information from our research and
product development departments to our manufacturing facility and rapidly
achieve volume production. If we fail to manage this process effectively, the
shipments of products to our customers could be delayed which could damage our
reputation and cause us to lose customers.

      In addition, we have never assembled large amounts of our products. The
manufacture of our chips and packaged components is a complex, sophisticated
process, requiring a clean room and precision assembly equipment. Very small
amounts of contaminants during assembly, defects in components, difficulties in
the assembly process or other factors could cause a significant number of our
products to be nonfunctional or to have unacceptable defects. Because most of
our manufacturing costs are relatively fixed, manufacturing yields are critical
to the results of our operations. Lower than expected manufacturing yields could
delay product shipments and reduce our gross margins. Addressing any of these
problems could require a significant amount of time and resources to correct,
which could delay the shipment of products to our customers, which could damage
our reputation, cause us to lose customers or hinder our ability to attract new
customers or achieve market acceptance, which could significantly reduce
manufacturing yields.

IN ORDER TO REACH PROFITABILITY, WE MUST EXPAND OUR BUSINESS OPERATIONS RAPIDLY
AND THE FAILURE TO MANAGE THIS EXPANSION EFFECTIVELY, AS WELL AS THE STRAIN ON
OUR RESOURCES WHICH EXPANSION MAY CREATE, COULD IMPAIR OUR ABILITY TO OPERATE
PROFITABLY.

      Our success will depend on the expansion of our operations and the
effective management of our 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. We must hire and train additional scientists, chemists and
engineers, manufacturing, marketing, sales and administrative and management
personnel and acquire 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 no
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


                                       21
<PAGE>
rapidly or adequately enough to manage this growth. If we do not accurately
predict demand for our products, we may have too much or too little production
capacity. In addition, if we overestimate demand, we may incur fixed production
expenses that could be excessive in relation to revenues generated. This would
reduce our gross margins and increase our net loss. If we underestimate demand
and as a result, are not able to respond to the needs of our customers, we may
lose customers, which would decrease our revenues.

CREATING INTERNATIONAL SALES AND MANAGING INTERNATIONAL OPERATIONS WILL BE
DIFFICULT AND OUR FAILURE TO DO SO SUCCESSFULLY COULD AFFECT OUR ABILITY TO
BECOME PROFITABLE OVER THE LONG TERM.

      Currently, we have a limited international presence on which to base our
expectations for international sales, however, we believe that in order to
achieve our long-term business goals, we will have to generate sales in
international markets. This will require us to establish international
operations and hire additional personnel. Our failure to do so in a timely and
effective manner could have a material adverse effect on our business,
prospects, financial condition and operating results. Our plans to expand
internationally may be affected by a number of risks including:

      -     changes in foreign currency exchange rates;

      -     challenges inherent in managing geographically dispersed operations;

      -     multiple, conflicting and changing governmental laws and
            regulations;

      -     political and economic instability or conflicts;

      -     changes in tariffs, taxes and other trade barriers

      -     lack of experience in a particular geographic market;

      -     significant presence of our competitors in international markets;

      -     inability to recruit personnel in a specific country or region; and

      -     the need to develop local distribution channels through third
            parties.

THE MARKETS IN WHICH WE COMPETE ARE HIGHLY COMPETITIVE AND SUBJECT TO RAPID
TECHNOLOGICAL CHANGE; WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IF WE ARE
UNABLE TO ADAPT TO NEW TECHNOLOGIES AND SUCCESSFULLY DEVELOP NEW AND EVOLVING
PRODUCTS, WHICH MAY LEAD TO REDUCED SALES OF OUR PRODUCTS, REDUCED REVENUES AND
REDUCED MARKET SHARE.

      We must become a key supplier of components to the photonics industry to
be successful. The photonics market is highly competitive and 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. As a result, our core
technology faces competition from new and revised technologies that may render
our existing technology less competitive or obsolete. We may be unable to adapt
to the rapid technological change exhibited in this market place.


                                       22
<PAGE>
      In order to be successful, we must:

      -     anticipate what features and functions our customers and their
            end-users will need and demand in our products, for both general
            industry and specific custom-made use;

      -     incorporate those features and functions into our products;

      -     meet specific and exacting design requirements; and

      -     price our products competitively.

      If we fail to anticipate or respond adequately to technical developments
or customer requirements, our business and operating results will be negatively
impacted. In addition, due to the constant change in the technology environment,
the life cycle of the products we make may be short. We must introduce new
products on a timely basis. Due to the complexity of our products, we could
experience delays in introducing new products. If we experience significant
delays in product development or introduction, our business operating results
will be negatively impacted.

      In addition, to the extent we determine that new technologies are required
to remain competitive, the development and implementation of such technologies
may require us to make significant capital investments. We may not be able to
obtain capital for these purposes and investments in such technologies may not
result in commercially viable technological products. The loss of revenue and
increased costs to us from such changing technologies would adversely affect our
business.

THE SMALL NUMBER OF POTENTIAL CUSTOMERS FOR OUR PRODUCTS WILL GIVE THESE
CUSTOMERS CONSIDERABLE LEVERAGE OVER US, WHICH COULD LEAD TO LOWER SALES PRICES.

      For the foreseeable future, we expect to market our products to a
relatively limited number of leading original equipment manufacturers. We will
rely on these customers to develop their own systems, thereby creating demand
for our products. As a result of the limited number of customers and the intense
competition in the market, our customers will exert considerable leverage in
negotiating purchases from us, which could lead to lower sales prices.

OUR COMPETITORS MAY BE ABLE TO DEVELOP AND MARKET THEIR PRODUCTS MORE
EFFECTIVELY THAN WE CAN, MAKING OUR PRODUCTS OBSOLETE.

      Our competitors include much larger companies that have substantially
greater financial, technical, marketing, distribution and other resources,
broader product lines, greater name recognition and longer standing
relationships with leading original equipment manufacturers than we do. Our
competitors include companies already manufacturing large volumes of products
based on established technologies, as well as companies selling emerging
technological solutions, which could replace the technologies we are currently
using. Potential competitors could also include our own customers, which may
decide to manufacture products competitive with ours, rather than purchase our
products. As a result, the market for optical circuit technology has become and
continues to be intensely competitive. Some competitors have


                                       23
<PAGE>
become more aggressive with their pricing, payment terms and/or issuance of
contractual implementation terms or guarantees. We may not be able to compete
successfully with new and existing competitors without lowering prices or
affecting other favorable terms. We expect competition to persist and intensify,
which could affect our ability to commercialize our products, which would
negatively impact our future operating results.

IF OUR RECENT TEMPORARY LAYOFF OF EMPLOYEES BECOMES PERMANENT, WE MAY BE
OBLIGATED TO MAKE A SUBSTANTIAL SEVERANCE PAYMENT TO THESE EMPLOYEES.

      In August 2002, we announced a temporary layoff of 37 employees. Of the 50
people we employed as of August 30, 2002, other than the individuals subject to
the temporary layoff, 16 were employed in engineering, test and manufacturing,
19 were employed in research and development and the remainder were employed in
sales, marketing and administration. We expect to incur an accounting charge in
connection with this layoff. However, the magnitude and timing of the accounting
charge will depend upon the duration of the layoff. If the layoff exceeds six
months, we estimate that under Quebec law we would be obligated to make
severance payments of up to CDN$1.2 million (US$775,400) in the aggregate.

WE ARE DEPENDENT ON KEY PERSONNEL TO OPERATE OUR BUSINESS. WE MAY NOT BE ABLE TO
ATTRACT, TRAIN AND RETAIN SUFFICIENTLY QUALIFIED PERSONNEL, WHICH COULD LIMIT
OUR ABILITY TO GROW OUR BUSINESS.

      Our success will depend to a significant degree upon the continued
services of key management, technical, and scientific personnel, including Gary
Moskovitz, our President and Chief Executive Officer, and Dr. Mark P. Andrews,
our Co-founder, Vice President of Technology and Chief Technology Officer. We do
not currently maintain key-man life insurance for any of our personnel.

      Our success will also depend on our ability to attract, train and retain
additional management and other highly skilled technical, and support personnel.
In addition, as we grow, we will need to hire skilled operators for our assembly
process. Our competitors for qualified personnel are often long-established,
highly profitable companies. As a result, we may have to grant large numbers of
options or other stock-based awards to attract and retain personnel, which could
be highly dilutive to our stockholders. In addition, our future profitability
will also depend on our ability to develop an effective marketing staff and
field sales force. Competition for employees with sales and marketing experience
in the photonics industry is intense. We require sales people with a good
technical understanding of our products and of the industry and the failure to
attract, train and retain such personnel could negatively impact our development
and manufacturing goals and the effectiveness of our sales and marketing
efforts.

IF WE FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR FACE A
CLAIM OF INTELLECTUAL PROPERTY INFRINGEMENT BY A THIRD PARTY, THEN WE COULD LOSE
VALUABLE INTELLECTUAL PROPERTY RIGHTS, BE LIABLE FOR SIGNIFICANT DAMAGES OR BE
PREVENTED FROM COMMERCIALIZING OUR PRODUCTS.

      Our success depends in part on our ability to obtain and maintain patents,
protect trade secrets and operate without infringing upon the proprietary rights
of others. In the absence of patent and trade secret protection, competitors may
adversely affect our business by


                                       24
<PAGE>
independently developing and marketing substantially equivalent products and
technology and preventing us from marketing our products. It is also possible
that we could incur substantial costs in litigation if we are required to defend
ourselves in patent suits brought by third parties, or if we are required to
initiate litigation against others to protect our intellectual property rights.

      We may not be issued patents based on the applications already filed or
that we file in the future, and if patents are issued, they may be insufficient
in scope to cover the products we hope to market. Moreover, legal standards
relating to the scope and validity of patent claims are evolving. Any patents we
have obtained, such as our patent for the method of "on-substrate cleaving of
sol-gel waveguide", or that we may obtain in the future, may be challenged,
invalidated or circumvented. Moreover, the United States Patent and Trademark
Office may commence interference proceedings involving our patents or patent
applications. Any challenge to, or invalidation or circumvention of, our patents
or patent applications could have a material adverse effect on our business.

      If we are required to defend ourselves against patent suits brought by
third parties and we do not prevail, in addition to any damages we might have to
pay, any patents we may obtain could be narrowed, invalidated or rendered
unenforceable by a court. We could also be required to design around any patents
we are deemed to infringe or obtain a license to use certain technologies. If we
fail to obtain a required license on a cost-efficient or on an exclusive basis
or are unable to design around a patent, we may be unable to sell some of our
products, which would make it more difficult for us to achieve profitability.

      We also rely on trade secret and copyright law and employee and
third-party nondisclosure agreements to protect our intellectual property
rights. We may be unable to secure meaningful protection of our trade secrets,
copyrights, know-how or other proprietary information in the event of
infringement by others or if others independently develop similar technologies.

WE ARE DEPENDENT ON EQUIPMENT SUPPLIERS AND CONTRACT MANUFACTURERS WHO COULD
DISRUPT OUR BUSINESS IF THEY STOPPED, DECREASED OR DELAYED SHIPMENTS TO US.

      We rely on outside suppliers to provide some of the equipment we use in
our manufacturing process. We do not maintain long-term agreements with any of
these suppliers and, therefore, they could stop supplying equipment to us at any
time. If the equipment, which any particular supplier provides to us, were to
malfunction or were not supplied to us, we would, at a minimum, experience
delays in the shipment of our products and we could be required to find another
equipment supplier.

      In addition, we may rely on third party manufacturers to produce some of
the components used in our products. Our potential dependence upon third party
manufacturing relationships could lead to:

      -     reduced control over equipment delivery schedules;

      -     lack of quality assurance over the components produced by third
            parties; and


                                       25
<PAGE>
      -     the delivery of poor quality components which could lead to poor
            manufacturing yields of our products and ultimately higher product
            costs.

      Any supply deficiencies relating to the quality or quantity of equipment
or components we use to manufacture our products could affect our ability to
fulfill customer orders and ultimately reduce our revenues and profitability.

SEVERAL OF OUR AGREEMENTS CONTAIN TERMS WHICH WILL REDUCE THE AMOUNT OF REVENUES
THAT WE WILL RECEIVE UPON THE SALE OF OUR PRODUCTS AND THIS MAY DECREASE OUR
PROFITABILITY.

      To date, we have not had any material revenues from product sales.
However, our agreements with Polaroid Corporation, Polyvalor and McGill
University require that we pay a royalty based upon our gross sales. In the
event that we do generate revenues, those agreements require us to allocate a
percentage of our revenues to third parties, which may ultimately lower our
gross margin and ultimately, our net income.

OUR BUSINESS INVOLVES THE USE OF SOME HAZARDOUS MATERIALS AND ENVIRONMENTAL LAWS
AND REGULATIONS MAY EXPOSE US TO LIABILITY AND THEREFORE INCREASE OUR COSTS.

      We handle small amounts of hazardous materials as part of our
manufacturing activities. As a result, 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.
Compliance with these laws and regulations requires us to establish compliance
procedures and safety programs. If environmental laws or regulations were to
change, forcing us to modify production processes or use more costly materials,
our manufacturing costs or product sales could be adversely affected. We may be
required to incur additional costs to comply with current or future
environmental laws. In addition, if we fail to comply with either present or
future environmental regulations, we may be subject to fines and production
halts. As with other companies engaged in manufacturing activities that involve
hazardous materials, the risk of environmental liability is inherent in our
manufacturing activities. The costs associated with environmental compliance or
remediation efforts or other environmental liabilities could adversely affect
our business.

TERRORIST ATTACKS AND THREATS OR ACTUAL WAR MAY NEGATIVELY IMPACT ALL ASPECTS OF
OUR OPERATIONS, REVENUES, COSTS AND STOCK PRICE.

            Recent terrorist attacks in the United States, as well as any future
events occurring in response to or in connection with them, including, without
limitation, future terrorist attacks against United States targets, rumors or
threats of war, actual conflicts involving the United States or its allies or
military or trade disruptions impacting our domestic or foreign suppliers, may
substantially negatively impact our operations. Any of these events could cause
consumer confidence and spending to decrease or result in increased volatility
in the United States and worldwide financial markets and economy. They also
could result in economic recession in the United States or abroad. Any of these
occurrences could have a significant negative impact on our operating results,
revenues and costs.


                                       26
<PAGE>
RISKS RELATED TO OUR CORPORATION

OUR COMMON STOCK MAY BE DELISTED FROM THE NASDAQ SMALLCAP MARKET.

      On June 7, 2002, the listing of our common stock was transferred from The
Nasdaq National Market to The Nasdaq SmallCap Market. This transfer allowed our
common stock to continue trading on an electronic, well-regulated market and
provided us with a grace period until February 10, 2003 to comply with the $1.00
minimum bid price required by the Nasdaq Stock Market, Inc. If we are delisted
from the Nasdaq SmallCap Market, our common stock would be likely traded on the
"pink sheets" or the Over-The-Counter Bulletin Board. If our common stock were
delisted from The Nasdaq SmallCap Market, it could materially adversely affect
the market price and liquidity of our common stock and our ability to raise
necessary capital.

      The issuance by us of shares of common stock to Crossover pursuant to the
terms of the equity line financing with Crossover, or the subsequent resale by
Crossover of those shares, may further reduce the trading price of our common
stock. If our common stock were delisted from The Nasdaq SmallCap Market, we
would not be able to draw down any additional funds on the equity line with
Crossover.

      In addition, if after December 31, 2002 we are not listed on The Nasdaq
National Market for an aggregate of ten trading days, we will be in default of
our outstanding convertible notes and the holders of these notes would be
entitled to redeem these notes. As of June 30, 2002, the aggregate principal and
interest accrued under the notes was $9.1 million.

PROVISIONS OF OUR CORPORATE DOCUMENTS AND APPLICABLE LAW MAY PREVENT OR
HINDER A CHANGE OF CONTROL.

      Provisions of our certificate of incorporation and by-laws and of
applicable law could make it more difficult for another party to acquire us or
discourage another party from attempting to acquire us. This may reduce the
value of our common stock. For example, we could issue preferred stock with
rights senior to the common stock without any further vote or action by
stockholders. The issuance of preferred stock as part of a future financing
could have the effect of preventing a change of control and could make it more
difficult for holders of our common stock to take certain corporate actions,
including replacing incumbent directors. Additionally, the preferred stock may
have preference over, and harm the rights of the holders of, our common stock.

WE HAVE A SIGNIFICANT NUMBER OF OUTSTANDING CONVERTIBLE NOTES, WARRANTS AND
OPTIONS, THE EXERCISE OR CONVERSION OF WHICH COULD DECREASE THE PRICE OF OUR
COMMON STOCK.

      To date, we have issued numerous warrants, options and convertible notes,
which are exercisable or convertible into shares of our common stock. Holders of
our common stock could experience substantial dilution upon the conversion or
exercise of outstanding convertible notes, warrants or options.

      No holder may convert any portion of our outstanding convertible notes to
the extent that the conversion would result in that holder or any of its
affiliates beneficially owning more than


                                       27
<PAGE>
4.99% of our outstanding common stock. Therefore, a holder may have to sell
shares of common stock in order to be able to convert those notes.

      The exercise of outstanding options and warrants and the conversion of
outstanding notes will dilute the then current stockholders' ownership of common
stock. Sales in the public market of common stock acquired upon exercise of
options and warrants and conversions of notes could depress the price of our
common stock. This may adversely affect our ability to sell common stock.

OUR COMMON STOCK PURCHASE AGREEMENT WITH CROSSOVER VENTURES AND THE ISSUANCE OF
SHARES TO CROSSOVER UNDER THAT AGREEMENT MAY CAUSE SIGNIFICANT DILUTION TO OUR
STOCKHOLDERS AND MAY HAVE AN ADVERSE IMPACT ON THE MARKET PRICE OF OUR COMMON
STOCK.

    The resale by Crossover of the common stock that it purchases from us will
increase the number of our publicly traded shares, which could depress the
market price of our common stock. Moreover, as all the shares we sell to
Crossover will be available for immediate resale, the mere prospect of our sales
to it could depress the market price for our common stock. The shares of our
common stock issuable to Crossover under the equity line facility will be sold
to Crossover at 87%-92% of the volume weighted average price of our common
stock. If we were to require Crossover to purchase our common stock at a time
when our stock price is low, our existing common stockholders will experience
substantial dilution. The issuance of shares to Crossover will therefore dilute
the equity interest of existing stockholders and could have an adverse effect on
the market price of our common stock.

    The perceived risk of dilution may cause our stockholders to sell their
shares, which would contribute to a downward movement in the stock price of our
common stock. Moreover, the perceived risk of dilution and the resulting
downward pressure on our stock price could encourage investors to engage in
short sales of our common stock. By increasing the number of shares offered for
sale, material amounts of short selling could further contribute to progressive
price declines in our common stock.


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Certain options and warrants are exercisable in US dollars and payable in
such currency. Convertible notes are also payable in US dollars. Ultimate
proceeds upon exercise of options and warrants as well as repayment of
convertible notes, if any, may vary due to fluctuations in the value of the
Canadian dollar relative to the US dollar. 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 we consummate financings outside of
Canada, we receive proceeds in currency other than the Canadian dollar.

      Currently we have minimal monetary assets, liabilities and operating
expenses that are denominated at currencies other than the Canadian dollar. We
do not enter into derivatives or other financial instruments for trading or
speculative purposes, nor do we enter into financial instruments to manage and
reduce the impact of changes in foreign currency exchange rates. If our
international operations expand and we decide to enter into hedging transactions
to minimize


                                       28
<PAGE>
foreign currency exchange rate risk, the adoption of SFAS, No. 133, as amended
by SFAS, Nos. 137 and 138, could have a material impact on our operating
results.

      We do not utilize any derivative security instruments. Investments with
original maturities of three months or less are classified as cash and cash
equivalents. As of June 30, 2002, we consider the reported amounts of these
investments to be reasonable approximations of their values. Therefore, changes
in market interest rates will not have a material impact on our financial
position. Through June 30, 2002, interest expense was not sensitive to the
general levels of United States interest rates because all of our notes payable
bear fixed interest rates.

EXCHANGE RATE INFORMATION

      Our functional and reporting currency is the Canadian dollar. The table
below sets forth, for the periods and dates indicated, information concerning
the noon buying rates for the Canadian dollar per US$1.00. The rate reflects the
noon buying rate for cable transfers in New York City in foreign currencies as
certified by the Federal Reserve Bank of New York. The average consists of the
average noon buying rates on the last day of each full month during the
indicated period.

<TABLE>
<CAPTION>
                                        Close       Average        High         Low
                                        -----       -------        ----         ---
<S>                                   <C>          <C>          <C>          <C>
Fiscal year ended December 31, 1998   CDN$1.5375   CDN$1.4993   CDN$1.5770   CDN$1.4075
Fiscal year ended June 30, 1999       CDN$1.4735   CDN$1.4886   CDN$1.5302   CDN$1.4512
Fiscal year ended June 30, 2000       CDN$1.4798   CDN$1.4727   CDN$1.5135   CDN$1.4350
Fiscal year ended June 30, 2001       CDN$1.5175   CDN$1.5199   CDN$1.5790   CDN$1.4639
Fiscal year ended June 30, 2002       CDN$1.5190   CDN$1.5683   CDN$1.6128   CDN$1.5102
</TABLE>


ITEM 8.     FINANCIAL STATEMENTS

      See Index to Financial Statements.

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

      None.


                                       29
<PAGE>
                                    PART III


ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

      See "Executive Officers of the Registrant" in Part I of this Annual Report
on Form 10-K. The information required by this item and appearing in our
definitive Proxy Statement for our 2002 Annual Meeting of Stockholders, which
will be filed with the Securities and Exchange Commission no later than 120 days
after June 30, 2002, is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

      The information required by this item and appearing in our definitive
Proxy Statement for our 2002 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission no later than 120 days after June
30, 2002, is incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

      The information required by this item and appearing in our definitive
Proxy Statement for our 2002 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission no later than 120 days after June
30, 2002, is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The information required by this item and appearing in our definitive
Proxy Statement for our 2002 Annual Meeting of Stockholders, which will be filed
with the Securities and Exchange Commission no later than 120 days after June
30, 2002, is incorporated herein by reference.

ITEM 14.    CONTROLS AND PROCEDURES

      Not applicable.


                                       30
<PAGE>
                                    PART IV


ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

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

      (1)   Financial Statements

      -     Auditors' Report to the Shareholders.

      -     Consolidated Balance Sheets for the years ended June 30, 2002 and
            June 30, 2001.

      -     Consolidated Statements of Operations for the years ended June 30,
            2002, June 30, 2001, June 30, 2000 and from inception to June 30,
            2002.

      -     Consolidated Statements of Cash Flows for the years ended June 30,
            2002, June 30, 2001, June 30, 2000 and from inception to June 30,
            2002.

      -     Consolidated Statements of Stockholders' Equity for the years ended
            June 30, 2002, June 30, 2001, June 30, 2000 and from inception to
            June 30, 2002.

      -     Notes to Consolidated Financial Statements.

      (2)   Financial Statement Schedules

      None.

      (3)   Exhibits

      The Exhibits filed as part of this Annual Report on Form 10-K are listed
on the Index to Exhibits immediately preceding such Exhibits, which Index to
Exhibits is incorporated herein by reference. Documents listed on such Index to
Exhibits and identified by asterisks are being filed as exhibits herewith.
Documents otherwise identified are not being filed herewith and, pursuant to
Rule 12b-32 under the Securities Exchange Act of 1934, reference is made to such
documents as previously filed as exhibits filed with the Securities and Exchange
Commission. Lumenon's file number under the Securities Exchange Act of 1934 is
000-27977.

(b)   Current Reports on Form 8-K.

      (1)   On May 21, 2002, the Company filed a Current Report on Form 8-K
            dated May 16, 2002, reporting under Item 5 (Other Events) that the
            Company had received a letter from The Nasdaq Stock Market, Inc.
            ("Nasdaq") indicating that Nasdaq had determined to delist the
            Company's common stock from The Nasdaq National Market because the
            Company's common stock did not meet the minimum $1.00 bid price per
            share requirement for continued inclusion on that market.


                                       31
<PAGE>
      (2)   On June 7, 2002, the Company filed a Current Report on Form 8-K
            dated June 6, 2002, reporting under Item 5 (Other Events) that
            Nasdaq had approved the Company's application to list its common
            stock on The Nasdaq SmallCap Market.


                                       32
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Financial Statements

Years ended June 30, 2002, 2001 and 2000 and period from inception to June 30,
2002





<TABLE>
<S>                                                                          <C>
AUDITORS' REPORT TO THE STOCKHOLDERS....................................     F-2

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
</TABLE>


                                      F-1
<PAGE>
AUDITORS' REPORT TO THE STOCKHOLDERS



We have audited the consolidated balance sheets of Lumenon Innovative Lightwave
Technology, Inc. (the "Corporation") as at June 30, 2002 and June 30, 2001 and
the consolidated statements of operations, cash flows and stockholders' equity
for the years ended June 30, 2002, 2001 and 2000 and for the period from
inception (March 2, 1998) to June 30, 2002. 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.

With respect to the consolidated financial statements for the years ended June
30, 2002 and 2001, we conducted our audit in accordance with United States
generally accepted auditing standards. With respect to the consolidated
financial statements for the year ended June 30, 2000, we conducted our audit 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, 2002 and June 30, 2001 and the consolidated results of its operations
and cash flows for the years ended June 30, 2002, 2001 and 2000 and for the
period from inception (March 2, 1998) to June 30, 2002, in accordance with
United States generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming
the Corporation will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Corporation has not yet established a
source of revenue. This raises substantial doubt about its ability to continue
as a going concern without raising additional capital. Management's plan in
regard to these matters is also described in note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.



/s/ KPMG LLP

Chartered Accountants



Montreal, Canada

August 9, 2002, except as to note 14 which is at August 14, 2002


                                      F-2
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
(In thousands of dollars)

<TABLE>
<CAPTION>
                                                            June 30,       June 30,       June 30,
                                                                2002           2002           2001
                                                           ---------      ---------      ---------
                                                               (US$)         (CAN$)          (CAN$)
                                                        (note 2 (a))
<S>                                                     <C>               <C>            <C>
Assets

Current assets:
   Cash and cash equivalents                               $     452      $     686      $   2,382
   Commercial papers and term deposits                         4,186          6,358         19,913
   Loan receivable from an officer (note 3)                      132            200             --
   Interest and sales tax receivable                             221            336            404
   Government contribution and tax credits
     receivable                                                  296            450          1,561
   Prepaid expenses                                              163            247            103
                                                           ---------      ---------      ---------
                                                               5,450          8,277         24,363

Deposits (note 8 (b))                                            516            784            782
Property and equipment (note 4)                               10,793         16,395         21,257
                                                           ---------      ---------      ---------

                                                           $  16,759      $  25,456      $  46,402
                                                           =========      =========      =========

Liabilities and Stockholders' Equity

Current liabilities:
   Accounts payable                                        $     791      $   1,199      $   1,134
   Accrued liabilities                                           190            289            438
   Compensation and related liabilities                          839          1,274          2,178
   Current portion of obligations under capital leases
     (note 6)                                                    766          1,163            940
                                                           ---------      ---------      ---------
                                                               2,586          3,925          4,690

Convertible notes (note 5)                                     6,974         10,594         11,267
Obligations under capital leases (note 6)                        438            666          1,368

Stockholders' equity:
   Share capital (note 7)                                         40             61             57
   Additional paid-in capital                                208,765        317,114        312,035
   Accumulated deficit during the development
     stage                                                  (202,044)      (306,904)      (283,015)
                                                           ---------      ---------      ---------
                                                               6,761         10,271         29,077
Commitments (note 8)
Contingencies (note 12)
Subsequent event (note 14)
                                                           ---------      ---------      ---------
                                                           $  16,759      $  25,456      $  46,402
                                                           =========      =========      =========
</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
(In thousands of dollars, except per share amounts)

<TABLE>
<CAPTION>
                                                 Year              Year              Year              Year              From
                                                ended             ended             ended             ended      inception to
                                             June 30,          June 30,          June 30,          June 30,          June 30,
                                                 2002              2002              2001              2000              2002
                                         ------------      ------------      ------------      ------------      ------------
                                                (US$)            (CAN$)            (CAN$)            (CAN$)            (CAN$)
                                         (note 2 (a))
<S>                                      <C>               <C>               <C>               <C>               <C>
Expenses:
     Research and development            $      3,312      $      5,031      $      8,389      $    219,260      $    232,888
     Research tax credits                        (628)             (954)             (113)             (292)           (1,393)
                                         ------------      ------------      ------------      ------------      ------------
                                                2,684             4,077             8,276           218,968           231,495

     General and administrative                 6,317             9,595            17,713             4,020            32,187
     Depreciation and amortization              3,728             5,663             4,867               894            11,424
     Write-down of property and
       equipment                                  975             1,481             2,513                --             3,994
                                         ------------      ------------      ------------      ------------      ------------
                                               11,020            16,739            25,093             4,914            47,605

Other expenses (income):
     Interest expense                           1,051             1,597             2,323                42             3,962
     Interest income                             (418)             (636)           (2,100)             (279)           (3,023)
     Financing charges (note 5)                 1,337             2,032            25,102                --            27,134
     (Gain) loss on foreign exchange               53                80              (278)              (83)             (269)
                                         ------------      ------------      ------------      ------------      ------------
                                                2,023             3,073            25,047              (320)           27,804

                                         ------------      ------------      ------------      ------------      ------------
Net loss                                 $     15,727      $     23,889      $     58,416      $    223,562      $    306,904
                                         ============      ============      ============      ============      ============

Net loss per share:
     Basic and diluted                   $       0.40      $       0.61      $       1.58      $       8.80
                                         ============      ============      ============      ============      ============

Weighted average number
   of shares outstanding                   39,412,693        39,412,693        36,957,777        25,415,601
                                         ============      ============      ============      ============      ============
</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
(In thousands of dollars)

<TABLE>
<CAPTION>
                                                               Year           Year           Year           Year             From
                                                              ended          ended          ended          ended     inception to
                                                           June 30,       June 30,       June 30,       June 30,         June 30,
                                                               2002           2002           2001           2000             2002
                                                       ------------     ----------     ----------     ----------     ------------
                                                              (US$)         (CAN$)         (CAN$)         (CAN$)           (CAN$)
                                                       (note 2 (a))
<S>                                                    <C>              <C>            <C>            <C>            <C>
Cash flows from operating activities:
     Net loss                                            $  (15,727)    $  (23,889)    $  (58,416)    $ (223,562)      $ (306,904)
     Adjustments for:
         Compensation costs                                     518            787          4,936             51            6,015
         Interest on convertible notes                          851          1,292          2,126             --            3,418
         Common shares issued for services                       --             --             --        217,359          217,359
         Depreciation and amortization                        3,728          5,663          4,867            894           11,424
         Loss on disposal of property and equipment              61             92             --             --               92
         Write-down of property and
           equipment                                            975          1,481          2,513             --            3,994
         Financing charges                                    1,337          2,032         25,102             --           27,134
         Unrealized loss on foreign exchange                    187            283          1,903             --            2,186
     Net change in operating assets
       and liabilities (note 10)                               (653)          (992)         1,746           (129)             997
                                                         ----------     ----------     ----------     ----------       ----------
                                                             (8,723)       (13,251)       (15,223)        (5,387)         (34,285)

Cash flows from financing activities:
     Proceeds from issuance of common shares                     11             16          6,037         14,336           23,153
     Share issue expenses                                        --             --            (40)          (713)          (1,138)
     Principal repayments of obligations under
       capital leases                                          (766)        (1,164)          (787)           (90)          (2,041)
     Deposit on subscription of shares                           --             --             --             --              147
     Proceeds from issuance of
       convertible notes, net of issue costs                     --             --         48,382             --           48,681
     Cash from the acquisition of a subsidiary                   --             --             --             --              814
                                                         ----------     ----------     ----------     ----------       ----------
                                                               (755)        (1,148)        53,592         13,533           69,616

Cash flows from investing activities:
     Purchase of commercial papers and term deposits        (55,305)       (69,597)      (213,524)       (19,813)        (302,934)
     Disposal of commercial papers and term deposits         64,228         83,152        197,911         15,513          296,576
     Additions to property and equipment (note 10)             (578)          (878)       (22,242)        (2,919)         (27,531)
     Proceeds from disposal of property and equipment            18             28             --             --               28
     Deposits                                                    (1)            (2)           743         (1,525)            (784)
                                                         ----------     ----------     ----------     ----------       ----------
                                                              8,362         12,703        (37,112)        (8,744)         (34,645)
                                                         ----------     ----------     ----------     ----------       ----------
Net (decrease) increase in cash and cash equivalents         (1,116)        (1,696)         1,257           (598)             686

Cash and cash equivalents, beginning of period                1,568          2,382          1,125          1,723               --
                                                         ----------     ----------     ----------     ----------       ----------
Cash and cash equivalents, end of period                 $      452     $      686     $    2,382     $    1,125       $      686
                                                         ==========     ==========     ==========     ==========       ==========

Cash and cash equivalents are as follows:

     Cash                                                $      323     $      491     $    2,382     $    1,125       $      491
     Commercial papers and term deposits                        129            195             --             --              195
                                                         ----------     ----------     ----------     ----------       ----------
                                                         $      452     $      686     $    2,382     $    1,125       $      686
                                                         ==========     ==========     ==========     ==========       ==========
</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
Years ended June 30, 2002, 2001 and 2000 and period from inception to June 30,
2002 (In thousands of 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     $       1     $       --     $        --      $         --      $       1

Issue of common shares                  16,200,000            24            790              --                --            814

Share issue expenses                            --            --            (93)             --                --            (93)

Net loss for the period                         --            --             --            (288)               --           (288)
                                       -----------     ---------     ----------     -----------      ------------      ---------

Balance as at December 31, 1998         16,455,000            25            697            (288)               --            434

Issue of common shares                   3,760,000             5          2,759              --                --          2,764

Share issue expenses                            --            --           (292)             --                --           (292)

Compensation costs related to
   stock options granted                        --            --            241              --                --            241

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

Deposit on subscription of shares               --            --             --              --               147            147
                                       -----------     ---------     ----------     -----------      ------------      ---------

Balance as at June 30, 1999             20,215,000            30          3,405          (1,037)              147          2,545

Issue of common shares                  12,755,039            19        232,121              --              (147)       231,993

Share issue expenses                            --            --           (713)             --                --           (713)

Compensation costs related
   to stock options granted                     --            --             51              --                --             51

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

Balance as at June 30, 2000             32,970,039            49        234,864        (224,599)               --         10,314

Issue of common shares                   5,508,866             8         21,032              --                --         21,040

Share issue expenses                            --            --            (40)             --                --            (40)

Stock purchase warrants and
   beneficial conversion feature
   of convertible notes                         --            --         51,243              --                --         51,243

Compensation costs related
   to stock options granted                     --            --          4,936              --                --          4,936

Net loss for the period                         --            --             --         (58,416)               --        (58,416)
                                       -----------     ---------     ----------     -----------      ------------      ---------

Balance as at June 30, 2001             38,478,905            57        312,035        (283,015)               --         29,077

Issue of common shares                   2,505,470             4          4,292              --                --          4,296

Compensation costs related
   to stock options granted                     --            --            787              --                --            787

Net loss for the period                         --            --             --         (23,889)               --        (23,889)
                                       -----------     ---------     ----------     -----------      ------------      ---------

Balance as at June 30, 2002             40,984,375     $      61     $  317,114     $  (306,904)     $         --      $  10,271
                                       ===========     =========     ==========     ===========      ============      =========

Balance as at June 30, 2002
   in US dollars (note 2(a))            40,984,375     $      40     $  208,765     $  (202,044)     $         --      $   6,761
                                       ===========     =========     ==========     ===========      ============      =========
</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
Years ended June 30, 2002, 2001 and 2000 and period from inception to June 30,
2002 (In thousands of Canadian dollars, except per share amounts)

1.  ORGANIZATION AND BUSINESS ACTIVITIES:

    Lumenon Innovative Lightwave Technology, Inc. ("Lumenon" or the
    "Corporation") 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 shareholders of LILT acquiring
    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 acquisition 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 (US$540). This
    corporation 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's current activities are performed only through
    LILT, in Canada.

    Lumenon was established to capitalize on innovations in compact optical
    circuit design and hybrid glass materials for integrated optics. In July
    1999, Lumenon opened its pilot plant to support its ongoing research and
    development initiatives. In October 2000, the Corporation inaugurated its
    53,000-square-foot facility. This facility serves as the Corporation's
    headquarters and, when operative, will be capable of high-volume
    manufacturing. In March 2001, in response to a perceived market downturn for
    optical components, the Corporation re-focused its strategy from one of
    providing only simple passive components to one of offering a mix of
    products and services ranging from optical chips to integrated photonic
    solutions.

    The Corporation is subject to a number of risks, including the overall
    economic environment in its field of activities, the successful development
    and marketing of its technology and the attraction and retention of key
    personnel.

    The Corporation's financial statements are prepared using the generally
    accepted accounting principles applicable to a going concern, which
    contemplates the realization of assets and liquidation of liabilities in the
    normal course of business. However, the Corporation has no current source of
    revenue. Without the realization of additional capital, it would be unlikely
    for the Corporation to continue as a going concern. It is management's plan
    to seek additional capital in order to finalize the development of its
    products and to enter into the commercialization phase of such products. In
    connection therewith and as part of management's plan, the Corporation
    entered into a common stock purchase agreement in August 2002, as described
    in note 14.


                                      F-7
<PAGE>
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
        the convenience of readers and are based on the noon buying rate in New
        York City for cable transfers in foreign currencies as certified for
        customs purposes by the Federal Reserve Bank of New York at June 30,
        2002, which was $1.5190 Canadian dollar for each US dollar.

        The functional currency of the Corporation is the Canadian dollar.

    (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.

    (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:

<TABLE>
<CAPTION>
         Asset                                                         Period
         -----                                                         ------
<S>                                                         <C>
         Plant equipment and laboratory installation        3, 5 and 12 years
         Leasehold improvements                                 Term of lease
         Office equipment and fixtures                                5 years
         Computer equipment and software                              3 years
         Vehicle equipment                                            3 years
</TABLE>



                                      F-8
<PAGE>
2.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

    (d) 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.

    (e) Government assistance:

        Government assistance is recorded as a reduction of the expenses or the
        assets for which it was obtained.

    (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.



                                      F-9
<PAGE>
2.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

    (h) 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.

        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.

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

        The Corporation accounts for impairment of 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 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.

    (j) Net loss per share:

        Net loss per share is computed using the weighted average number of
        shares outstanding during the period.

    (k) 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,
        namely government contributions and tax credits receivable and property
        and equipment as well as disclosure of commitments and contingent
        liabilities at the date of the financial statements and the reported
        amounts of expenses during the reporting periods. Actual results could
        differ from those estimates.



                                      F-10
<PAGE>
2.  SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

    (l) Recent accounting pronouncements:

        In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
        Retirement Obligations." SFAS No. 143 requires the Corporation to record
        the fair value of an asset retirement obligation as a liability in the
        period in which it incurs a legal obligation associated with the
        retirement of tangible long-lived assets. This statement is effective
        for the Corporation's fiscal year beginning July 1, 2002. The
        Corporation does not expect SFAS No. 143 to have a material impact on
        its financial statements.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the
        Impairment or Disposal of Long-Lived Assets." SFAS No. 144 provides
        accounting guidance for long-lived assets to be held and used, to be
        disposed of other than by sale, and to be disposed of by sale. This
        statement is effective for the Corporation's fiscal year beginning July
        1, 2002. The Corporation does not expect SFAS No. 144 to have an initial
        material impact on its financial statements upon adoption.

        In June, 2002, the FASB issued SFAS No. 146 "Accounting for Costs
        Associated with Exit or Disposal Activities." SFAS No. 146 addresses
        financial accounting and reporting for costs associated with exit or
        disposal activities and nullifies EITF Issue No. 94-3, "Liability
        recognition for certain Employee Termination Benefits and other costs to
        Exit an Activity (including certain costs incurred in a restructuring)."
        This statement states that a commitment to an exit or disposal plan no
        longer will be a significant basis for recording a liability for those
        activities. The statement is effective for exit or disposal activities
        that are initiated after December 31, 2002. The Corporation does not
        expect to have an initial material impact on its financial statements
        upon adoption.

3.  LOAN RECEIVABLE FROM AN OFFICER:

    The loan bears interest at a rate of 3.25% and was repaid in July 2002.


                                      F-11
<PAGE>
4.  PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
                                                       June 30, 2002
                                         ------------------------------------------
                                                         Accumulated       Net book
                                              Cost      depreciation          value
                                         ---------      ------------      ---------
<S>                                      <C>            <C>               <C>
    Plant equipment and laboratory
      installation                       $  23,120        $    9,475      $  13,645
    Leasehold improvements                   1,792               489          1,303
    Office equipment and fixtures            1,329               538            791
    Computer equipment and software          1,348               773            575
    Vehicle equipment                          183               102             81
                                         ---------        ----------      ---------
                                         $  27,772        $   11,377      $  16,395
                                         =========        ==========      =========
</TABLE>

<TABLE>
<CAPTION>
                                                       June 30, 2001
                                         ------------------------------------------
                                                         Accumulated       Net book
                                              Cost      depreciation          value
                                         ---------      ------------      ---------
<S>                                      <C>            <C>               <C>
    Plant equipment and laboratory
      installation                       $  22,657        $    4,767      $  17,890
    Leasehold improvements                   1,625               353          1,272
    Office equipment and fixtures            1,343               242          1,101
    Computer equipment and software          1,182               345            837
    Vehicle equipment                          183                26            157
                                         ---------        ----------      ---------
                                         $  26,990        $    5,733      $  21,257
                                         =========        ==========      =========
</TABLE>

    During 2001, Lumenon acquired certain equipment anticipated to be used in
    production. Subsequently, the Corporation concluded it needed to further
    pursue the development of its products and, as a result, commencement of
    related production activity was delayed.

    Because Lumenon is a development stage enterprise, the recoverability of
    plant equipment and laboratory installation to be used in commercial
    production has been established at fair value. In connection therewith,
    write-offs of $1,481 and $2,513 on the equipment for which management
    believes there will be no future use due to technological changes, have been
    recorded during the year ended June 30, 2002 and 2001, respectively.

    Fair value is based on information obtained from suppliers and other
    companies operating in the same field of activity.

4.  PROPERTY AND EQUIPMENT (CONTINUED):

    Property and equipment held under capital leases are as follows:

<TABLE>
<CAPTION>
                                                     2002          2001
                                                 --------      --------
<S>                                              <C>           <C>
    Cost                                         $  3,815      $  2,941
    Net book value                                  1,843         2,151
</TABLE>



                                      F-12
<PAGE>
5.  CONVERTIBLE NOTES:

    On July 25, 2000, the Corporation closed a financing involving the issuance
    of five-year convertible notes in the aggregate gross principal amount of
    $51,243 (US$35,000) bearing interest at the rate of 7.5% per annum. Interest
    was payable upon the earlier of the repayment or conversion of a note. Under
    the terms of the original agreement, the notes were convertible at any time
    by the holder 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 of $11.17 (US$7) and a ceiling of $39.90 (US$25). In addition,
    the investors also received five-year common stock purchase warrants
    entitling them to acquire a total of 5,000,800 shares of the Corporation's
    common stock.

    This transaction was recorded under APB-14 ("Accounting for Convertible Debt
    and Debt Issued with Stock Purchase Warrants") and EITF 98-5 ("Accounting
    for Convertible Securities with Beneficial Conversion Features or
    Contingently Adjustable Conversion Ratios"). As a result, the convertible
    notes were discounted and are presented net of the debt discount, which is
    amortized over the term of the notes. Amortization is presented under
    financing charges in the consolidated statements of operations.

    In 2001, interest expense with respect to the beneficial conversion feature
    of convertible notes was included under financing charges as well.







                                      F-13
<PAGE>
5.  CONVERTIBLE NOTES (CONTINUED):

    On October 9, 2001, the Corporation and the investors agreed to amend the
    terms of the documents pertaining to the July 25, 2000 convertible notes
    financing. The convertible notes were amended and restated to provide for a
    fixed conversion price of US$1.44 for a common share, to eliminate certain
    restrictive covenants and to eliminate certain events of default pertaining
    to the Corporation. As security for the repayment of the amended and
    restated convertible notes, the Corporation granted the investors a security
    interest in all of the Corporation's present and future moveable property,
    rights and assets. This security interest is subordinated to any equipment
    lease financing or purchase money security interest of the Corporation. In
    addition, the common stock purchase warrants were cancelled and the
    securities purchase agreement and the registration rights agreement were
    amended to eliminate certain restrictive covenants.

    During 2001, $15,003 (net of debt discount) of the convertible notes
    including related interest was converted into 2,931,666 shares of common
    stock. During 2002, $4,280 (net of debt discount) of the convertible notes
    including related interest was converted into 2,485,503 shares of common
    stock.

    As a result of the above conversions, $13,722 (US$9,050) of the original
    gross principal amount remains outstanding.

6.  OBLIGATIONS UNDER CAPITAL LEASES:

    Future minimum lease payments under capital leases are as follows:

<TABLE>
<CAPTION>
                                                                      2002          2001
                                                                  --------      --------
<S>                                                               <C>           <C>
    2002                                                          $     --      $  1,156
    2003                                                             1,307         1,025
    2004                                                               620           387
                                                                  --------      --------
    Total minimum lease payments                                     1,927         2,568

    Less amount representing interest (at rates varying from
      7.5% to 18.85%)                                                   98           260
                                                                  --------      --------
    Present value of net minimum capital lease payments              1,829         2,308

    Current portion of obligations under capital leases              1,163           940
                                                                  --------      --------

    Long-term portion of obligations under capital leases         $    666      $  1,368
                                                                  ========      ========
</TABLE>



                                      F-14
<PAGE>
6.  OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED):

    Interest on capital leases of $284 in 2002 and $199 in 2001 is included in
    interest expense.

7.  SHARE CAPITAL:

<TABLE>
<CAPTION>
                                                               June 30,      June 30,
                                                                   2002          2001
                                                              ---------     ---------
<S>                                                           <C>           <C>

    Authorized:
        5,000,000 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:
        40,984,375 common shares in 2002
          and 38,478,905 common shares in 2001                $      61     $      57
                                                              =========     =========
</TABLE>

    (a) Issue of shares:

        As described 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 recorded at
        $0.372 (US$0.255). 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 (US$540).

        1999

        During the six-month period ended June 30, 1999, under a Stock Purchase
        Agreement, Molex Incorporated ("Molex") agreed to purchase from Lumenon
        3,000,000 common shares at $0.74 (US$0.50) per share in two
        transactions.

        During the period, the Corporation issued 3,760,000 common shares
        (including 1,500,000 shares to Molex) for a cash consideration of $2,764
        (US$1,880), along with warrants for the purchase of 3,926,667 common
        shares at a price of $1.32 (US$0.90) per share.




                                      F-15
<PAGE>
7.  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 (US$4,844), of which $147 (US$99) was received prior to
              June 30, 1999;

        (ii)  promissory notes were converted into 400,000 common shares with a
              value of $299 (US$200);

        (iii) in connection with the issuance of common shares referred to in
              (i) and (ii), 1,912,211 warrants were issued at exercise prices
              ranging from $1.36 (US$0.90) to $45.42 (US$30.00) per share;

        (iv)  under the Stock Purchase Agreement with Molex, an additional
              1,500,000 common shares for a cash consideration of $1,093
              (US$750) were issued;

        (v)   3,570,517 common shares were issued upon exercise of warrants and
              options for a cash consideration of $6,104 (US$4,171);

        (vi)  5,800,000 common shares were issued upon the exercise of a warrant
              and in connection with services received from Molex in the amount
              of $217,359 (US$147,003). The value of the shares issued has been
              recorded as Molex fulfilled its obligations pursuant to a Teaming
              Agreement. The transaction was accounted for by using the average
              market price of the shares of the Corporation during the periods
              that the services were rendered by Molex.

        2001

        During the year ended June 30, 2001, the Corporation issued 2,577,200
        common shares upon exercise of warrants and options for a cash
        consideration of $6,037 (US$4,096) and 2,931,666 common shares as a
        result of the conversion of convertible notes (note 5).

        2002

        During the year ended June 30, 2002, the Corporation issued 19,967
        common shares upon exercise of options for a cash consideration of $16
        (US$11) and 2,485,503 common shares as a result of the conversion of
        convertible notes (note 5).


                                      F-16
<PAGE>
7.  SHARE CAPITAL (CONTINUED):

    (b) Stock option plan:

        In May 1999, the Corporation established a stock-option incentive plan
        for key employees, directors, officers and service-providers to purchase
        a maximum of 6,000,000 shares of common stock. In addition, the
        Corporation has established the following plans to supplement the May
        1999 stock option incentive plan:

        -   2001 stock incentive plan (4,000,000 shares of common stock)

        -   2001 director stock option plan (600,000 shares of common stock)

        -   2001 non-director, non-officer employee stock incentive plan
            (2,000,000 shares of common shares)

        The common shares as per the above plans may be issued pursuant to
        awards granted under these plans. The terms, number of common shares
        covered by each option as well as the permitted frequency of the
        exercise of such options are determined by the Board of Directors. No
        optionee can hold options to purchase more than 5% of the number of
        shares issued and outstanding at the date the plans were adopted. The
        exercise price for each share covered by an option is established by the
        Board of Directors, except for the 2001 director stock option plan under
        which the exercise price shall be equal to the market value at the date
        of the grant.

        Options granted shall be exercised over a period not exceeding ten
        years. At June 30, 2002, 2,091,416 outstanding options are exercisable
        and 3,192,834 outstanding options vest over a period of one to five
        years. However, certain rights are provided under the terms of the plans
        in connection with reorganization or acquisition events, as defined in
        the plans.



                                      F-17
<PAGE>
7.  SHARE CAPITAL (CONTINUED):

    (b) Stock option plan (continued):

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

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

             Options outstanding, January 1, 1999              --             $              --
             Granted                                    1,940,000                 1.48 (US$0.97)
                                                      -----------             -----------------
             Options outstanding, June 30, 1999         1,940,000

             Granted                                    1,250,000             $ 26.01 (US$17.12)
             Exercised                                   (822,850)               1.44  (US$0.95)
             Cancelled                                    (90,000)                2.36 (US$1.55)
                                                      -----------             -----------------
             Options outstanding, June 30, 2000         2,277,150

             Granted                                    4,327,500             $ 15.22 (US$10.05)
             Exercised                                   (239,000)               1.55  (US$1.02)
             Cancelled                                 (1,430,000)              20.68 (US$13.61)
                                                      -----------             -----------------
             Options outstanding, June 30, 2001         4,935,650

             Granted                                    1,610,000             $  0.73  (US$0.48)
             Exercised                                    (19,967)               0.78  (US$0.51)
             Cancelled                                 (1,241,433)              14.36  (US$9.45)
                                                      -----------             -----------------
             Options outstanding, June 30, 2002         5,284,250
                                                      ===========             =================
</TABLE>



                                      F-18
<PAGE>
7.  SHARE CAPITAL (CONTINUED):

    (b) Stock option plan (continued):

        (ii)  The following table summarizes significant ranges of outstanding
              options as at June 30, 2002:

<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>

              $0.30 - $0.44          252,500     9.7 years     $   0.34       137,500     $   0.35
              $0.57 - $0.79          631,666     9.4 years         0.58       303,541         0.59
              $0.94 - $1.19        1,193,333     9.2 years         1.06       350,625         1.09
              $1.46 - $1.54          135,000     7.0 years         1.47        86,250         1.46
              $2.97 - $3.17        1,581,250     8.2 years         2.98       487,500         2.99
              $8.24 - $11.79          56,250     7.9 years        11.15        21,250        10.62
              $14.11 - $21.06        131,250     8.1 years        16.30       101,250        15.45
              $21.56 - $32.30        560,000     8.2 years        26.08       143,000        26.16
              $32.68 - $41.00        743,000     7.9 years        37.88       460,500        38.44
                                  ----------     ---------     --------    ----------     --------
                                   5,284,250     8.7 years     $   9.86     2,091,416     $  12.16
                                  ==========     =========     ========    ==========     ========
</TABLE>

        (iii) The following table summarizes the weighted average grant date
              fair value of options granted during 2002:

<TABLE>
<CAPTION>
                                      Weighted average          Weighted average
              Options granted           exercise price     grant date fair value
              ---------------         ----------------     ---------------------
<S>                                   <C>                  <C>
                  980,000               $         0.89             $        0.89
                  542,500                         0.59                      1.01
                   87,500                         1.15                      1.00
              ---------------           --------------             -------------
                1,610,000               $         0.83             $        0.92
              ===============           ==============             =============
</TABLE>


                                      F-19
<PAGE>
7.  SHARE CAPITAL (CONTINUED):

    (b) Stock option plan (continued):

        (iv)  Stock-based compensation:

              In 2001, the Corporation changed the exercise period for certain
              options previously granted. In addition, the exercise price of
              certain stock options was below the market price of the stock at
              the date of grant. Accordingly, compensation costs of $787 in 2002
              and $4,936 in 2001 have been recognized for the above stock
              options granted to employees in the financial statements.

              Had the 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          Year          Year             From
                                                  ended         ended         ended     inception to
                                               June 30,      June 30,      June 30,         June 30,
                                                   2002          2001          2000             2002
                                              ---------     ---------     ---------     ------------
<S>                                           <C>           <C>           <C>           <C>
              Net loss   As reported          $  23,889     $  58,416     $ 223,562       $  306,904
                         Pro-forma               36,151        78,177       228,224          343,960
                                              ---------     ---------     ---------       ----------
              Pro-forma compensation          $  12,262     $  19,761     $   4,662       $   37,056
                                              =========     =========     =========       ==========

              US dollars
                (note 2 (a))
                         As reported          $  15,727
                         Pro-forma               23,799
                                              ---------
              Pro-forma compensation          $   8,072
                                              =========
</TABLE>

<TABLE>
<CAPTION>
                                                                 Year          Year          Year
                                                                ended         ended         ended
                                                             June 30,      June 30,      June 30,
                                                                 2002          2001          2000
                                                            ---------     ---------     ---------
<S>                                                         <C>           <C>           <C>
              Pro-forma net loss per share:
                  Basic and diluted                         $    0.92     $    2.11     $    8.98
                  U.S dollars                                    0.60
</TABLE>


                                      F-20
<PAGE>

7.   SHARE CAPITAL (CONTINUED):

     (b) Stock option plan (continued):

         (iv) Stock-based compensation (continued):

              The fair value of each option grant was estimated on the date of
              grant using the Black-Scholes option-pricing model with the
              following assumptions: risk-free interest of 5.5% to 5.8%,
              dividend yield of 0%, expected volatility varying from 200% to
              390% and expected life of 5 to 7.5 years. The per share weighted
              average fair value of stock options granted during 2002, 2001 and
              2000 was $0.82, $14.74 and $0.87, respectively.

     (c) Warrants:

         The following warrants are outstanding at June 30, 2002:

<TABLE>
<CAPTION>
             Warrants         Expiry date               Exercise price per share

<S>                           <C>                       <C>
              700,000           June 2003                $    2.28     (US$1.50)
               14,000           July 2003                    37.98    (US$25.00)
              -------           ---------                -----------------------
              714,000
              =======
</TABLE>

8.   COMMITMENTS:

     (a) Under the terms of a license agreement, 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 on gross sales up to a maximum
         amount of approximately $3,600 (US$2,400) until October 2017. The
         Corporation also entered into a non-exclusive license for patents with
         a third party in connection with array wave guides until the last
         patent expires. Lumenon is committed to pay a royalty on net sales at
         various rates which are based on the level of sales realized.


                                      F-21
<PAGE>
8.   COMMITMENTS (CONTINUED):

     (b) The Corporation leases premises under an operating lease agreement that
         expires in July 2012. This lease requires the Corporation to pay all
         executory costs such as maintenance and insurance. Rental payments
         under the terms of this lease are secured by a deposit of $750
         (US$507), of which $75 (US$50) is refundable per year, beginning in
         fiscal 2002.

         In addition, the Corporation leases certain equipment under operating
         leases. An agreement with a lessor is secured by a deposit of $184.
         Minimum lease payments under operating lease agreements for premises
         and equipment for the next five years and thereafter are as follows:

<TABLE>
<S>                                              <C>
         2003                                      $       919
         2004                                              897
         2005                                              888
         2006                                              883
         2007                                              877
         Thereafter                                      4,376
                                                   -----------
                                                   $     8,840
                                                   ===========
</TABLE>


     (c) The Corporation is committed to acquire equipment through capital
         leases in the amount of $97 (US$64) plus interest of $17.

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

<TABLE>
<S>                                                     <C>
         2000                                           $          78
         2001                                                     810
         2002                                                     875
</TABLE>


                                      F-22
<PAGE>
8.   COMMITMENTS (CONTINUED):

     (e) The Corporation entered into employment agreements in prior years with
         certain employees expiring at various dates in 2004 and 2005. Under the
         terms of these agreements, the Corporation is committed to pay salaries
         of approximately $704 in 2003, $693 in 2004 as well as $366 in 2005. In
         addition, certain agreements provide for indemnities if terminated
         under certain conditions.


9.   INCOME TAXES:

     Details of the components of income taxes are as follows:

<TABLE>
<CAPTION>
                                                                                                      From
                                                  Year ended       Year ended       Year ended     inception to
                                                   June 30,         June 30,         June 30,        June 30,
                                                     2002             2001             2000           2002
                                                   --------         --------         --------        -------
<S>                                               <C>               <C>             <C>            <C>
Net loss:
    US (parent corporation)                        $  4,670         $ 34,263         $    378       $ 39,552
    Canadian operations                              19,219           24,153          223,184        267,352
                                                   --------         --------         --------        -------
                                                     23,889           58,416          223,562        306,904
Less items not deductible for tax purposes:
    Compensation costs                                  787            4,936               51          6,015
    Financing charges                                 1,932           25,102               --         27,034
    Expense related to the
      Teaming Agreement                                  --               --          215,510        215,510
                                                   --------         --------         --------        -------
                                                     21,170           28,378            8,001         58,345

Basic income tax rate                                    39%              39%              39%            39%
                                                   --------         --------         --------        -------
                                                      8,256           11,067            3,120         22,754

Adjustment in income taxes resulting from:
    Loss carryforwards and
      unclaimed deductions
      not recognized                                  7,872           10,784            3,040         22,171

Difference of subsidiary's rate                         384              283               80            583
                                                   --------         --------         --------        -------

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


                                      F-23
<PAGE>
9. INCOME TAXES (CONTINUED):

   At June 30, 2002, 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.

   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                             $--          $17,558        $13,361

Excess of the undepreciated capital cost of
  property and equipment over the net book
  value                                                --            2,249         10,508

Excess of the undepreciated capital cost of
  initial license fees over the net book value         --              589            589
</TABLE>

   Losses carried forward expiring in:
<TABLE>
<S>                                                 <C>            <C>            <C>
- 2006                                                 --              488            532
- 2007                                                 --            5,015          5,015
- 2008                                                 --            9,278          9,278
- 2009                                                 --            8,923          8,923
- 2019                                                254               --             --
- 2020                                                387               --             --
- 2021                                              2,590               --             --
- 2022                                              1,823               --             --
</TABLE>


   In addition, research tax credits, not recorded in the accounts and available
   to reduce future Canadian Federal income taxes payable, are as follows:

<TABLE>
<CAPTION>
   Expiring in:
<S>                                                               <C>
      2009                                                        $     267
      2010                                                            1,079
      2011                                                            1,838
      2012                                                            1,135
</TABLE>


                                      F-24
<PAGE>
9. INCOME TAXES (CONTINUED):

   The income tax effect of temporary differences that give rise to the net
   deferred tax assets, net of the valuation allowance, is presented below:

<TABLE>
<CAPTION>
                                                               June 30,         June 30,
                                                                 2002             2001
                                                                 ----             ----
<S>                                                            <C>              <C>
Scientific research and experimental development               $  5,073         $  3,829
Non-capital losses                                                9,328            5,272
Excess of undepreciated capital cost of equipment
  over the net book value                                         1,432             (274)
Excess of undepreciated capital cost of initial license
  fees over the net book value                                      183              183
Investment tax credits                                            2,979            2,196
Less valuation allowance                                        (18,995)         (11,206)
                                                               --------         --------
                                                               $     --         $     --
                                                               ========         ========
</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
   and it has not yet generated taxable income, the generation of future taxable
   income is dependent on the successful commercialization of its products and
   technologies.


                                      F-25
<PAGE>
10. SUPPLEMENTAL CASH FLOW DISCLOSURE:

   (a) Net change in operating assets and liabilities:

<TABLE>
<CAPTION>
                                           Year             Year           Year            Year            From
                                           ended           ended           ended           ended        inception to
                                          June 30,        June 30,        June 30,        June 30,        June 30,
                                           2002             2002            2001            2000            2002
                                           ----             ----            ----            ----            ----
                                           (US$)           (CAN$)          (CAN$)          (CAN$)          (CAN$)
<S>                                       <C>             <C>             <C>             <C>           <C>
   Loan receivable from an officer        $  (132)        $  (200)        $  --           $  --           $  (200)
   Interest and sales
     tax receivable                            45              68             (63)           (103)           (336)
   Government
     contribution and tax
     credits receivable                       (92)           (139)            (95)           (182)           (450)
   Prepaid expenses                           (95)           (144)            (13)            (30)           (247)
   Accounts payable,
     accrued liabilities
     and compensation costs
     and related liabilities                 (379)           (577)          1,917             186           2,230
                                          -------         -------         -------         -------         -------
                                          $  (653)        $  (992)        $ 1,746         $  (129)        $   997
                                          =======         =======         =======         =======         =======
</TABLE>


   (b) Non-cash investing and financing activities:

   Acquisition of property and equipment through capital leases amounts to $685
   (US$451) at June 30, 2002 (2001 - $2,581).

   Acquisition of property and equipment of $50 (US$33) is included in accounts
   payable at June 30, 2002 (2001 - $461). In addition, government contribution
   receivable of $1,250 deducted from property and equipment in 2001 was
   reversed in 2002 due to non compliance of confident conditions.

11. FINANCIAL INSTRUMENTS:

   (a) Foreign currency risk management:

   Certain options and warrants are exercisable in US dollars and payable in
   such currency. Convertible notes are also payable in US dollars. Ultimate
   proceeds upon exercise of options and warrants as well as repayment of
   convertible notes, if any, may vary due to fluctuations in the value of the
   Canadian dollar relative to the US dollar.


                                      F-26
<PAGE>
11.   FINANCIAL INSTRUMENTS (CONTINUED):

   (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 that short-term
   investments be in commercial papers of recognized 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.

   (c) Fair values:

   The following table presents the carrying amounts and estimated fair values
   of the Corporation's financial instruments at June 30, 2002 and 2001. 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, 2002                 June 30, 2001
                                            ----------------------        ----------------------
                                            Carrying        Fair          Carrying        Fair
                                             amount         value          amount         value
                                             ------         -----          ------         -----
<S>                                         <C>            <C>            <C>            <C>
Financial assets:
   Cash and cash equivalents                $   686        $   686        $ 2,382        $ 2,382
   Commercial papers and term
     deposits                                 6,358          6,358         19,913         19,913
   Loan receivable from an officer              200            200           --             --
   Interest and sales tax receivable            336            336            404            404

Financial liabilities:
   Accounts payable                           1,199          1,199          1,134          1,134
   Accrued liabilities                          289            289            438            438
   Compensation and related
     liabilities                              1,274          1,274          2,178          2,178
</TABLE>


   The carrying amounts of the above-mentioned assets and liabilities
   approximate their fair value because of the short maturity of these
   instruments.


                                      F-27
<PAGE>
11. FINANCIAL INSTRUMENTS (CONTINUED):

   (c) Fair values (continued):

   In addition, the fair value of the convertible notes amounts to $11,772
   (US$7,750). With respect to 2001, the fair value of the convertible notes and
   the related 5,800,000 warrants (see note 5) amounted to $15,140 and $3,028,
   respectively.

   The fair value of the convertible notes (and warrants issued along with the
   notes in 2001) was established by an independent expert who has utilized
   recognized financial models including volatility of stock and interest rates.

12. CONTINGENCIES:

   In connection with employee terminations that occurred during the past fiscal
   year, three employees filed lawsuits claiming various amounts with respect to
   damage and loss related to their forfeitures and the outcome, if any, is
   unpredictable at this time. The Corporation believes that the legal actions
   are without merit and intends to vigorously defend such lawsuits.

13. COMPARATIVE FIGURES:

   Certain of the 2001 comparative figures have been reclassified to conform
   with the basis of presentation adopted in the current year.

14. SUBSEQUENT EVENT:

   Under the terms of a common stock purchase agreement entered into on August
   14, 2002, Lumenon has the option to receive a maximum of US$14,000,000 by
   issuing shares of its common stock in a series of periodic draw-downs of
   funds. The draw-downs are subject to certain limitations and the fulfillment
   of certain conditions, including a provision which limits the investor's
   holdings to 9.999% of the outstanding shares of Lumenon common stock at any
   given time and, the receipt of stockholder approval for draw-downs which will
   result in the issuance of common stock in excess of 19.9% of the common stock
   issued and outstanding as of the date of the agreement. These limitations and
   conditions will limit the amount which Lumenon may draw from time to time.

   The price of the shares of common stock to be issued to the investor will be
   based on a discount from 8% to 13% of the volume weighted average price of
   the common stock during the draw-down period as defined in the agreement.
   Lumenon has no obligation to draw down the full amount of the commitment.


                                      F-28

<PAGE>

14.   SUBSEQUENT EVENT (CONTINUED):

      In connection with this agreement, Lumenon issued a warrant to the
      investor to purchase 140,000 shares of Lumenon's common stock at an
      exercise price of $0.21 per share, within 30 days of the agreement.
      Lumenon has undertaken to issue to the investor an additional warrant to
      purchase 140,000 shares of Lumenon common stock at an exercise price of
      $0.21 per share.

15.   QUARTERLY FINANCIAL DATA (UNAUDITED):

      The following table contains selected unaudited Statement of Operations
      information for each quarter of years ended June 30, 2002, 2001 and 2000.
      The Corporation believes that the following information reflects all
      normal recurring adjustments necessary for a fair presentation of the
      information for the periods presented. The operating results for any
      quarter are not necessarily indicative of results for any future period.

<TABLE>
<CAPTION>
                                              For the quarters ended
                                              ----------------------
                            September 30,     December 31,      March 31,        June 30,
                                 2001             2001             2002             2002
                                 ----             ----             ----             ----
<S>                          <C>              <C>              <C>              <C>
Revenues                     $        --      $        --      $        --      $        --
Net loss                           5,873            7,293            6,457            4,266
Loss per share                      0.15             0.19             0.16             0.10
Share used in computing
  loss per share              38,748,905       38,763,784       39,441,465       40,984,375
                              ==========       ==========       ==========       ==========
</TABLE>

<TABLE>
<CAPTION>
                                               For the quarters ended
                                               ----------------------
                             September 30,     December 31,      March 31,        June 30,
                                  2000             2000             2001             2001
                                  ----             ----             ----             ----
<S>                          <C>              <C>              <C>              <C>
Revenues                      $        --      $        --      $        --      $        --
Net loss                           27,519            7,036            8,670           15,191
Loss per share                       0.80             0.19             0.23             0.39
Shares used in computing
  loss per share               34,511,352       36,471,090       38,361,512       38,478,905
                               ==========       ==========       ==========       ==========
</TABLE>


                                      F-29
<PAGE>
15.   QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED):

<TABLE>
<CAPTION>
                                                For the quarters ended
                                                ----------------------
                             September 30,     December 31,      March 31,        June 30,
                                  1999             1999             2000             2000
                                  ----             ----             ----             ----
<S>                          <C>              <C>              <C>              <C>

Revenues                      $        --      $        --      $        --      $        --
Net loss                            2,664           12,539          157,647           50,712
Loss per share                       0.13             0.53             6.04             1.58
Shares used in computing
  loss per share               21,116,992       23,583,147       26,100,742       32,040,242
                               ==========       ==========       ==========       ==========
</TABLE>


                                      F-30
<PAGE>
                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

                                          LUMENON INNOVATIVE LIGHTWAVE
                                          TECHNOLOGY, INC.


      September 30, 2002                  By: /s/ Gary S. Moskovitz
                                              ---------------------------------
                                              Gary S. Moskovitz
                                              President and Chief Executive
                                              Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES                  TITLE                               DATE
<S>                         <C>                                 <C>
/s/ Gary S. Moskovitz       President and Chief Executive       September 30, 2002
----------------------      Officer and Director (Principal
Gary S. Moskovitz           executive officer and principal
                            financial and accounting officer)


/s/ Mark P. Andrews         Vice President, Chief Technology    September 30, 2002
----------------------      Officer and Director
Dr. Mark P. Andrews

                            Chairman of the Board               September 30, 2002
----------------------
Gilles Marcotte

/s/ Piere-Paul Allard       Director                            September 30, 2002
----------------------
Pierre-Paul Allard

/s/ Guy Brunet              Director                            September 30, 2002
----------------------
Guy Brunet

/s/ Pierre-Andre Roy        Director                            September 30, 2002
----------------------
Pierre-Andre Roy

/s/ Michael Wong            Director                            September 30, 2002
----------------------
Michael Wong
</TABLE>

<PAGE>
                                 CERTIFICATIONS

      I, GARY S. MOSKOVITZ, CERTIFY THAT:

      (1) I have reviewed this annual report on Form 10-K of Lumenon Innovative
Lightwave Technology, Inc.;

      (2) Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report; and

      (3) Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.


Date: September 30, 2002            /s/ Gary S. Moskovitz
                                    ---------------------------------
                                    Gary S. Moskovitz
                                    President and Chief Executive Officer and
                                    Acting Chief Financial Officer
                                    (principal executive officer and principal
                                    financial officer)
<PAGE>
                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit
No.        Description
---        -----------
<S>        <C>
2.1 (1)    Amended Plan of Reorganization, Merger and Acquisition by which WWV
           Development, Inc. acquired and merged into Lumenon Innovative
           Lightwave Technology, Inc. and acquired Dequet Capital, Inc., dated
           July 7, 1998.

3.1 (2)    Amended and Restated Certificate of Incorporation of the Registrant.

3.2 (3)    Second Amended and Restated By-Laws of the Registrant.

4.1 (1)    Specimen Certificate for Shares of Common Stock.

4.2 (1)    Form of Warrant to acquire shares of common voting stock.

4.3 (4)    Form of Amended and Restated Convertible Note dated October 9, 2001.

10.1 (1)   License Agreement by and between Polyvalor and McGill University and
           Lumenon Innovative Lightwave Technology, Inc.

10.2(1)    Registration Rights Agreement between Lumenon Innovative Lightwave
           Technology, Inc. and Molex Incorporated dated June 21, 1999.

10.3 (5)   Termination Agreement among Molex, Lumenon and Certain Stockholders
           of Lumenon, dated April 5, 2001 by and among Molex Incorporated,
           Molex Fiber Optics, Inc., Lumenon Innovative Lightwave Technology,
           Inc., Lilt Canada Inc., Andrewma Holding Inc., Najafi Holding Inc.,
           Dr. Mark Andrews and Dr. Iraj Najafi.

10.4(4)    Agreement dated as of October 9, 2001 between Lumenon Innovative
           Lightwave Technology, Inc. and Capital Ventures International.

10.5(4)    Agreement dated as of October 9, 2001 between Lumenon Innovative
           Lightwave Technology, Inc. and Castle Creek Technology Partners LLC.

10.6 (4)   Amendment No. 1 to the Securities Purchase Agreement dated as of
           October 9, 2001 by and among Lumenon Innovative Lightwave
           Technology, Inc. and the Investors (as defined herein).

10.7 (4)   Amendment No. 1 Registration Rights Agreement dated as of October 9,
           2001 by and among Lumenon Innovative Lightwave Technology, Inc. and
           the Investors (as defined herein).

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

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

#10.10(8)  Employment agreement between the LILT Canada, Inc. and Dr. Mark P.
           Andrews, dated February 27, 2002.

#10.11(2)  Employment agreement between the Registrant and Gary Moskovitz, dated
           May 3, 2001.
</TABLE>
<PAGE>
<TABLE>
<S>        <C>
10.12(7)   Security Agreement, dated as of October 30, 2001, between Lumenon
           Innovative Lightwave Technology, Inc., Capital Ventures
           International and Castle Creek Technology Partners LLC.

10.13(7)   Deed of Hypothec, dated as of October 30, 2001, between Lumenon
           Innovative Lightwave Technology, Inc. and CIBC Mellon Trust Company.

10.14(7)   Deed of Hypothec, dated as of October 30, 2001, between LILT Canada
           Inc. and CIBC Mellon Trust Company.

#10.15(1)  Stock Option Incentive Plan.

#10.16(7)  Amended and Restated 2001 Director Stock Option Plan.

#10.17(7)  Amended and Restated 2001 Non-Officer, Non-Director Employee Stock
           Incentive Plan.

#10.18(7)  Amended and Restated 2001 Stock Incentive Plan.

+10.19*    Joint Development and Marketing Agreement dated as of March 25, 2002
           by and between Lumenon Innovative Lightwave Technology, Inc. and
           Poly-Scientific, a business unit of Northrop Grumman.

10.20*     Letter Agreement dated March 15, 2002 by and between Lumenon
           Innovative Lightwave Technology, Inc. and Poly-Scientific, a
           business unit of Northrop Grumman.

21(1)      Subsidiaries of the Company.

23*        Consent of KPMG LLP.
</TABLE>

----------
*     Filed herewith.

+     Portions omitted pursuant to a request for confidential treatment.

#     Management contract or compensatory plan or arrangement filed as an
      exhibit to this form pursuant to Items 14(a) and 14(c) of Form 10-K.

(1)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Registration Statement on Form 10 filed February 23,
      2000, as amended (File No. 00-27977), and incorporated herein by
      reference.

(2)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Annual Report on Form 10-K, as amended, (File No.
      00-27977), and incorporated herein by reference.

(3)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Current Report on Form 8-K filed August 20, 2001 (File
      No. 000-27977) and incorporated herein by reference.

(4)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Registration Statement on Form S-8 filed October 11,
      2001 (File No. 000-27977) and incorporated herein by reference.

(5)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the
<PAGE>
      Registrant's Current Report on Form 8-K filed April 27, 2001 (File No.
      000-27977) and incorporated herein by reference.

(6)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Annual Report on Form 10-K filed September 8, 2000
      (File No. 000-27977), and incorporated herein by reference.

(7)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Quarterly Report on Form 10-Q filed February 14, 2002
      (File No. 000-27977), and incorporated herein by reference.

(8)   Previously filed with the Securities and Exchange Commission as an Exhibit
      to the Registrant's Quarterly Report on Form 10-Q filed May 15, 2002 (File
      No. 000-27977), and incorporated herein by reference.