<PAGE>   1

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

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    FORM 10-Q

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

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

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                                       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: 000-31393

                                 LUMINENT, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

            DELAWARE                                         95-4798130
 (STATE OR OTHER JURISDICTION OF                          (I.R.S. EMPLOYER
 INCORPORATION OR ORGANIZATION)                           IDENTIFICATION NO.)

        20550 NORDHOFF ST.
        CHATSWORTH, CALIFORNIA                                   91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                       (ZIP CODE)

                                 (818) 773-9044
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)


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 [ ]

As of April 30, 2001 156,000,000 shares of the registrant's common stock were
outstanding.

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



<PAGE>   2

                                 LUMINENT, INC.

                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001

                     INDEX TO QUARTERLY REPORT ON FORM 10-Q


<TABLE>
<S>         <C>                                                                    <C>
                          PART I. Financial Information

Item 1      Financial Statements
                Consolidated Condensed Balance Sheets at March 31, 2001 and
                  December 31, 2000                                                 3
                Consolidated Condensed Statements of Operations for the
                  three months ended March 31, 2001 and 2000                        5
                Consolidated Condensed Statements of Cash Flows for the three
                  months ended March 31, 2001 and 2000                              6
                Notes to Consolidated Condensed Financial Statements                7
Item 2      Management's Discussion and Analysis of Financial Condition
              and Results of Operations                                            13
Item 3      Quantitative and Qualitative Disclosures About Market Risk             38

                           PART II. Other Information

Item 1      Legal Proceedings                                                      38
Item 2      Changes in Securities and Use of Proceeds                              38
Item 4      Submission of Matters to a Vote of Security Holders                    39
Item 5      Other Information                                                      39
Item 6      Exhibits and Reports on Form 8-K                                       41
            Signatures                                                             46
</TABLE>




                                                                               2
<PAGE>   3

                          PART I. FINANCIAL INFORMATION

ITEM 1.  Financial Statements


                                 LUMINENT, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                                 (in thousands)


                                     ASSETS

<TABLE>
<CAPTION>
                                                               March 31,       December 31,
                                                                 2001             2000
                                                              ----------       ------------
                                                             (unaudited)
<S>                                                             <C>              <C>
Current assets:
   Cash and cash equivalents                                    $106,756         $131,778
   Short-term investments                                            293            1,082
   Accounts receivable, net of allowance of $5,026
       at March 31, and $4,455 at December 31                     22,381           21,613
   Inventories                                                    57,329           39,428
   Deferred income taxes                                           8,425            6,220
   Prepaids and other current assets                              18,334            9,106
                                                                 --------        --------
       Total current assets                                      213,518          209,227

Property and equipment, net                                       59,808           51,366
Goodwill, net                                                    322,052          341,540
Other assets                                                       3,247            3,247
                                                                --------         --------
       TOTAL ASSETS                                             $598,625         $605,380
                                                                ========         ========
</TABLE>


              The accompanying notes are an integral part of these
                     consolidated condensed balance sheets.




                                                                               3
<PAGE>   4


                                 LUMINENT, INC.
                      CONSOLIDATED CONDENSED BALANCE SHEETS
                        (in thousands, except share data)

                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                         March 31,       December 31,
                                                                            2001            2000
                                                                        -----------      ------------
                                                                        (unaudited)
<S>                                                                     <C>              <C>
Current liabilities:
   Current portion of long-term debt                                      $   2,442       $   2,607
   Short-term borrowings                                                     11,973           7,957
   Accounts payable                                                          24,752          20,021
   Accrued expenses                                                           8,793          10,337
   Income taxes payable                                                       4,942           6,634
                                                                          ---------       ---------
              Total current liabilities                                      52,902          47,556

Long-term debt, net of current portion                                        9,285           9,550
Other long-term liabilities                                                     794             779
                                                                          ---------       ---------
              Total long-term liabilities                                    10,079          10,329

Minority interest                                                               465             444

Stockholders' equity:
   Preferred stock, $.001 par value, 30,000,000 shares
      authorized; none issued and outstanding                                    --              --
   Common stock, $.001 par value, 300,000,000 shares
      authorized; 156,000,000 shares issued and outstanding                     156             156
   Additional paid-in capital                                               635,066         635,066
   Accumulated deficit                                                      (51,539)        (29,241)
   Deferred stock compensation, net                                         (45,124)        (55,570)
   Accumulated other comprehensive loss                                      (3,380)         (3,360)
                                                                          ---------       ---------
              Total stockholders' equity                                    535,179         547,051
                                                                          ---------       ---------
              TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                  $ 598,625       $ 605,380
                                                                          =========       =========
</TABLE>


              The accompanying notes are an integral part of these
                     consolidated condensed balance sheets.



                                                                               4
<PAGE>   5

                                 LUMINENT, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                               Three Months Ended March 31,
                                                               ---------------------------
                                                                 2001              2000
                                                               ---------         ---------
<S>                                                            <C>               <C>
Net Sales                                                      $  48,241         $  14,899
Cost of sales (1)                                                 32,212             9,654
                                                               ---------         ---------
     Gross Profit                                                 16,029             5,245

Operating costs and expenses:
     Selling, general and administrative (1)                      15,372             1,985
     Research and development (1)                                  5,196             2,449
     Parent company allocations                                       --               193
     Amortization of goodwill                                     19,488                --
                                                               ---------         ---------
                                                                  40,056             4,627

          Operating income (loss)                                (24,027)              618

Other income, net                                                  1,850                --
                                                               ---------         ---------

     Income (loss) before provision for income taxes
          and minority interest                                  (22,177)              618

Provision for income taxes                                           100               246

Minority interest                                                     21               190
                                                               ---------         ---------

     Net income (loss)                                         $ (22,298)        $     182
                                                               =========         =========

Net income (loss) per share, basic and diluted                     (0.14)             0.00
                                                               =========         =========

Shares used in per-share calculation, basic and diluted          156,000           144,000
                                                               =========         =========
</TABLE>


(1)     Includes amounts relating to deferred stock compensation of $683,000,
        $8.7 million and $1.1 million presented in "cost of sales", "selling,
        general and administrative" and "research and development",
        respectively, for the quarter ended March 31, 2001.

              The accompanying notes are an integral part of these
                  consolidated condensed financial statements.



                                                                               5
<PAGE>   6


                                 LUMINENT, INC.
                 CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
                                 (in thousands)
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                            Three Months Ended March 31,
                                                                               2001               2000
                                                                            ----------         ----------
<S>                                                                         <C>                  <C>
Cash Flows from Operating Activities:
     Net (loss) income                                                      $ (22,298)           $ 182
     Adjustments to reconcile net (loss) income to net cash
        (used in) provided by operating activities:
          Depreciation and amortization                                        20,961              190
          Provision for doubtful accounts                                         571               --
          Amortization of deferred stock compensation                          10,446               --
          Minority interest                                                        21              190
          Deferred income taxes                                                (2,205)              --
     Changes in operating assets and liabilities
          Accounts receivable                                                  (1,339)            (865)
          Inventories                                                         (17,901)            (499)
          Prepaid and other current assets                                     (9,228)              --
          Accounts payable                                                      4,731              736
          Accrued expenses                                                     (1,544)             179
          Income taxes payable                                                 (1,692)             271
                                                                            ---------            -----
                 Net cash (used in) provided by operating activities          (19,477)             384
Cash Flows from Investing Activities:
     Purchases of property and equipment                                       (9,915)            (156)
     Sale of short-term investments                                               789               --
                                                                            ---------            -----
                 Net cash used in investing activities                         (9,126)            (156)
Cash flows form financing activities:
     Payments on long-term debt                                                  (430)              --
     Payments on short-term debt                                               (5,818)              --
     Borrowings on short-term debt                                              9,834               --
     Net change in other liabilities                                               15               --
     Net cash distributions to MRV Communications, Inc.                            --             (265)
                                                                            ---------            -----
                 Net cash provided by (used in) financing activities            3,601             (265)

Effect of exchange rate on cash and cash equivalents                              (20)              17
                                                                            ---------            -----
Net decrease in cash and cash equivalents                                     (25,022)             (20)
Cash and cash equivalents, beginning of period                                131,778              220
                                                                            ---------            -----
Cash and cash equivalents, end of period                                    $ 106,756            $ 200
                                                                            =========            =====

SUPPLEMENTAL CASH FLOW INFORMATION:
   Cash paid for
        Income taxes                                                            3,751               --
        Interest                                                                  308               --
</TABLE>


              The accompanying notes are an integral part of these
                  consolidated condensed financial statements.




                                                                               6
<PAGE>   7


LUMINENT, INC.

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (unaudited)


1. BUSINESS AND BASIS OF PRESENTATION

Business

Luminent, Inc. ("Luminent" or the "Company") designs, manufactures, and sells a
comprehensive line of fiber optic components that enable communications
equipment manufacturer's to provide optical networking solutions for the rapidly
growing metropolitan and access segments of the communications network. The
Company's products are designed to meet the increasing bandwidth requirements
between long-haul telecommunication networks and end users. Luminent specializes
in singlemode fiber optic components and subsystems for high-capacity data
transmission for long-reach applications in the metropolitan and access markets.

Luminent was incorporated in Delaware in March 2000, as a wholly owned
subsidiary of MRV Communications, Inc. ("MRV"). Since the completion of
Luminent's initial public offering in November 2000, MRV has owned approximately
92% of Luminent's outstanding common stock.

On July 25, 2000, MRV and Luminent entered into a Master Separation and
Distribution Agreement (the "Separation Agreement") which became effective as of
September 8, 2000 (the "Separation Date"). MRV transferred to Luminent,
substantially all of the assets and liabilities associated with Luminent's
business.

As of the Separation Date, Luminent began operating independently from MRV. For
periods prior to the Separation Date, the accompanying consolidated condensed
financial statements reflect MRV's historical bases in the assets and
liabilities and the historical results of operations that were transferred to
Luminent. Additionally, the consolidated condensed financial statements include
allocations of certain MRV corporate expenses, including centralized legal,
accounting, employee benefits, real estate, insurance services, information
technology services, treasury and other MRV corporate and infrastructure costs.
The expense allocations have been determined on bases that MRV and Luminent
considered to be a reasonable reflection of the utilization of services provided
or the benefit received by Luminent. The allocation methods are based on
relative revenues, head counts or square footage. However, the financial
information included herein may not reflect the consolidated financial position,
operating results, changes in parent company investment and cash flows of
Luminent in the future or what they would have been had Luminent been a
separate, stand-alone entity during the periods presented.

Luminent faces numerous risks related to the fact that it has no history as an
independent company. In addition, Luminent faces risks common to many technology
companies including but not limited to operating in a sector that is new and
characterized by rapid technological change, evolving industry standards, the
need to generate capital to fund operations and uncertainty regarding market
acceptance of its products and products under development.

Basis of Presentation

The accompanying consolidated condensed financial statements have been prepared
by the Company, in accordance with accounting principles generally accepted in
the United States for




                                                                               7
<PAGE>   8

interim financial information and pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosures normally included in the financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted pursuant to such rules and regulations. However, the
Company believes that the disclosures are adequate to make the information
presented not misleading. These consolidated condensed financial statements
should be read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.

In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary to present a fair presentation have been
included. The operating results for the three months ended March 31, 2001 are
not necessarily indicative of the results that may be expected for the fiscal
year ended December 31, 2001.

Earnings per share

Basic and diluted earnings (loss) per common share are computed using the
weighted average number of common shares outstanding. All share and per share
amounts have been retroactively restated to give effect to the Company's
144,000-for-one stock split that occurred on July 25, 2000. The weighted average
number of shares used for computation of basic and diluted earnings (loss) per
share were 156,000,000 for March 31, 2001, and 144,000,000 for March 31, 2000.
The 10 million stock options outstanding and 75,000 warrants outstanding have
been excluded from the diluted computations of loss per share as of March 31,
2001 as their effect would be anti-dilutive. There were no options or warrants
outstanding as of March 31, 2000.


2. BUSINESS ACQUISITIONS

On April 24, 2000, MRV completed the acquisition of approximately 97% of the
outstanding capital stock of Fiber Optic Communications, Inc., a Republic of
China corporation. Fiber Optic Communications is a manufacturer of passive fiber
optic components for Wavelength Division Multiplexing. Under the terms of the
purchase agreement, Fiber Optic Communications shareholders received
approximately $48.6 million in cash and approximately 4.7 million shares of MRV
common stock and options to purchase 680,000 shares of MRV common stock for a
total purchase price of approximately $310.4 million. The issuance price of the
MRV common stock was approximately $53 per share, which was determined based on
the average market price five days before and after the terms were agreed upon.
The options to purchase MRV common stock are exercisable at $3.00 per share,
have an aggregate intrinsic value of $14.1 million at the acquisition date, and
vest over a four-year period. The acquisition is being accounted for using the
purchase method of accounting. The assets and liabilities of the acquired entity
have been "pushed down" to Luminent. The excess purchase price paid over the
fair value of the net identifiable assets acquired of $261.6 million has been
recorded as goodwill and is being amortized on a straight-line basis over 5
years. The deferred compensation is being amortized using the graded vesting
method over 4 years.

On July 12, 2000, MRV completed the acquisition of all of the outstanding
capital stock of Quantum Optech Inc., a Republic of China corporation. Quantum
Optech is a manufacturer of optical thin film coating and filters for Dense
Wavelength Division Multiplexing. Under the terms of the purchase agreement,
Quantum Optech shareholders received approximately 1.0 million shares of MRV
common stock and options to purchase approximately 160,000 shares of MRV common
stock for a total purchase price of approximately $36.2 million. The issuance
price of the MRV common stock




                                                                               8
<PAGE>   9

was approximately $30 per share, which was determined based on the average
market price five days before and after the terms were agreed upon. The options
to purchase MRV common stock are exercisable at $3.00 per share, have an
aggregate intrinsic value of $4.0 million at the acquisition date, of which $1.3
million is vested, and the remaining vest over a four-year period. The
acquisition is being accounted for using the purchase method of accounting. The
assets and liabilities of the acquired entity have been "pushed down" to
Luminent. The excess purchase price paid over the fair value of the net
identifiable assets acquired of $27.9 million has been recorded as goodwill and
is being amortized on a straight-line basis over 5 years. The deferred
compensation is being amortized using the graded vesting method over 4 years.

On July 21, 2000, MRV completed the acquisition of approximately 99% of the
outstanding capital stock of Optronics International Corp., a Republic of China
corporation. Optronics International is a manufacturer of high temperature
semiconductor lasers, transceivers and detectors for optical networks. Under the
terms of the purchase agreement, Optronics International shareholders received
approximately 3.4 million shares of MRV common stock and options to purchase
approximately 800,000 shares of MRV common stock for a total purchase price of
approximately $124.3 million. The issuance price of the MRV common stock was
approximately $30 per share, which was determined based on the average market
price five days before and after the terms were agreed upon. The options to
purchase MRV common stock are exercisable at $3.00 per share, have an aggregate
intrinsic value of $20.0 million at the acquisition date, of which $6.6 million
is vested, and the remaining vest over a four-year period. The acquisition is
being accounted for using the purchase method of accounting. The assets and
liabilities of the acquired entity have been "pushed down" to Luminent. The
excess purchase price paid over the fair value of the net identifiable assets
acquired of $99.5 million has been recorded as goodwill and is being amortized
on a straight-line basis over 5 years. The deferred compensation is being
amortized using the graded vesting method over 4 years.

The purchase price of Fiber Optic Communications, Quantum Optech and Optronics
International were allocated as follows (in thousands, unaudited):

<TABLE>
          <S>                                                 <C>
          Purchase price                                      $420,861
          Allocation of purchase price
              Net tangible assets                                1,750
              Deferred stock compensation                       30,150
              Goodwill                                         388,961
</TABLE>

The outstanding capital stock of Fiber Optic Communications, Quantum Optech and
Optronics International, purchased by MRV, has been contributed to Luminent. The
results of operations of these acquisitions have been included in Luminent's
consolidated financial statements from the date of acquisition. The following
unaudited pro forma financial information presents the combined results of
operations of Luminent, Fiber Optic Communications, Quantum Optech and Optronics
International as if the acquisitions had occurred as of January 1, 2000, giving
effect to certain adjustments, including amortization of goodwill and other
intangibles and deferred compensation charges.

<TABLE>
<CAPTION>
                                                          MARCH 31,
                                                   ----------------------
                                                      2001         2000
                                                   --------      --------
                                                        (UNAUDITED)
<S>                                                <C>           <C>
Pro forma net sales                                $ 48,241      $ 23,227
Pro forma net loss                                 $(21,445)     $(25,922)
Pro forma basic and diluted net loss per share     $  (0.14)     $  (0.18)
</TABLE>


3. INVENTORIES




                                                                               9
<PAGE>   10

Inventories consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                             MARCH 31,    DECEMBER 31,
                                               2001          2001
                                             ---------    ------------
<S>                                          <C>            <C>
Raw materials                                $35,750        $22,896
Work in process                               15,861         12,402
Finished goods                                 5,718          4,130
                                             -------        -------
    Total inventories                        $57,329        $39,428
                                             =======        =======
</TABLE>


4. BUSINESS SEGMENTS AND CONCENTRATIONS OF RISK

Luminent operates under one reportable segment: fiber optic components and
modules. Fiber optic components and modules include discrete components such as
laser diodes and light emitting diodes and integrated components such as
transmitters, receivers and transceivers. These products are sold primarily to
original-equipment manufacturers and through distributors.

The Company depends on single or limited source suppliers for some of the key
components and materials in its products, which makes Luminent susceptible to
supply shortages or price fluctuations that could adversely affect operating
results. Management believes this will not have a significant impact on
operations.

For the three months ended March 31, 2001, the Company had 2 customers that
accounted for approximately 25% of net sales. Certain geographical area
information follows (in thousands).

   Geographical Area Net Sales (in thousands):

<TABLE>
<CAPTION>
                                              THREE MONTHS ENDED
                                                  MARCH 31,
                                             ----------------------
                                               2001           2000
                                             ---------      -------
<S>                                          <C>            <C>
North America                                 $30,696       $10,404
Asia-Pacific                                   10,502         1,934
Europe                                          6,993         2,481
Other                                              50            80
                                              -------       -------
    Total net sales                           $48,241       $14,899
                                              =======       =======
</TABLE>


5. SEPARATION FROM MRV COMMUNICATIONS, INC.

For purposes of governing the ongoing relationships between Luminent and MRV at
and after the separation and to provide for an orderly transition, Luminent and
MRV have entered into various agreements. A brief description of each of the
agreements follows.

Master Separation and Distribution Agreement

MRV and Luminent have entered into a Master Separation Agreement, which contains
key provisions relating to the separation, Luminent's initial funding, initial
public offering and the distribution of Luminent's common stock to MRV's
stockholders. The Master Separation and Distribution Agreement lists the
documents and items that the parties must deliver in order to accomplish the
transfer of assets and liabilities from MRV to Luminent, effective on the
separation date. The Master Separation and Distribution Agreement also contains
conditions that must occur prior to the distribution. The parties also entered
into ongoing covenants that survive the


                                                                              10
<PAGE>   11

transactions, including covenants to establish interim service level agreements,
exchange information, engage in certain auditing practices and resolve disputes
in particular ways.

General Assignment and Assumption Agreement

The General Assignment and Assumption Agreement identifies the assets that MRV
has transferred to Luminent and the liabilities that Luminent has assumed from
MRV in the separation. The General Assignment and Assumption Agreement also
describes when and how these transfers and assumptions occurred. In general,
these assets and liabilities were those that appeared in the consolidated
balance sheet as of September 30, 2000.

Intellectual Property Agreements

The Master Technology Ownership and License Agreement, the Master Patent
Ownership and License Agreement and the Master Trademark Ownership and License
Agreement collectively are referred to as the Intellectual Property Agreements.
Under the Intellectual Property Agreements, MRV confirmed that Luminent owns or
MRV transferred to Luminent certain rights in specified patents, patent
applications, invention disclosures, specified trademarks and other intellectual
property related to Luminent's current business, research and development
efforts.

Employee Matters Agreement

The Employee Matters Agreement outlines how MRV and Luminent allocated assets,
liabilities and responsibilities relating to current and former employees of
Luminent and their participation in the benefits plans, including stock plans,
that MRV currently sponsors and maintains. The Employee Matters Agreement also
contains provisions describing some of Luminent's employee benefit and employee
stock plans.

All eligible Luminent employees continue to participate in the MRV benefits
plans on comparable terms and conditions to those for MRV employees until the
distribution date or until Luminent establishes benefit plans for its employees,
or elects not to establish comparable plans if it is not legally or financially
practical. Luminent intends to establish its own benefit program no later than
the time of distribution.

Once Luminent establishes it own benefits plans, it may modify or terminate each
plan in accordance with the terms of that plan and its policies. No Luminent
benefit plan will provide benefits that overlap benefits under the corresponding
MRV benefit plan at the time of the distribution. Each Luminent benefit plan
will provide that all service, compensation and other benefit determinations
that, as of the distribution, were recognized under the corresponding MRV
benefits plan, will be taken into account under that Luminent benefit plan.

Following the date of MRV's distribution of its Luminent common stock to its
stockholders, Luminent will be under no obligation to maintain these plans in
the form in which they were established or at all. The transfer to Luminent of
employees at certain of MRV's international operations, and of certain employee
benefit plans, may not take place until Luminent receives consents or approvals
or has satisfied other applicable requirements.

Tax Sharing and Indemnification Agreement

The Tax Sharing and Indemnification Agreement allocates MRV's and Luminent's
responsibilities and rights for certain tax matters. The agreement requires
Luminent to pay MRV for the incremental



                                                                              11
<PAGE>   12

tax costs of Luminent's inclusion in consolidated, combined or unitary tax
returns with affiliated corporations. In determining these incremental costs,
the Tax Sharing and Indemnification Agreement takes into account not only the
group's incremental tax payments to the Internal Revenue Service or other taxing
authorities, but also the incremental use of tax losses of affiliates to offset
Luminent's taxable income, and the incremental use of tax credits of affiliates
to offset the tax on Luminent's income. The Tax Sharing and Indemnification
Agreement also provides for compensation or reimbursement as appropriate to
reflect redeterminations of Luminent's tax liability for periods during which
Luminent joined in filing consolidated, combined or unitary tax returns.

The Tax Sharing and Indemnification Agreement also requires Luminent to
indemnify MRV for certain taxes and similar obligations, including (a) sales
taxes on the sale of products purchased by MRV from Luminent before the
distribution, (b) customs duties or harbor maintenance fees on products exported
or imported by MRV on behalf of Luminent, (c) the additional taxes that would
result if an acquisition of a controlling interest in Luminent's stock after the
distribution causes the distribution not to qualify for tax-free treatment to
MRV, and (d) any taxes resulting from transactions undertaken in preparation for
the distribution.

Luminent's indemnity obligations include any interest penalties on taxes, duties
or fees for which Luminent must indemnify MRV.

Each member of a consolidated group for U.S. federal income tax purposes is
jointly and severally liable for the group's federal income tax liability.
Accordingly, Luminent could be required to pay a deficiency in the group's
federal income tax liability for a period during which Luminent was a member of
the group even if the Tax Sharing and Indemnification Agreement allocates that
liability to MRV or another member.

Master Transitional Services Agreement

The Master Transitional Service Agreement governs the individual transitional
services as requested by Luminent and provided by MRV, on an interim basis, for
one year from the date of separation, unless extended for specific services or
otherwise indicated in the agreement. The services include data processing and
telecommunications services, such as voice telecommunications and data
transmission, and information technology support services, for functions
including accounting, financial management, tax, payroll, stockholder and public
relations, legal, procurement, and other administrative functions. Specified
charges for such services are generally intended to allow the providing company
to recover the direct and indirect costs of providing the services. The Master
Transitional Services Agreement also will cover the provision of certain
additional transitional services identified from time to time after the
Separation Date that were inadvertently or unintentionally omitted from the
specified services, or that are essential to effectuate an orderly transition
under the Master Separation and Distribution Agreement, so long as the provision
of such services would not significantly disrupt MRV's operations or
significantly increase the scope of its responsibility under the agreement.

In addition, the Master Transitional Services Agreement will provide for the
replication of some computer systems, including hardware, software, data storage
or maintenance and support components. Generally, the party needing the
replicated system will bear the costs and expenses of replication. Generally,
the party purchasing new hardware or licensing new software will bear the costs
and expenses of purchasing the new hardware or obtaining the new software
licenses.

Real Estate Matters Agreement


                                                                              12
<PAGE>   13


The Real Estate Matters Agreement addresses real estate matters relating to
certain MRV leased and owned properties that MRV will transfer to or share with
Luminent. The Real Estate Matters Agreement describes the manner in which MRV
will transfer to or share with Luminent various leased and owned properties. The
Real Estate Matters Agreement provides that Luminent will be required to accept
the transfer of all sites allocated to Luminent, even if a site has been damaged
by a casualty before the separation date. The Real Estate Matters Agreement also
provides that all reasonable costs required to affect the transfers, including
landlord consent fees and landlord attorney's fees will be paid by MRV.

Indemnification and Insurance Matters Agreement

Effective as of the separation date, subject to specified exceptions, Luminent
and MRV will each release the other from any liabilities arising from events
occurring on or before the separation date, including events occurring in
connection with the activities to implement the separation, the initial public
offering and the distribution. The Indemnification and Insurance Matters
Agreement also contains provisions governing indemnification. In general,
Luminent and MRV will each indemnify the other from all liabilities arising from
their respective businesses or contracts, as well as liabilities arising from a
breach of the Master Separation and Distribution Agreement or any ancillary
agreement. In addition, MRV and Luminent will each indemnify the other against
liability for specified environmental conditions. Luminent will reimburse MRV
for the cost of any insurance coverage from the separation date to the
distribution date.


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

All statements contained in this Report that are not historical facts, including
but not limited to, statements regarding our business strategies and
expectations concerning future operations, margins, profitability, liquidity,
capital expenditures and capital resources, are based on current expectations.
These statements are forward-looking in nature and involve a number of risks and
uncertainties. Generally, words including but not limited to "anticipates,"
"believes," "estimates," "expects" and similar expressions as they relate to the
Company and its management are intended to identify forward-looking statements.
Although management believes that the expectations in such forward-looking
statements are reasonable, it can give no assurance that any forward-looking
statement will prove to be correct and actual results may differ materially. We
caution readers not to place undue reliance on any forward-looking statements,
which statements are made pursuant to the Private Litigation Reform Act of 1995.
The factors identified under "Risk Factors" below and elsewhere in this Report
are among the factors that could cause actual results to differ materially from
the forward-looking statements. The forward-looking statements contained in this
Report speak only as of the date that we have filed this Report. We expressly
disclaim any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained in this Report, including to reflect
any change in our expectations with regard to that forward-looking statement or
any change in events, conditions or circumstances on which that forward-looking
statement is based.


OVERVIEW

We design, manufacture and sell a comprehensive line of fiber optic components
that enable communications equipment manufacturers to provide optical networking
equipment for the rapidly growing metropolitan and access segments of the
communications network. Directly and through its subsidiaries, MRV designs,
manufactures and sells data networking products, including networking




                                                                              13
<PAGE>   14

and Internet infrastructure products such as switching and router management
systems, and through Luminent, MRV was engaged in the fiber optics components
business. Our fiber optic components business was the original business of MRV
when MRV began operations in July 1988. From inception in 1988 until our
separation on September 8, 2000, when MRV completed the contribution and
transfer to us of our business, we operated as a division of MRV and conducted
business using MRV's trade name. In March 2000, we were incorporated in Delaware
as a wholly owned subsidiary of MRV. In April 2000, we began operating under the
Luminent trade name. As of March 31, 2001, MRV owned approximately 92% of the
outstanding shares of our common stock. MRV has announced its intention to
divest its remaining equity interest in us three months after the receipt of a
favorable private letter ruling from the IRS, by distributing all of its shares
of our common stock to the holders of MRV's common stock, although it is not
obligated to do so. According to MRV's public disclosures, there are various
conditions that must be satisfied or waived by MRV, in their sole discretion,
prior to the distribution. These conditions include, among other things:

        -   the receipt of a private letter ruling from the Internal Revenue
            Service that MRV's distribution of their shares of Luminent common
            stock to the holders of MRV common stock will be tax-free to their
            stockholders and MRV for United States federal income tax purposes;

        -   all required government approvals must be in effect;

        -   MRV's redemption or repayment of their outstanding convertible
            subordinated debentures;

        -   no legal restraints must exist preventing this distribution; and

        -   nothing must have happened in the intervening time between the
            offering and the distribution, including a future change in market
            or economic conditions or in our or MRV's business and financial
            condition, that causes the MRV board of directors to conclude that
            the distribution is not in MRV's best interest or the best interest
            of MRV's stockholders.

The exact distribution formula and record date to qualify for any distribution
will be determined at a future date.

On April 24, 2000, MRV acquired approximately 97% of the outstanding capital
stock of Fiber Optic Communications, a Taiwanese manufacturer of passive fiber
optic components with facilities in both Taiwan and the People's Republic of
China. The purchase price paid was approximately $310.4 million in cash, common
stock and options to purchase common stock of MRV, including amounts recorded as
deferred stock compensation. On July 12, 2000, MRV acquired all of the
outstanding capital stock of Quantum, a Taiwanese manufacturer of active and
passive fiber optic components. The purchase price paid was approximately $36.2
million in common stock and options to purchase common stock of MRV, including
amounts recorded as deferred stock compensation. On July 21, 2000, MRV acquired
approximately 99% of the outstanding capital stock of Optronics, a Taiwanese
manufacturer of active fiber optic components. The purchase price paid was
approximately $124.3 million in common stock and options to purchase common
stock of MRV, including amounts recorded as deferred stock compensation. The
acquisitions were made to expand our product offerings, enhance our technology
expertise and expand our manufacturing capabilities.



                                                                              14
<PAGE>   15

These acquisitions were accounted for using the purchase method and the
outstanding capital stock purchased by MRV in each of the acquisitions has been
contributed to us as of the dates of acquisition. Therefore, the results of
operations of Fiber Optic Communications, Optronics and Quantum have been
included in our consolidated financial statements from April 25, 2000, July 13,
2000 and July 22, 2000, respectively.

In connection with the acquisitions of Fiber Optic Communications, Optronics and
Quantum, a portion of the purchase prices paid represented deferred stock
compensation relating to options to purchase the common stock of MRV. These
options had fair values of approximately $14.1 million, $13.4 million and $2.7
million for Fiber Optic Communications, Optronics and Quantum, respectively.
Deferred stock compensation amortization expense for the quarter ended March 31,
2001 relating to these stock options was approximately $3.3 million. In
connection with these acquisitions, we expect to incur an additional $14.4
million of deferred stock compensation until fully amortized in 2004. Deferred
stock compensation is amortized using the graded method over a four-year period.

Goodwill resulting from the Fiber Optic Communications, Optronics and Quantum
acquisitions totaled $261.6 million, $99.5 million and $27.9 million,
respectively. For the three months ended March 31, 2001, we recorded
amortization of goodwill of approximately $19.5 million relating to these
acquisitions. We expect to record amortization of goodwill for these
acquisitions of approximately $19.5 million per quarter until fully amortized in
2005. Fiber Optic Communications was the largest and most significant of the
acquisitions.

Fiber Optic Communications produces margins similar to us, however, it has not
experienced the growth in net sales or operating income that we have experienced
during the last three fiscal years. We are not aware of any unusual trends
specific to the businesses of our acquired companies.

In July 2000, MRV and we entered into four year employment agreements with our
President and Chief Executive Officer and Vice President of Finance and Chief
Financial Officer. The agreements provide for annual salaries, performance
bonuses and combinations of stock options to purchase shares of MRV's common
stock and Luminent's common stock. The options to purchase MRV's common stock
are immediately exercisable. The options to purchase Luminent's common stock
vest over four years. These options were granted to our President and Chief
Executive Officer and Vice President of Finance and Chief Financial Officer at
exercise prices below market value, resulting in deferred stock compensation.
Deferred stock compensation reported for the quarter ended March 31, 2001 was
$7.2 million and we will incur additional deferred stock compensation of
approximately $30.7 million through 2004.

We reported a net loss of approximately $22.3 million for the quarter ended
March 31, 2001. The net loss was primarily due to amortization of goodwill and
deferred stock compensation related to our recent acquisitions and our
employment arrangements with our President and Chief Executive Officer and Vice
President of Finance and Chief Financial Officer. In addition, we will record
amortization of goodwill and deferred stock compensation relating to these
acquisitions and our employment arrangements going forward. As a consequence of
these amortization of goodwill charges and deferred stock compensation charges,
we do not expect to report net income in the foreseeable future.

We have entered into various agreements related to interim and ongoing
relationships with MRV. These agreements provide for transitional services and
support in the areas of data processing and telecommunications services (such as
voice telecommunications and data transmission and information technology
support services) for functions including accounting, financial management,



                                                                              15
<PAGE>   16

tax, payroll, stockholder and public relations, legal, procurement and other
administrative functions. Services are generally cost plus 5%, but may increase
to cost plus 10% if the services extend beyond a one year period. Subsequent to
the Separation Date, certain of these services have been discontinued, including
accounting, financial management, payroll, legal, procurement and other
administrative functions. The transition period varies depending on the
agreement but is generally one year. Although the fees provided for in the
agreements are intended to represent the fair market value of these services, we
cannot assure you that these fees necessarily reflect the costs of obtaining the
services from unrelated third parties or of our providing these services
internally. However, we believe that purchasing these services from MRV provides
an efficient means of obtaining these services during the transition period. We
must also negotiate new or revised agreements with various third parties as a
separate, stand-alone entity. We cannot assure you that the terms we will be
able to negotiate will be as favorable as those that we enjoyed as part of MRV.
In addition, as part of MRV, we benefited from various economies of scale
including shared global administrative functions, facilities and volume purchase
discounts. We expect our costs will increase as a result of the loss or
renegotiation of these arrangements, although the amount of the cost increase is
not determinable at this time.

BASIS OF PRESENTATION

Our consolidated financial statements have been carved out from the consolidated
financial statements of MRV using the historical results of operations and
historical bases of the assets and liabilities of the MRV businesses that our
company comprises. The consolidated condensed financial statements through March
31, 2001 also include allocations to us of certain MRV corporate assets,
liabilities and expenses, including centralized legal, accounting, employee
benefits, real estate, insurance services, information technology services,
treasury and other MRV corporate and infrastructure costs. The expense
allocations have been determined on bases that MRV and we considered to be a
reasonable reflection of the utilization of the services provided to us or the
benefit received by us. The expense allocation methods included relative sales,
headcount, square footage, transaction processing costs and adjusted operating
expenses. No intercompany interest income or expense has been allocated to, or
included in, our consolidated financial statements.

The financial information presented in this Report is not indicative of our
financial position, results of operations or cash flows in the future nor is it
necessarily indicative of what our financial position, results of operations or
cash flows would have been had we been a separate, stand-alone entity for the
periods presented. The financial information presented in this Report does not
reflect many of the significant changes that will occur in our funding and
operations as a result of our becoming a stand-alone entity and the
distribution.

RESULTS OF OPERATIONS

The following table sets forth selected consolidated historical financial data
for the years and periods indicated, expressed as a percentage of net sales.

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED
                                                                 MARCH 31,
                                                            -------------------
                                                             2001          2000
                                                             ----          ----
<S>                                                          <C>           <C>
Net sales                                                    100%           100%
Cost of sales                                                 67             65
     Gross profit                                             33             35
Operating costs and expenses:
  Selling, general and administrative                         32             13
  Research and development                                    11             16
  Parent company allocations                                  --              1
  Amortization of goodwill                                    40             --
</TABLE>


                                                                              16
<PAGE>   17

<TABLE>
<S>                                                          <C>            <C>
     Total operating costs                                    83             31
     Operating income (loss)                                 (50)             4
Other income (loss), net                                       4             --
     Income (loss) before provision
       for income taxes                                      (46)             4
Provision for income taxes                                     0              2
Minority interest                                              0              1
     Net income (loss)                                       (46)%            1%
</TABLE>


Net Sales

We recognize revenue upon shipment of our products. Net sales for the quarter
ended March 31, 2001 increased 224%, to $48.2 million from $14.9 million for the
quarter ended March 31, 2000. Our growth is a result of the growth of the
Internet and e-commerce and the corresponding increased bandwidth requirements.
We also experienced growth and increased acceptance in our transceiver business
for the data networking market. We experienced improvement in customer
diversification for the three months ended March 31, 2001 and 2000.

The following table sets forth our net sales to certain customers as a
percentage of our total net sales:

<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED
                                                         MARCH 31,
                                                    ------------------
                                                    2001          2000
                                                    ----          ----
<S>                                                  <C>           <C>
Marconi Communications......................         13%           11%
Cisco Systems...............................         12%           14%
Other.......................................         75%           75%
                                                     --            --
Net sales...................................         100%         100%
                                                     ===          ===
</TABLE>


We rely on one-time purchase orders rather than long-term contracts with both
Cisco and Marconi, and, as a result, we cannot predict the size, timing or terms
of their incoming orders. We have experienced variations in the purchase
patterns of Marconi and Cisco in the past, and we may experience continued
variation in the future. Material reasons for historic variations in the
purchase patterns of these customers, particularly Marconi, have included
weather patterns that have delayed field installations of systems that
incorporate our products and delays by our customers in qualifying our products
that employ new components or features to assure compatibility with the
components of other suppliers that are integrated with our products into our
customers' systems. The timing of this qualification process is totally within
the control of these customers. Thus, even when our products prove compatible
with the components of other suppliers, as has typically been the case in the
past, delays by our customers in completing the qualification process has
resulted in corresponding delays in our receipt of orders for them.

Gross Profit

Gross profit is equal to our net sales less our cost of sales. Our cost of sales
includes materials, direct labor and overhead. Cost of inventory is determined
by the first-in, first-out method. Gross profit for the quarter ended March 31,
2001, increased 206%, to $16.0 million from $5.2 million for the quarter ended
March 31, 2000. Gross profit for the quarter ended March 31, 2001, before
deferred compensation amortization expense of $683,000, would have increased
219%, to $16.7 million.

Our gross margin decreased to 33% for the quarter ended March 31, 2001, from 35%
for the quarter ended March 31, 2000. Gross margin would have been 35% for the
quarter ended March 31, 2001, before deferred compensation amortization expense
of $683,000. Our gross margins (defined as gross profit as a percentage of net
sales) are generally affected by price changes over the life of the products and
improved production efficiencies as a result of increased utilization. The
former effect will generally decrease gross margins over the products'
respective life cycles, whereas as the latter effect typically increases gross
margins. Prices for existing products are generally expected to


                                                                              17
<PAGE>   18

continue to decrease over their respective life cycles. Our lower margin
customers typically operate in highly competitive markets where the price of our
products is a key factor. Although we sacrifice margins to these customers, our
volumes are typically greater than the volumes achieved with higher margin
customers. As we seek to continue to diversify our customer base, we plan to
target markets with improved margins and less competitive end-markets. In the
short term, we expect margins to remain constant or decline slightly due to the
integration of the acquired companies with historically lower margins. In the
mid- to long term, we expect margins to improve due to increased operating
efficiencies associated with capacity utilization in Taiwan and People's
Republic of China, diversification of sales to higher margin customers, and a
favorable shift towards a higher margin customer base.

Operating Costs and Expenses

Operating costs and expenses consist of selling, general and administrative,
research and development costs, costs associated with acquisitions, and other
operating related charges. Operating costs and expenses, increased to 83% of net
sales, or $40.1 million, for the quarter ended March 31, 2001, from 31% of net
sales, or $4.6 million, for the quarter ended March 31, 2000. Operating costs
and expenses, before deferred stock compensation and goodwill amortization
expense of $29.3 million, would have decreased to 22% of net sales, or $10.8
million, for the quarter ended March 31, 2001. Operating costs and expenses, as
a percentage of net sales, are higher for the quarter ended March 31, 2001 than
previous levels due to the amortization of goodwill and deferred stock
compensation, the inclusion of Fiber Optic Communications, Optronics and
Quantum, greater focus on selling and marketing efforts and an increase in
spending on research and development. Fiber Optic Communications accounted for
approximately $16.4 million of operating costs and expenses for the quarter
ended March 31, 2001. Approximately $7.6 million of the increase is due to the
inclusion of Optronics and approximately $1.8 million of the increase is due to
the inclusion of Quantum.

Selling, general and administrative expenses for the quarter ended March 31,
2001, increased to 32% of net sales, or $15.4 million, from 13% of net sales, or
$2 million, for the quarter ended March 31, 2000. Selling, general and
administrative expenses for the quarter ended March 31, 2001, before deferred
stock compensation expense of $8.7 million, would have increased to 14% of net
sales, or $6.7 million. Approximately $1.3 million of the increase before
deferred stock compensation expense is due to the inclusion of Fiber Optic
Communications. Approximately $803,000 of the increase before deferred stock
compensation expense is due to the inclusion of Optronics and approximately
$189,000 of the increase before deferred stock compensation expense is due to
the inclusion of Quantum. The balance of the increase in expenditures was due
primarily to the overall growth of our business. In response to the growth of
our markets, we expanded our selling efforts and established new sales offices
in Asia.

Research and development expenses, decreased as a percentage of sales from 16%
down to 11% of net sales during the quarter ended March 31, 2001 from the same
quarter in 2000. However, in terms of absolute dollars, research and development
expenses increased from the quarter ended March 31, 2000 to the quarter ended
March 31, 2001, from $2.5 million to $5.2 million. Research and development
expenses, prior to deferred stock compensation of $1.1 million, would have
increased to $4.1 million, during the quarter ended March 31, 2001. Research and
development expenses, as a percentage of net sales, increased primarily due to
the addition of Fiber Optics Communications, Optronics and Quantum. During the
year ended December 31, 2000 we began development of our next generation
products for applications such as fiber-to-the-home and fiber-to-the-curb.
Fiber-to-the-home and fiber-to-the-curb are industry terms referring to the
deployment of fiber optic cable for residential access to communications
networks. Research and development expenditures also included additional
development of our duplexers, triplexers and high-speed



                                                                              18
<PAGE>   19

transceivers. We continue to invest heavily in areas targeted at broadening our
customer base, product lines and end-product applications. We expect absolute
dollars spent on research and development to continue to increase as we invest
in key technical personnel, expand our current product lines and develop new
product offerings.

During the quarter ended March 31, 2001, we incurred amortization of goodwill
and deferred stock compensation of $19.5 million and $3.3 million, respectively,
relating to the acquisitions of Fiber Optic Communications, Optronics and
Quantum. We expect to incur additional amortization of goodwill from these
acquisitions of approximately $19.5 million each quarter through 2005. Deferred
stock compensation charges from these acquisitions will generate an additional
$14.4 million of expense through 2004. Deferred stock compensation is amortized
using the graded method over the related expected employee service period, in
this case four years.

Provision for Income Taxes

The provision for income taxes was $100,000 for the quarter ended March 31,
2001. The effective tax rate for the quarter ended March 31, 2001 was (0.5%),
resulting from a tax provision computed based on a net loss position. The rate
was negatively impacted by the amortization of goodwill and certain deferred
stock compensation, which are not tax deductible. Our effective tax rates in
future years may fluctuate due to amortization of goodwill and deferred stock
compensation partially offset by favorable tax programs available in certain
foreign tax jurisdictions where we currently have operating facilities.

LIQUIDITY AND CAPITAL RESOURCES

We received $132.3 million in net proceeds from the sale of 12,000,000 shares of
our common stock in our initial public offering completed in November 2000.

On March 31, 2001, we had working capital of $160.6 million, compared with
$161.7 million at December 31, 2000. The ratio of current assets to current
liabilities at March 31, 2001 was 4.0 to 1, compared to 4.4 to 1 at December 31,
2000.

Cash used by operating activities was $19.5 million for the quarter ended March
31, 2001. Cash flows from operating activities was adversely affected by our net
loss of $22.3 million, increase in accounts receivable, a building of inventory,
establishing short-term deposits for capital acquisitions, all offset by
non-cash charges for the amortization of goodwill of $19.5 million and deferred
stock compensation of $10.5 million. The increase in accounts receivable was due
primarily to increased sales. Inventory levels increased in anticipation of
increased sales. Capital expenditures for property and equipment represent the
cash used in investing activities. Cash provided by investing activities also
included proceeds from the sale of short-term investments. The capital
expenditures of $9.9 million, plus another $9.0 million in short-term deposits
for the acquisition of capital assets, reflect our investment in expanding
production and research and development capacity.

We believe that cash on hand, along with our cash flows from operations, will be
sufficient to satisfy our working capital, capital expenditure and research and
development requirements for at least the next 12 months. However, we may
require or choose to obtain additional debt or equity financing in order to
finance acquisitions or other investments in our business. We expect to continue
to devote resources to purchases of capital equipment as we continue to build
our manufacturing capabilities and continue to expand our research and
development programs. Our future capital requirements will depend on many
factors, including our rate of revenue growth, the timing and extent of spending
to support development of new products and expansion of sales and marketing, the
timing of new product introductions and enhancements to existing products and
market acceptance of our products.


                                                                              19
<PAGE>   20

FOREIGN CURRENCY

We operate on an international basis. A majority of our revenues and cost of
sales are incurred in U.S. dollars. For the quarter ended March 31, 2001,
approximately 36% and 39% of our revenues and cost of sales, respectively, were
incurred in currencies other than the U.S. dollar. For the quarter ended March
31, 2001, approximately 65% of our operating expenses were incurred in
currencies other than the U.S. dollar, including the non-cash charges for
deferred compensation expense and goodwill amortization incurred with the
foreign subsidiary acquisitions. For the quarter ended March 31, 2001, the New
Taiwan dollar is the most significant of such currencies.

The New Taiwan dollar has been relatively stable in relation to the U.S. dollar
in recent years, and accordingly, we have not experienced any significant
fluctuations in operating results due to exchange rate fluctuations in the New
Taiwan dollar in relation to the U.S. dollar.

Fluctuations in the value of the currencies in which we conduct our business
relative to the U.S. dollar will cause U.S. dollar translation of such
currencies to vary from one period to another. We cannot predict the effect of
exchange rate fluctuations upon future operating results. However, because we
have expenses as well as revenues in each of the principal functional
currencies, the exposure to our financial results to currency fluctuations is
reduced. We have not historically attempted to reduce our currency risks through
hedging instruments, however, we may do so in the future.

INFLATION

We believe that our revenue and results of operations have not been
significantly impacted by inflation during the last three years.

RECENT ACCOUNTING PRONOUNCEMENT

In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting
for Derivative Investments and Hedging Activities," and SFAS No. 137, which
delayed the effective date of SFAS No. 133. In June 2000, the FASB issued SFAS
No. 138 which provides additional guidance for the application of SFAS No. 133
for certain transactions. We adopted this statement on January 1, 2001 and the
adoption of this statement did not have a material impact on our financial
position or results of operations.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements," as amended. SAB
101 summarizes certain of the Securities and Exchange Commission's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. We have applied the provisions of SAB 101 in the
consolidated financial statements. The adoption of SAB 101 did not have a
material impact on our financial condition or results of operations.

In March 2000, the FASB issued interpretation No. 44 (FIN 44), "Accounting for
Certain Transactions involving Stock Compensation, an interpretation of APB
Opinion No. 25." FIN 44 clarifies the application of APB No. 25 for certain
issues, including the definition of an employee, the treatment of the
acceleration of stock options and the accounting treatment for options assumed
in business combinations. FIN 44 became effective on July 1, 2000, but is
applicable for certain



                                                                              20
<PAGE>   21

transactions dating back to December 1998. The adoption of FIN 44 did not have a
significant impact on our financial position or results of operations.

RISK FACTORS

Set forth below and elsewhere in this Report and in other documents we file with
the SEC are risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements
contained in this Report and in public statements and press releases we make
from time to time.

WE CURRENTLY DERIVE A SIGNIFICANT PORTION OF OUR NET SALES FROM TWO CUSTOMERS,
AND OUR NET SALES MAY DECLINE SIGNIFICANTLY IF EITHER OF THESE CUSTOMERS
CANCELS, REDUCES OR DELAYS PURCHASES OF OUR PRODUCTS.

Our future success depends on our ability to develop and manage relationships
with significant customers. For the quarter ended March 31, 2001, our two
largest customers, Marconi Communications and Cisco Systems, together accounted
for approximately 25% of our net sales, with Marconi accounting for 13% and
Cisco accounting for 12% of our net sales. We rely on one-time purchase orders
rather than long-term contracts with both Cisco and Marconi, and, as a result,
we cannot predict the size, timing or terms of their incoming orders. We have
experienced variations in the purchase patterns of Marconi and Cisco in the
past, and we may experience continued variation in the future. Material reasons
for historic variations in the purchase patterns of these customers,
particularly by Marconi, have included weather patterns that have delayed field
installations of systems that incorporate our products and delays by our
customers in qualifying our products that employ new components or features to
assure compatibility with the components of other suppliers that our customers
integrate with our products into our customers' systems. The timing of this
qualification process is totally within the control of these customers. Thus,
even when our products prove compatible with the components of other suppliers,
as has typically been the case in the past, delays by our customers in
completing the qualification process has resulted in corresponding delays in our
receipt of orders for them. Cisco has recently announced that it expects
declining revenues and profitability in the near term due to softening demand
for telecommunications and networking equipment. This has resulted in a
reductions and rescheduling by Cisco in purchases from its suppliers such as us
as Cisco seeks to reduce its existing inventories. This will likely result in
lower sales to Cisco and could result in lower revenues overall. Our sales may
decline significantly with resulting fluctuations or harm to our operating
results and financial condition if either Cisco or Marconi cancels, reduces or
delays purchases of our products or unduly delays qualifying them.



                                                                              21
<PAGE>   22

WE INCURRED A NET LOSS IN THE YEAR ENDED DECEMBER 31, 2000 AND THE QUARTER ENDED
MARCH 31, 2001 AS A RESULT OF THE AMORTIZATION OF GOODWILL AND DEFERRED STOCK
COMPENSATION FROM RECENT ACQUISITIONS AND EXECUTIVE EMPLOYMENT ARRANGEMENTS. WE
EXPECT TO CONTINUE TO INCUR NET LOSSES FOR THE FORESEEABLE FUTURE.

Although we reported net income of $3.5 million and $4.2 million for the years
ended December 31, 1998 and 1999, respectively, we reported a net loss of $65.0
million for the year ended December 31, 2000 and a net loss of $22.3 million for
the quarter ended March 31, 2001. The net losses are due to amortization of
goodwill and deferred stock compensation related to the acquisitions of Fiber
Optic Communications, Optronics and Quantum and our employment arrangements with
our President and Chief Executive Officer and Vice President of Finance and
Chief Financial Officer. We will record amortization of goodwill and deferred
stock compensation expenses relating to our acquisitions of Fiber Optic
Communications, Optronics and Quantum going forward. As a consequence of these
goodwill amortization charges and compensation expenses, we do not expect to
report net income in the foreseeable future.

In connection with the acquisitions of Fiber Optic Communications, Optronics and
Quantum, we recorded a significant amount of goodwill, the amortization of which
has significantly and adversely affected our operating results, which is being
amortized over a five-year period. To the extent that we can not generate
sufficient cash flow to recover the amount of the investment recorded, the
investment may be considered impaired and could be subject to an immediate
write-down of up to the full amount of the investment. In this event, our net
loss in any given period could be greater than anticipated and the market price
of our stock could be adversely affected.

THE LONG SALES CYCLES FOR OUR PRODUCTS MAY CAUSE NET SALES AND OPERATING RESULTS
TO VARY FROM QUARTER TO QUARTER, WHICH COULD CAUSE VOLATILITY IN OUR STOCK
PRICE.

The timing of our revenue is difficult to predict because of the length and
variability of the sales and implementation cycles for our products. We do not
recognize revenue until a product has been shipped to a customer, all
significant vendor obligations have been performed and collection is considered
probable. Customers often view the purchase of our products as a significant and
strategic decision. As a result, customers typically expend significant effort
in evaluating, testing and qualifying our products and our manufacturing
process. This customer evaluation and qualification process frequently results
in a lengthy initial sales cycle of up to one year or more. In addition, some of
our customers require that our products be subjected to life-time and
reliability testing, which can take up to nine months or more. While our
customers are evaluating our products and before they place an order with us, we
may incur substantial sales and marketing and research and development expenses
to customize our products to the customer's needs. We may also expend
significant management efforts, increase manufacturing capacity and order long
lead-time components or materials prior to receiving an order. Even after this
evaluation process, a potential customer may not purchase our products. Even
after acceptance of orders, our customers often change the scheduled delivery
dates of their orders. Because of the evolving nature of the optical networking
market, we cannot predict the length of these sales, development or delivery
cycles. As a result, these long sales cycles may cause our net sales and
operating results to vary significantly and unexpectedly from
quarter-to-quarter, which could cause volatility in our stock price.

WE FACE RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES AND OPERATIONS THAT COULD
HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS.


                                                                              22
<PAGE>   23

For the quarter ended March 31, 2001 and the year ended December 31, 2000, sales
to customers located outside of the North America were 36% and 38%,
respectfully, of our net sales. We expect that sales to customers located
outside of the North America will increase in the future. Our international
sales will be limited if we cannot establish relationships with international
distributors, establish additional foreign operations, expand international
sales channels, hire additional personnel and develop relationships with
international service providers. Even if we are able to successfully continue
international operations, we may not be able to maintain or increase
international market demand for our products.

In addition, our operations in Taiwan and People's Republic of China presents
administrative complications we must manage and exposure to political, economic
and other conditions affecting Taiwan and People's Republic of China. There has
been significant political tension between Taiwan and People's Republic of
China, which, if exacerbated, could lead to hostilities.

Risks we face due to international sales and the use of overseas manufacturing
include:

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

     o    the impact of recessions in economies outside North America;

     o    unexpected changes in regulatory requirements;

     o    seasonal reductions in business activities in some parts of the world,
          such as during the summer months in Europe or in the winter months in
          Asia when the Chinese New Year is celebrated;

     o    certification requirements;

     o    potentially adverse tax consequences;

     o    unanticipated cost increases;

     o    unavailability or late delivery of equipment;

     o    trade restrictions;

     o    limited protection of intellectual property rights;

     o    unforeseen environmental or engineering problems; and

     o    personnel recruitment delays.

In addition, a portion of our international sales and expenses may be
denominated in foreign currencies in the future. Accordingly, we could
experience the risks of fluctuating currencies and may choose to engage in
hedging activities to reduce these risks.

WE HAVE ONLY BEEN AN INDEPENDENT COMPANY FOR A SHORT WHILE AND HAVE A LIMITED
HISTORY IN THE PASSIVE OPTICAL COMPONENTS MARKETS. THESE FACTORS MAY MAKE OUR
BUSINESS MORE DIFFICULT TO EVALUATE AND HINDER OUR ABILITY TO IMPLEMENT OUR
BUSINESS PLAN SUCCESSFULLY.




                                                                              23
<PAGE>   24

From 1988 until our separation from MRV in September 2000, we operated as a
division of MRV and conducted business using MRV's trade name. In March 2000, we
were incorporated in Delaware as a wholly-owned subsidiary of MRV. We formally
separated from MRV in September 2000 and as a result of the initial public
offering of our common stock in November 2000, we became a public company. Our
entire line of passive optical components was obtained through our acquisitions
of Fiber Optic Communications and Quantum in April and July 2000. We expect
sales of our passive optical components will constitute a significant part of
our future business. We have no history as an independent company or in
operating in the passive components markets. Our lack of independence and our
limited operating history in the passive optical components markets may limit
your ability to evaluate our prospects due to:

     o    our lack of historical financial data; and

     o    our limited experience in addressing emerging trends that may affect
          our business.

As a newly independent company with new product lines, we face risks and
uncertainties relating to our ability to implement our business plan
successfully.

IF THE OPTICAL NETWORKING MARKET DOES NOT DEVELOP AND EXPAND AS WE ANTICIPATE,
DEMAND FOR OUR PRODUCTS MAY DECLINE, WHICH WOULD NEGATIVELY IMPACT OUR NET
SALES.

Our business is completely dependent on the deployment of our optical component
products. Our future success depends on the continued deployment of the optical
networks in the metropolitan and access markets, the continuing increase in the
amount of data transmitted over communications networks, or bandwidth, and the
growth of optical networks to meet the increased demand for bandwidth. If the
deployment of optical networks in the metropolitan and access markets does not
continue to expand, the market for optical networking products may not continue
to develop. Future demand for our products is uncertain and will depend to a
great degree on the speed of the widespread adoption and upgrading of optical
networks. If the transition to optical networks occurs too slowly, the market
for our products and the growth of our business will be significantly limited.

The optical networking market is new and characterized by rapid technological
change, frequent new product introductions, changes in customer requirements,
unpredictable rates of product deployment and evolving industry standards.
Because this market is new, it is difficult to predict its potential size or
future growth rate. Widespread adoption of optical networks is critical to our
future success. Potential end-user customers who have invested substantial
resources in their existing copper lines or other systems may be reluctant or
slow to adopt a new approach, like optical networks. Our success in generating
net sales in this emerging market will depend on:

     o    maintaining and enhancing our relationships with our customers;

     o    the awareness of potential end-user customers and network service
          providers about the benefits of optical networks; and

     o    our ability to accurately predict and develop our products to meet
          industry standards.

If we fail to address changing market conditions, the sales of our products may
decline, which would harm our net sales and operating results.

MACROECONOMIC FACTORS COULD NEGATIVELY IMPACT OUR GROWTH PLAN.


                                                                              24
<PAGE>   25

Macroeconomic factors, such as an economic slowdown in the U.S. and abroad, have
detrimentally impacted demand for communication products, thereby resulting in
reduced demand for optical components in general. These factors could negatively
affect our ability to execute our growth plan.

The unfavorable economic conditions and reduced capital spending detrimentally
affected sales to service providers, network equipment companies, e-commerce and
Internet businesses, and the manufacturing industry in the United States, during
the last six months, and appear to continue to affect these industries in the
second quarter of 2001. Announcements by industry participants and observers
indicate there is a slowdown in industry spending and participants are seeking
to reduce existing inventories. If the economic conditions in the United States
worsen generally or in the fiber optics equipment business particularly, or if a
wider or global economic slowdown occurs, we may experience a material adverse
impact on our business, operating results, and financial condition.

IF WE FAIL TO MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS MAY NOT SUCCEED.

Our ability to successfully offer our products and implement our business plan
in a rapidly evolving market requires an effective planning and management
process. We continued to expand the scope of our operations domestically and
internationally. At March 31, 2001, we had a total of 1,798 full-time employees.
We currently operate facilities in Chatsworth, California, Hsinchu, Taiwan and
Shanghai, People's Republic of China. The growth in employee headcount and in
revenue, combined with the challenges of managing geographically dispersed
operations, has placed, and will continue to place, a significant strain on our
management systems and resources. We expect that we will need to continue to
improve our financial and managerial controls, reporting systems and procedures
and continue to expand, train and manage our work force worldwide. While we are
currently implementing stand-alone versions of most of the systems historically
used by MRV, in some cases we have decided to purchase new systems that more
closely match our business needs and have incurred some additional expense, and
may incur significant additional expense, as well as diversion of management
attention in connection with implementing those systems. In addition,
difficulties in implementing those systems could disrupt our business and could
result in an adverse impact on our business results. The failure to effectively
manage our growth could adversely impact our ability to manufacture and sell our
products, which could reduce our net sales.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO SUCCESSFULLY DEVELOP AND INTRODUCE
NEW AND ENHANCED PRODUCTS THAT MEET THE NEEDS OF OUR CUSTOMERS.

Our future success depends on our ability to anticipate our customers' needs and
develop products that address those needs. Introduction of new products and
product enhancements will require that we effectively transfer production
processes from research and development to manufacturing and coordinate our
efforts with those of our suppliers to rapidly achieve volume production. If we
fail to effectively transfer production processes, develop product enhancements
or introduce new products that meet the needs of our customers as scheduled, our
net sales may decline.

COMPETITION IN THE OPTICAL NETWORKING MARKET MAY INCREASE, WHICH COULD REDUCE
OUR NET SALES AND GROSS MARGINS OR CAUSE US TO LOSE MARKET SHARE.

Competition in the optical networking market in which we compete is intense. We
face competition from several companies, including Agilent Technologies, Corning
Incorporated, Finisar Corporation, Fujitsu, Infineon AG, International Business
Machines Corporation, JDS Uniphase Corporation,




                                                                              25
<PAGE>   26

Lucent Technologies, Inc., Sumitomo and Tyco International, Ltd. Many of our
competitors are larger than we are and have longer operating histories and
significantly greater financial, technical, marketing and other resources than
we have. As a result, these competitors are able to devote greater resources
than we can to the development, promotion, sale and support of their products.
In addition, several of our competitors have large market capitalizations or
cash reserves, and are much better positioned than we are to acquire other
companies in order to gain new technologies or products that may displace our
product lines. Any of these acquisitions could give our competitors a strategic
advantage. Virtually all of our competitors have significantly more established
sales and customer support organizations than we do. In addition, many of our
competitors have much greater name recognition, more extensive customer bases,
better-developed distribution channels and broader product offerings than we
have. These companies can leverage their customer bases and broader product
offerings and adopt aggressive pricing policies to gain market share. Additional
competitors may enter the market, and we are likely to compete with new
companies in the future. We expect to encounter potential customers that, due to
existing relationships with our competitors, are committed to the products
offered by these competitors. As a result of the foregoing factors, as well as
weakening demand, we expect that competitive pressures may result in price
reductions, reduced margins and loss of market share.

In addition, the fiber optics networking industry is dominated by a small number
of large companies and is currently consolidating. Consolidation reduces the
number of potential customers in the industry, and may increase our dependence
on a small number of customers.

WE MUST CONTINUE TO GROW AND MAINTAIN OUR SALES ORGANIZATION IN ORDER TO
INCREASE MARKET AWARENESS AND SALES OF OUR PRODUCTS OR OUR NET SALES MAY NOT
INCREASE.

The sale of our products requires long and involved efforts targeted at several
key departments within our prospective customers' organizations. Sales of our
products require the prolonged efforts of executive personnel and specialized
systems and applications engineers working together with a small number of
dedicated salespersons. We will need to continue to grow and maintain our sales
force in order to increase market awareness and sales of our products.
Competition for these individuals is intense, and we might not be able to hire
the kind and number of sales personnel and applications engineers we need. If we
are unable to expand our sales operations, we may not be able to increase market
awareness or sales of our products, which would prevent us from increasing our
net sales.

OUR PRODUCTS ARE DEPLOYED IN LARGE AND COMPLEX SYSTEMS AND MAY CONTAIN DEFECTS
THAT ARE NOT DETECTED UNTIL AFTER OUR PRODUCTS HAVE BEEN INSTALLED, WHICH COULD
DAMAGE OUR REPUTATION AND CAUSE US TO LOSE CUSTOMERS.

We design some of our products for deployment in large and complex optical
networks. Because of the nature of these products, they can only be fully tested
for reliability when deployed in networks for long periods of time. Our fiber
optic products may contain undetected defects when first introduced or as new
versions are released, and our customers may discover defects in our products
only after they have been fully deployed and operated under peak stress
conditions. In addition, our products are combined with products from other
vendors. As a result, should problems occur, it may be difficult to identify the
source of the problem. If we are unable to fix defects or other problems, we
could experience, among other things:

     o    loss of customers;




                                                                              26
<PAGE>   27

     o    damage to our brand reputation;

     o    failure to attract new customers or achieve market acceptance;

     o    diversion of development and engineering resources; and

     o    legal actions by our customers.

The occurrence of any one or more of the foregoing factors could cause our net
sales to decline.

BECAUSE WE DO NOT HAVE LONG-TERM CONTRACTS WITH OUR CUSTOMERS, OUR CUSTOMERS MAY
CEASE PURCHASING OUR PRODUCTS AT ANY TIME.

We sell our products based on individual purchase orders, rather than long-term
contracts. Our customers can generally cancel or reschedule orders on short or
no notice and discontinue purchasing our products at any time. In addition, a
number of our current customers were acquired through the acquisitions of Fiber
Optic Communications, Optronics and Quantum, and we have only a limited history
with these new customers. We cannot assure you that these customers will
continue to purchase optical components from us. Because we cannot predict the
size, timing or terms of incoming purchase orders, decreases in orders or
failure to fulfill orders may cause our operating results to suffer.

IF OUR SENIOR MANAGEMENT TEAM IS UNABLE TO WORK TOGETHER EFFECTIVELY, OUR
BUSINESS MAY BE SERIOUSLY HARMED.

Some of our senior management personnel, including Dr. William R. Spivey, our
President and Chief Executive Officer and Eric Blachno, our Vice President of
Finance and Chief Financial Officer, only recently joined us in the third and
fourth quarter of 2000 and during 2001. As a result, our senior management team
has had limited time to work together. If they are unable to work together
effectively to manage our organization as a public company, our business may be
seriously harmed.

WE DEPEND ON KEY PERSONNEL TO MANAGE OUR BUSINESS EFFECTIVELY IN A RAPIDLY
CHANGING MARKET, AND IF WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL OR
RETAIN EXISTING PERSONNEL, OUR ABILITY TO SELL OUR PRODUCTS COULD BE HARMED.

Our future success depends upon the continued services of our executive officers
and other key engineering, sales, marketing, manufacturing and support
personnel. Any of our key employees, including our President and Chief Executive
Officer and our Vice President of Finance and Chief Financial Officer may
terminate his or her employment at any time. In addition, we do not have key
person life insurance policies covering any of our employees.


FUTURE ACQUISITIONS MAY HAVE AN ADVERSE EFFECT ON OUR FINANCIAL RESULTS OR COULD
OTHERWISE HARM OUR BUSINESS.

Our business has grown because of acquisitions of fiber optic components
manufacturers Fiber Optic Communications in April 2000 and Optronics and Quantum
in July 2000. In the event we make future acquisitions, we could:

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

     o    incur debt (we incurred $12.6 million of consolidated debt in
          connection with the acquisitions of Fiber Optic Communications,
          Optronics and Quantum);

     o    incur additional liabilities (we incurred $21.2 million of additional
          consolidated incurred in connection with the acquisitions of Fiber
          Optic Communications, Optronics and Quantum); or


                                                                              27
<PAGE>   28

     o    incur expenses related to the amortization of goodwill and other
          intangible assets and deferred compensation, (we incurred expenses
          related to goodwill and other intangible assets aggregating $389.0
          million and deferred compensation charges aggregating $30.2 million
          incurred in connection with the acquisitions of Fiber Optic
          Communications, Optronics and Quantum).

Future acquisitions also involve numerous risks that could adversely affect our
business, including:

     o    problems integrating the acquired operations, technologies or
          products;

     o    unanticipated costs, capital expenditures or liabilities or changes
          related to in process research and development;

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

     o    harm to our existing business relationships with suppliers and
          customers;

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

     o    potential loss of key employees, particularly those of the acquired
          organizations.

We face all of the above-mentioned risks related to the acquisitions of Fiber
Optic Components, Optronics and Quantum. In particular, these acquisitions have
brought large new manufacturing facilities and we face significant challenges in
integrating these facilities before we can realize benefits from these
acquisitions. Our entire line of passive optical components was established
through our recent acquisitions of Fiber Optic Communications and Quantum and
successful integration of that product line and the associated manufacturing
facilities is essential to our business. We cannot assure you that we will be
able to successfully integrate any businesses, products, technologies or
personnel that we might acquire in the future, and failure to successfully
integrate may harm our business.

INABILITY TO PROCURE NECESSARY RESOURCES AND DISRUPTIONS IN OUR MANUFACTURING
MAY HAVE AN ADVERSE EFFECT ON OUR ABILITY TO MEET CUSTOMER NEEDS.

We currently manufacture a significant portion of our products in our facilities
located in Chatsworth, California. We have devoted significant resources to
expanding our manufacturing capacity at this facility and also conduct
manufacturing at our facilities in Hsinchu, Taiwan and Shanghai, People's
Republic of China. We could experience difficulties and disruptions in the
manufacture of our products, which could prevent us from achieving timely
delivery of products and could result in lost sales. We could also face the
inability to procure and install additional capital equipment, a shortage of raw
materials we use in our products, a lack of availability of manufacturing
personnel to work in our facilities, difficulties in achieving adequate yields
from new manufacturing lines and an inability to predict future order volumes.
We may experience delays, disruptions, capacity constraints or quality control
problems in our manufacturing operations, and, as a result, product shipments to
our customers could be delayed, which would negatively impact our net sales,
competitive position and reputation. If we experience disruptions in the future,
it may result in lower yields or delays of our product shipments, which could
adversely affect our sales, gross margins and results of operations.



                                                                              28
<PAGE>   29

THE LOCATION OF OUR MANUFACTURING FACILITIES IN SOUTHERN CALIFORNIA AND TAIWAN
SUBJECTS US TO INCREASED RISK THAT A NATURAL DISASTER COULD DISRUPT OUR
OPERATIONS.

Substantially all of our products are manufactured at our facilities in
Chatsworth, California and Hsinchu, Taiwan. The risk of earthquakes in Southern
California and Taiwan is significant due to the proximity of major earthquake
fault lines to these manufacturing facilities. In January 1994 and September
1999, major earthquakes near Chatsworth and in Taiwan, respectively, affected
the facilities of manufacturers in these areas including ours, causing power and
communications outages and disruptions that impaired production capacity. While
our facilities did not suffer material damage and our business was not
materially disrupted by these earthquakes, the occurrence of an earthquake or
other natural disaster could result in the disruption of our manufacturing
facilities. Any disruption in our manufacturing facilities arising from such
events could cause significant delays in the production or shipment of our
products until we are able to shift production to different facilities or
arrange for third parties to manufacture our products. We may not be able to
obtain alternate capacity on favorable terms or at all.

ENVIRONMENTAL REGULATIONS APPLICABLE TO OUR MANUFACTURING OPERATIONS COULD LIMIT
OUR ABILITY TO EXPAND OR SUBJECT US TO SUBSTANTIAL COSTS.

We are subject to a variety of environmental regulations relating to the use,
storage, discharge and disposal of hazardous chemicals used during our
manufacturing processes. Further, we are subject to other safety, labeling and
training regulations as required by local, state and federal law. Any failure by
us to comply with present and future regulations could subject us to future
liabilities or the suspension of production. In addition, such regulations could
restrict our ability to expand our facilities or could require us to acquire
costly equipment or to incur other significant expenses to comply with
environmental regulations. We cannot assure you that these legal requirements
will not impose on us the need for additional capital expenditures or other
requirements. If we fail to obtain required permits or otherwise fail to operate
within these or future legal requirements, we may be required to pay substantial
penalties, suspend our operations or make costly changes to our manufacturing
processes or facilities.

IF WE FAIL TO ACCURATELY FORECAST COMPONENT AND MATERIAL REQUIREMENTS FOR OUR
MANUFACTURING FACILITIES, WE COULD INCUR ADDITIONAL COSTS OR EXPERIENCE
MANUFACTURING DELAYS.

We use rolling forecasts based on anticipated product orders to determine our
component requirements. It is very important that we accurately predict both the
demand for our products and the lead times required to obtain the necessary
components and materials. Lead times for components and materials that we order
vary significantly and depend on factors such as specific supplier requirements,
the size of the order, contract terms and current market demand for the
components. For substantial increases in production levels, some suppliers may
need six months or more lead time. If we overestimate our component and material
requirements, we may have excess inventory, which would increase our costs. If
we underestimate our component and material requirements, we may have inadequate
inventory, which could interrupt our manufacturing and delay delivery of our
products to our customers. Any of these occurrences would negatively impact our
net sales.

IF WE CANNOT INCREASE OUR SALES VOLUMES, REDUCE OUR COSTS OR INTRODUCE HIGHER
MARGIN PRODUCTS TO OFFSET ANTICIPATED REDUCTIONS IN




                                                                              29
<PAGE>   30

THE AVERAGE SELLING PRICE OF OUR PRODUCTS, OUR OPERATING RESULTS WILL SUFFER.

We have experienced decreases in the average selling prices of some of our
products. We anticipate that as products in the optical networking market become
more of a commodity, the average selling price of our products may decrease in
response to competitive pricing pressures, new product introductions by us or
our competitors or other factors. If we are unable to offset the anticipated
decrease in our average selling prices by increasing our sales volumes or
product mix, our net sales and gross margins will decline. In addition, to
maintain our gross margins, we must continue to reduce the manufacturing cost of
our products and we must develop and introduce new products and product
enhancements with higher margins. If we cannot maintain our gross margins, our
financial position may be harmed and our stock price may decline.

WE DEPEND ON SINGLE OR LIMITED SOURCE SUPPLIERS FOR SOME OF THE KEY COMPONENTS
AND MATERIALS IN OUR PRODUCTS, WHICH MAKES US SUSCEPTIBLE TO SUPPLY SHORTAGES OR
PRICE FLUCTUATIONS THAT COULD ADVERSELY AFFECT OUR OPERATING RESULTS.

We typically purchase our components and materials through purchase orders, and
in general we have no guaranteed supply arrangements with any of our suppliers.
We currently purchase several key components and materials used in the
manufacture of our products from single or limited source suppliers, including
Corning Incorporated, Mitsubishi Electric, Nippon Sheet Glass, Phillips
Semiconductor and Sumitomo. If our relationship with any of these key suppliers
terminates, we may not be able to find another manufacturer that can meet our
specifications and anticipated supply requirements. We may fail to obtain
required components in a timely manner in the future. We may experience
difficulty identifying alternative sources of supply for certain components used
in our products. We would experience further delays from evaluating and testing
the products of these potential alternative suppliers. Furthermore, financial or
other difficulties faced by these suppliers or significant changes in demand for
these components or materials could limit the availability of these components.
Any interruption or delay in the supply of any of these components or materials,
or the inability to obtain these components and materials from alternate sources
at acceptable prices and within a reasonable amount of time, would impair our
ability to meet scheduled product deliveries to our customers and could cause
customers to cancel orders.

IF WE DO NOT ACHIEVE ACCEPTABLE MANUFACTURING YIELDS OR SUFFICIENT PRODUCT
RELIABILITY, OUR ABILITY TO SHIP PRODUCTS TO OUR CUSTOMERS COULD BE AFFECTED AND
OUR NET SALES MAY SUFFER.

The manufacture of our products involves complex and precise processes. Changes
in our manufacturing processes or those of our suppliers, or the use of
defective components or materials, could significantly reduce our manufacturing
yields and product reliability. Our manufacturing costs are relatively fixed,
and, thus, manufacturing yields are critical to our results of operations. We
may experience manufacturing problems in the future, which could result in lower
than expected production yields, delayed product shipments and impaired gross
margins. In some cases, existing manufacturing techniques involve substantial
manual labor. In addition, we may experience manufacturing delays and reduced
manufacturing yields upon introducing new products to our manufacturing lines.
In order to improve our gross margins, we may need to develop new, more
cost-effective manufacturing processes and techniques, and if we fail to do so,
our gross margins may be adversely affected.


                                                                              30
<PAGE>   31

IF OUR CUSTOMERS DO NOT QUALIFY OUR MANUFACTURING LINES FOR VOLUME SHIPMENTS,
OUR OPERATING RESULTS COULD SUFFER.

Generally, customers do not purchase our products, other than limited numbers of
evaluation units, prior to qualification of the manufacturing line for volume
production. Our existing manufacturing lines, as well as each new manufacturing
line, must pass through varying levels of qualification with our customers. This
customer qualification process determines whether our manufacturing lines meet
the customers' quality, performance and reliability standards. If there are
delays in qualification of our products, our customers may drop the product from
a long-term supply program, which would result in significant lost revenue
opportunity over the term of that program. Moreover, customers may require that
we be registered under international quality standards, such as ISO 9000. Our
Taiwan facilities have received ISO 9001 certification and our facilities in the
People's Republic of China are certified ISO 9002. Our Chatsworth facilities
have no ISO certification and we do not expect to receive ISO 9000 certification
until sometime in 2002, at the earliest.

WE WILL LOSE SIGNIFICANT CUSTOMER SALES AND OPPORTUNITIES AND MAY NOT BE
SUCCESSFUL IF OUR CUSTOMERS DO NOT QUALIFY OUR PRODUCTS TO BE DESIGNED INTO
THEIR PRODUCTS AND SYSTEMS.

In the communications industry, service providers and communications equipment
manufacturers often undertake extensive qualification processes prior to placing
orders for large quantities of products such as ours, because these products
must function as part of a larger system or network. Once they decide to use a
particular supplier's product or component, these potential customers design the
product into their system, which is known as a design-in win. Suppliers whose
products or components are not designed in are unlikely to make sales to that
company until at least the adoption of a future redesigned system. Even then,
many companies may be reluctant to design entirely new products into their new
systems, as it could involve significant additional redesign efforts. If we fail
to achieve design-in wins in our potential customer's qualification process, we
will lose the opportunity for significant sales to that customer for a lengthy
period of time.

THE ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS MAY BE EXPENSIVE AND COULD
DIVERT VALUABLE RESOURCES.

We rely on a combination of trade secret laws and restrictions on disclosure and
patents, copyrights and trademarks to protect our intellectual property rights.
We may need to engage in litigation to enforce our intellectual property rights,
protect our trade secrets and determine the validity and scope of proprietary
rights of others. Any such litigation, regardless of outcome, could be expensive
and time consuming, and adverse determinations in any such litigation could
seriously harm our business.

WE COULD BECOME SUBJECT TO LITIGATION REGARDING INTELLECTUAL PROPERTY RIGHTS,
WHICH COULD BE COSTLY AND SUBJECT US TO SIGNIFICANT LIABILITY.

From time to time, third parties, including our competitors, may assert patent,
copyright and other intellectual property rights to technologies that are
important to us. We expect we will increasingly be subject to infringement
claims as the number of products and competitors in our market grows and the
functioning of products overlaps. In this regard, in early 1999, we received a
written notice from Rockwell Corporation in which Rockwell claimed to have
patent rights in certain technology related to our metal organic chemical vapor
deposition processes. Rockwell requested that we review our processes in light
of one of Rockwell's issued patents which we have done and determined that




                                                                              31
<PAGE>   32

the cited patent has expired. We believe that none of our product sales relates
to the Rockwell claim. In October 1999, we received a written notice from Ortel
Corporation, which has since been acquired by Lucent Technologies, Inc., in
which Ortel claimed to have patent rights in certain technology related to our
triplexer and duplexer products. Ortel requested that we review our products in
connection with one of Ortel's issued patents. We are evaluating the information
provided to us thus far by Ortel and are also evaluating the validity of Ortel's
patent noted in Ortel's letter. We are presently seeking to determine whether we
may have violated and the extent of our usage of, and related revenues from,
technology covered by the Ortel patent. Based on our evaluation to date, we have
concluded that Ortel's claim relates to an aspect of our triplexers. Net sales
of our triplexers accounted for approximately 2.4% and 5% of total net sales
during the quarter ended March 31, 2001 and the year ended December 31, 2000,
respectively. Ortel's patent, and other patents of which we are not presently
aware that may relate to our products may be determined to be valid, or some of
our products may ultimately be determined to infringe Ortel patent, or those of
other companies. Ortel or other companies may pursue litigation with respect to
these or other claims. The results of any litigation are inherently uncertain.
In the event of an adverse result in any litigation with respect to intellectual
property rights relevant to our products that could arise in the future, we may
be required to pay substantial damages under applicable law, to cease the
manufacture, use and sale of infringing products or to expend significant
resources to develop non-infringing technology. In addition, litigation
frequently involves substantial expenditures and can require significant
management attention, even if we ultimately prevail. Accordingly, any
infringement claim or litigation against us could significantly harm our
business, operating results and financial condition.

In the future, we may initiate claims or litigation against third parties for
infringement of our proprietary rights to protect these rights or to determine
the scope and validity of our proprietary rights or the proprietary rights of
competitors. These claims could result in costly litigation and the diversion of
our technical and management personnel.

NECESSARY LICENSES OF THIRD-PARTY TECHNOLOGY MAY NOT BE AVAILABLE TO US OR MAY
BE VERY EXPENSIVE, WHICH COULD ADVERSELY AFFECT OUR ABILITY TO MANUFACTURE AND
SELL OUR PRODUCTS.

From time to time we may be required to license technology from third parties to
develop new products or product enhancements or to resolve infringement claims
with respect to intellectual property rights in our existing products. We cannot
assure you that third-party licenses such as from Rockwell or Ortel will be
available to us on commercially reasonable terms, if at all. The inability to
obtain any third-party license required to develop new products and product
enhancements or to resolve infringement claims on our existing products could
require us to obtain substitute technology of lower quality or performance
standards or at greater cost, either of which could seriously harm our ability
to manufacture and sell our products.

WE ARE NO LONGER ABLE TO RELY ON MRV TO FUND OUR FUTURE CAPITAL REQUIREMENTS,
AND FINANCINGS FROM OTHER SOURCES MAY NOT BE AVAILABLE ON FAVORABLE TERMS OR AT
ALL.

In the past, our capital needs were satisfied by MRV. However, as a result of
our separation, MRV no longer provides funds to finance our working capital or
other cash requirements. We cannot assure you that financing from other sources,
if needed, will be available on favorable terms or at all.

We believe our capital requirements will vary greatly from quarter to quarter,
depending on, among other things, capital expenditures, fluctuations in our
operating results, financing activities,




                                                                              32
<PAGE>   33

acquisitions and investments and inventory and receivables management. We
believe that our cash on hand and other working capital, along with cash flow
from operations, will be sufficient to satisfy our working capital, capital
expenditure and research and development requirements for at least the next 12
months. However, we may require or choose to obtain additional debt or equity
financing in order to finance acquisitions or other investments in our business.
Future equity financings would be dilutive to the existing holders of our common
stock. Future debt financings could involve restrictive covenants. It is not
likely that we will be able to obtain financing with interest rates as favorable
as those that MRV could obtain.

OUR NEW NAME IS NOT YET RECOGNIZED AS A BRAND IN THE MARKETPLACE, AND AS A
RESULT OUR PRODUCT SALES COULD SUFFER. IN ADDITION, OTHER COMPANIES WITH SIMILAR
NAMES OR TRADEMARKS COULD CHALLENGE OUR USE OF LUMINENT.

The loss of our ability to use the MRV Communications brand name may hinder our
ability to establish new relationships. In addition, our current customers,
suppliers and partners may react negatively to the separation. In connection
with our separation from MRV, we changed our brand name and most of the
trademarks and trade names under which we conduct our business. This transition
to our new name will occur rapidly in the case of some products and over
specified periods of time in the case of other products. We believe that sales
of our products have benefited from the use of the MRV brand name. In addition,
there are numerous companies which have names or trademarks of varying degrees
of similarity to Luminent. Although we believe we have all necessary rights to
use the new brand name, our rights to use it may be challenged by others who
have names or trademarks similar to our name. Challenges resulting in
litigation, regardless of outcome, could be expensive to defend and time
consuming and adverse determinations could harm our business.

OUR BUSINESS MAY SUFFER IF MRV DOES NOT COMPLETE ITS DISTRIBUTION OF OUR COMMON
STOCK.

MRV previously advised us that it intends to distribute to its stockholders all
of our common stock by the later of three months after the receipt of a
favorable private letter ruling from the IRS or May 8, 2001, although it is not
obligated to do so. As of this filing MRV has not received the private letter
ruling from the IRS. There are various conditions to the completion of the
distribution and we cannot assure you as to whether or when it will occur.
According to MRV's public disclosure, there are various conditions that must be
satisfied or waived by MRV, in their sole discretion, prior to the distribution.
These conditions include, among other things:

        -   the receipt of a private letter ruling from the Internal Revenue
            Service that MRV's distribution of their shares of Luminent common
            stock to the holders of MRV common stock will be tax-free to their
            stockholders and MRV for United States federal income tax purposes;

        -   all required government approvals must be in effect;

        -   MRV's redemption or repayment of their outstanding convertible
            subordinated debentures;

        -   no legal restraints must exist preventing this distribution; and

        -   nothing must have happened in the intervening time between the our
            offering and the distribution, including a future change in



                                                                              33
<PAGE>   34

            market or economic conditions or in our or MRV's business and
            financial condition, that causes the MRV board of directors to
            conclude that the distribution is not in MRV's best interest or the
            best interest of MRV's stockholders.


The exact distribution formula and record date to qualify for any distribution
will be determined at a future date.

If the distribution does occur, we may not obtain the benefits we expect as a
result of this distribution, including direct access to capital markets, better
incentives for employees, greater strategic focus, facilitated customer
relationships and future partnerships and increased speed and responsiveness. In
addition, until this distribution occurs, the risks discussed below relating to
MRV's control of us and the potential business conflicts of interest between MRV
and us will continue to be relevant to our stockholders.

We will be controlled by MRV as long as it owns a majority of our common stock,
and our other stockholders will be unable to affect the outcome of stockholder
voting during such time.

As a result of our initial public offering, MRV owns approximately 92% of our
outstanding common stock. As long as MRV owns a majority of our outstanding
common stock, MRV will continue to be able to elect our entire board of
directors and to remove any director, with or without cause, without calling a
special meeting. Investors will not be able to affect the outcome of any
stockholder vote prior to the planned distribution of our stock to the MRV
stockholders. As a result, MRV will control all matters affecting us, including:

     o    the composition of our board of directors and, through it, any
          determination with respect to our business direction and policies,
          including the appointment and removal of officers;

     o    the allocation of business opportunities that may be suitable for us
          and MRV;

     o    any determinations with respect to mergers or other business
          combinations;

     o    our acquisition or disposition of assets;

     o    our financing;

     o    changes to the agreements providing for our separation from MRV;

     o    the payment of dividends on our common stock; and

     o    determinations with respect to our tax returns.

MRV COULD SELL A CONTROLLING INTEREST IN US TO A THIRD PARTY PREVENTING THE
PLANNED DISTRIBUTION OF OUR COMMON STOCK.

MRV had agreed with the underwriters not to offer or sell any shares of our
common stock for a period of 180 days after November 9, 2000 (i.e., until May 9,
2001), without the prior written consent of Credit Suisse First Boston, the lead
underwriter in our initial public offering. Since May 8, 2001, however, MRV has
not been prohibited from selling any or a controlling interest in us to a third
party. A sale of a controlling interest in us by MRV would prevent the
distribution of our shares to MRV's shareholders as announced and could have a
depressive effect of the market price




                                                                              34
<PAGE>   35

of our common stock. Moreover, because MRV can dispose of all or a portion of
its ownership of our common stock at some future date, it may transfer a
controlling interest in us without allowing stockholders to participate or
realize a premium.

BECAUSE MRV OWNS MORE THAN 90 PERCENT OF OUR OUTSTANDING CAPITAL STOCK, IT MAY
MERGE US INTO MRV AT ANY TIME.

Although MRV has announced plans to distribute our common stock that it owns to
the holders of MRV common stock, it is not obligated to do so, and it is
possible that MRV may decide not to complete the distribution. Under Delaware
law, a parent corporation that owns at least 90 percent of the outstanding
capital stock of a subsidiary corporation may merge the subsidiary into the
parent without the vote of the subsidiary's stockholders. Therefore, in the
event MRV elects not to complete the distribution, it may merge us into itself
without the vote of our stockholders. In such event, our outstanding shares of
common stock would be converted into shares of common stock of MRV at an
exchange ratio to be determined at the time of the transaction. Our stockholders
would be entitled to appraisal rights under Delaware law, but these rights may
not entitle our stockholders to receive consideration equivalent to the price
they paid for our common stock.

SUBSTANTIAL SALES OF COMMON STOCK MAY OCCUR IN CONNECTION WITH THE DISTRIBUTION
OR OTHERWISE, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.

MRV has announced plans to distribute to its stockholders all of the shares of
our common stock it owns by the later of three months after the receipt of a
favorable private letter ruling from the IRS or May 8, 2001. If MRV completes
the distribution, substantially all of these shares would be eligible for
immediate resale in the public market. Any sales of substantial amounts of
common stock in the public market, or the perception that such sales might
occur, whether as a result of this distribution or otherwise, could harm the
market price of our common stock. We are unable to predict whether significant
amounts of common stock will be sold in the open market in anticipation of, or
following, this distribution or whether a sufficient number of buyers will be in
the market at that time.

AT THE TIME OF THE DISTRIBUTION BY MRV OF ITS LUMINENT COMMON STOCK, WE PLAN TO
GRANT TO MRV OPTION HOLDERS OPTIONS TO PURCHASE A SUBSTANTIAL AMOUNT OF LUMINENT
COMMON STOCK, WHICH WILL CAUSE DILUTION TO THE INTERESTS OF EXISTING LUMINENT
STOCKHOLDERS AND MAY HAVE A DEPRESSIVE EFFECT ON THE MARKET PRICE OF LUMINENT'S
COMMON STOCK.

Concurrently with MRV's distribution of shares of our common stock to its
stockholders, we intend to grant stock options to substantially all of the
eligible employees, directors, or consultants of Luminent or MRV who hold an
option to purchase MRV common stock granted prior to September 8, 2000 by MRV.
We understand that MRV intends to simultaneously adjust options to purchase MRV
stock to these same individuals. The MRV adjustment and our grant are intended,
in the aggregate, to be in a number and at prices that will preserve the
pre-distribution economic position of the options to purchase MRV stock held by
these individuals on September 8, 2000.

The number and exercise price of the new Luminent options to be issued will
depend on the market prices of MRV's and our shares at the time of the
distribution. The full exercise of these new Luminent options will dilute equity
ownership of Luminent's stockholders. Further, the exercise, and even the
existence of these options, could have an adverse effect on the market price of
our shares.



                                                                              35
<PAGE>   36

OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR RESULTS AS
A SEPARATE COMPANY.

The historical financial information we have included in this Report has been
carved out from MRV's consolidated financial statements and may not accurately
reflect what our financial position, results of operations and cash flows would
have been, had we been a separate, stand-alone entity during the periods
presented. MRV did not account for us as, and we were not operated as, a single
stand-alone entity for the periods presented. In addition, the historical
information is not necessarily indicative of what our results of operations,
financial position and cash flows will be in the future. We have not made
adjustments to reflect many significant changes that will occur in our cost
structure, funding and operations as a result of our separation from MRV,
including changes in our employee base, changes in our tax structure, increased
costs associated with reduced economies of scale, increased marketing expenses
related to establishing a new brand identity and increased costs associated with
being a public, stand-alone company.

WE MAY HAVE POTENTIAL BUSINESS CONFLICTS OF INTEREST WITH MRV WITH RESPECT TO
OUR PAST AND ONGOING RELATIONSHIPS THAT COULD HARM OUR BUSINESS OPERATIONS.

Conflicts of interest may arise between MRV and us in a number of areas relating
to our past and ongoing relationships, including:

     o    labor, tax, employee benefit, indemnification and other matters
          arising from our separation from MRV;

     o    intellectual property matters;

     o    employee retention and recruiting;

     o    major business combinations involving us;

     o    sales or distributions by MRV of all or any portion of its ownership
          interest in us;

     o    the nature, quality and pricing of transitional services MRV has
          agreed to provide us; and

     o    business opportunities that may be attractive to both MRV and us.

In addition to the conflicts of interests relating to the separation of our
operations from MRV as described above, we also may face business conflicts of
interest with MRV because MRV and certain of its other subsidiaries are our
customers. Like other customers, we do not have long-term contracts with MRV or
its other subsidiaries for the purchase of our components. Because MRV controls
all matters relating to us, MRV may be able to require us to enter into customer
relationships with it or its other subsidiaries on terms that are less favorable
to us than those we could negotiate with an unrelated customer. Nothing
restricts MRV from competing with us.

We may not be able to resolve any potential conflicts, and even if we do, the
resolution may be less favorable than if we were dealing with an unaffiliated
party. The agreements we have entered into with MRV may be amended upon
agreement between the parties. While we are controlled by MRV, MRV may be able
to require us to agree to amendments to these agreements that may be less
favorable to us than the current terms of the agreement.


                                                                              36
<PAGE>   37

OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST BECAUSE OF
THEIR OWNERSHIP OF MRV COMMON STOCK.

Some of our directors and executive officers have a substantial amount of their
personal financial portfolios in MRV common stock and options to purchase MRV
common stock. Ownership of MRV common stock by our directors and officers after
our separation from MRV could create, or appear to create, potential conflicts
of interest when directors and officers are faced with decisions that could have
different implications for MRV and us.

IF MRV'S PROPOSED DISTRIBUTION OF OUR COMMON STOCK IS NOT TAX-FREE, WE COULD BE
LIABLE TO MRV FOR THE RESULTING TAXES, WHICH WOULD SIGNIFICANTLY HARM OUR
BUSINESS.

MRV currently plans to distribute to its stockholders the shares of our common
stock that it owns by the later of three months after the receipt of a favorable
private letter ruling from the IRS or May 8, 2001, although it is not obligated
to do so. As of this filing MRV has not received the private letter ruling from
the IRS. We have agreed to indemnify MRV in the event the distribution is not
tax-free to MRV or its stockholders because of actions taken by us or our
failure to take various actions, all as set forth in our tax sharing agreement
with MRV. We may not be able to control some of the events that could trigger
this liability. In particular, certain acquisitions of us by a third party
within two years of the distribution could result in the distribution not being
tax-free and therefore give rise to our obligation to indemnify MRV for any
resulting tax or other liability. If we were to become obligated to indemnify
MRV for this liability, our financial condition and business would be
significantly harmed.

WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION THAT COULD RESULT IN
SUBSTANTIAL COSTS AND DIVERT MANAGEMENT'S ATTENTION AND RESOURCES.

In the past, securities class action litigation has been brought against a
company following periods of volatility in the market price of its securities.
Due to the potential volatility of our stock price, we may be the target of
securities litigation in the future. Securities litigation could result in
substantial costs and divert management's attention and resources.

DELAWARE LAW AND OUR ABILITY TO ISSUE PREFERRED STOCK MAY HAVE ANTI-TAKEOVER
EFFECTS THAT COULD PREVENT A CHANGE IN CONTROL, WHICH MAY CAUSE OUR STOCK PRICE
TO DECLINE.

We are authorized to issue up to 30,000,000 shares of preferred stock. This
preferred stock may be issued in one or more series, the terms of which may be
determined at the time of issuance by the board of directors without further
action by stockholders. The terms of any such series of preferred stock may
include voting rights (including the right to vote as a series on particular
matters), preferences as to dividend, liquidation, conversion and redemption
rights and sinking fund provisions. No preferred stock is currently outstanding.
The issuance of any such preferred stock could materially adversely affect the
rights of the holders of our common stock, and therefore, reduce the value of
our common stock. In particular, specific rights granted to future holders of
preferred stock could be used to restrict our ability to merge with, or sell our
assets to, a third party and thereby preserve control by the present management.

Certain provisions of Delaware law also may discourage, delay or prevent someone
from acquiring or merging with us, which may cause the market price of our
common stock to decline.


                                                                              37
<PAGE>   38

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We do not hold any derivative securities. The majority of our net proceeds from
the initial public offering are currently maintained by leading investment
management firms in high-grade, short-term instruments that have maturities no
longer than 14 months, and an average maturity of six months or less. While we
believe such high-grade investments contain limited risk of loss of principal,
we recognize the yield on these funds could vary depending upon market
conditions.

We operate on an international basis. A majority of our revenues and cost of
sales are incurred in U.S. dollars. For the quarter ended March 31, 2001,
approximately 36% and 39% of our revenues and cost of sales, respectively, were
incurred in currencies other than the U.S. dollar. For the quarter ended March
31, 2001, approximately 65% of our operating expenses were incurred in
currencies other than the U.S. dollar, including the non-cash charges for
deferred compensation expense and goodwill amortization incurred with the
foreign subsidiary acquisitions. For the quarter ended March 31, 2001, the New
Taiwan dollar is the most significant of such currencies.

The New Taiwan dollar has been relatively stable in relation to the U.S. dollar
in recent years, and accordingly, we have not experienced any significant
fluctuations in operating results due to exchange rate fluctuations in the New
Taiwan dollar in relation to the U.S. dollar.

Fluctuations in the value of the currencies in which we conduct our business
relative to the U.S. dollar will cause U.S. dollar translation of such
currencies to vary from one period to another. We cannot predict the effect of
exchange rate fluctuations upon future operating results. However, because we
have expenses as well as revenues in each of the principal functional
currencies, the exposure to our financial results to currency fluctuations is
reduced. We have not historically attempted to reduce our currency risks through
hedging instruments, however, we may do so in the future.


                           PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the future, we may become involved in litigation relating to claims arising
from our ordinary course of business which could have a material adverse effect
on our business or results of operations. Other than the legal proceedings
described below, we are currently not a party to any legal proceedings we
reasonably expect could have a material adverse effect on our business or
results of operations.

From time to time, however, third parties, including our competitors, may assert
patent, copyright and other intellectual property rights to technologies that
are important to us. In early 1999, we received a written notice from Rockwell
Corporation in which Rockwell claimed to have patent rights in certain
technology related to metal organic chemical vapor deposition processes.
Rockwell requested that we review our processes in light of one of Rockwell's
issued patents. In the spring of 2000, we began to review Rockwell's claim in
detail and thereafter determined that the patent upon which Rockwell based its
claim expired in January 2000. This limits the scope of Rockwell's claim to
damages, if any, for matters arising prior to expiration of the patent . MRV has
agreed to indemnify us from any damages resulting from such claims. We are
presently seeking to determine the validity of Rockwell's patent, whether the
processes we have employed violated the patent, if valid, and the extent of our
usage of, and related revenues derived from, the process covered.

In October 1999, we received a written notice from Ortel Corporation, which has
since been acquired by Lucent Technologies, Inc., in which Ortel claimed to have
patent rights in certain technology related to our triplexer and duplexer
products. Ortel requested that we review our products in connection with one of
Ortel's issued patents. In August 2000, Lucent provided us the first detailed
information concerning the basis of Ortel's patent claim and is continuing to
provide follow-up information on the claim. We are also evaluating the validity
of Ortel's patent and claim. We are presently seeking to determine whether we
may have violated the patent and the extent of our usage of, and related
revenues derived from, technology covered by Ortel's patents.


ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

RECENT SALES OF UNREGISTERED SECURITIES

In connection with our incorporation and organization, in March 2000, we issued
1,000 shares of common stock to MRV for an aggregate offering price of $1,000.
In July 2000, we effected a 144,000-for-one stock split of our outstanding
common stock. We believe that the initial issuance was exempt under Section 4(2)
of the Securities Act as a transaction not involving any public



                                                                              38
<PAGE>   39

offering. We believe that the stock split was either not a "sale" of securities
pursuant to the Securities or exempt under Section 3(a)(9) of the Securities
Act.

No underwriters were involved in connection with the sale of securities referred
to in the paragraph above. MRV represented its intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof, and appropriate legends were affixed to the share
certificates and instruments issued. MRV had adequate access, through its
relationships with us, to information about us.

USE OF PROCEEDS

Our registration statement on Form S-1 filed under the Securities Act of 1933,
Commission File No. 333-42238, was declared effective by the Commission on
November 9, 2000. A total of 13,800,000 shares of our common stock were
registered pursuant to this registration statement, including 1,800,000 that
were subject to the underwriters' over allotment option which was not exercised.
The aggregate price of the offering amount registered was $207,000,000. The
managing underwriters for the offering were Credit Suisse First Boston
Corporation, CIBC World Markets Corp., Robertson Stephens, Inc., U. S. Bancorp
Piper Jaffray, Inc. and First Security Van Kasper, Inc.

The offering was completed on November 9, 2000. We sold 12,000,000 registered
shares at an initial public offering at an aggregate offering price of
$144,000,000 or $12.00 per share. From November 9, 2000 to March 31, 2001, the
aggregate underwriting discounts paid in connection with the offering was $10.1
million. We estimate that other expenses of the offering total $1.6 million.

The net proceeds from the offering, after deducting the underwriting discount
and the estimated offering expenses to be paid by us, were approximately $132.3
million. The net proceeds will be used for general corporate purposes, including
capital expenditures and working capital. Pending these uses, the net proceeds
have been invested in interest bearing, investment grade securities.

None of the net proceeds of the offering have been paid, directly or indirectly,
to any of our directors or officers or any of their associates, to any persons
owning 10% or more of our common stock, or to any of our affiliates.


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

None.

ITEM 5. OTHER INFORMATION



                                                                              39
<PAGE>   40

                                 LUMINENT, INC.
          PRO FORMA(1) CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
                                   (unaudited)

<TABLE>
<CAPTION>
                                                                                       Three Months Ended March 31,
                                                                                      ------------------------------
                                                                                        2001                  2000
                                                                                      ---------             --------
<S>                                                                                   <C>                   <C>
Net Sales                                                                             $  48,241             $ 14,899
Cost of sales                                                                            31,529                9,654
                                                                                      ---------             --------
     Gross Profit                                                                        16,712                5,245

Operating costs and expenses
     Selling, general and administrative                                                  6,682                1,985
     Research and development                                                             4,123                2,449
     Parent company allocations                                                              --                  193
                                                                                      ---------             --------
                                                                                         10,805                4,627

         Operating income                                                                 5,907                  618

Other income, net                                                                         1,850                   --

                                                                                      ---------             --------
     Income before provision for income taxes
         and minority interest                                                            7,757                  618

Provision for income taxes                                                                2,366                  246

Minority interest                                                                            21                  190

                                                                                      ---------             --------
     Pro forma net income                                                             $   5,370             $    182
                                                                                      =========             ========

Net income per share, basic                                                                0.03                 0.00
Net income per share, diluted                                                              0.03                 0.00

Shares used in per-share calculation, basic                                             156,000              144,000
Shares used in per-share calculation, diluted                                           156,013              144,000


Reconciliation of pro forma net income to net income (loss)
Pro forma net income                                                                      5,370                  182
Deferred stock compensation charged to cost of sales                                       (683)                  --
Deferred stock compensation charged to selling, general and administrative               (8,690)                  --
Deferred stock compensation charged to research and development                          (1,073)                  --
Amortization of goodwill charged to operating costs and expenses                        (19,488)                  --
Adjustment to provision for income taxes in applying statutory rates                      2,266                   --
                                                                                      ---------             --------
     Net income (loss)                                                                  (22,298)                 182
                                                                                      =========             ========
</TABLE>

----------

(1)     Proforma statements exclude the non-cash charges recorded for the
        amortization of goodwill and deferred stock compensation related to the
        acquisitions of Fiber Optic Communications, Optronics, and Quantum and
        our employment arrangements with two of our executives. The provision
        for income tax is computed using the statutory rates for each entity.
        There were no charges associated with deferred stock compensation or
        goodwill amortization for the three months ended March 31, 2000.



                                                                              40
<PAGE>   41


ITEM 6. EXHIBITS AND REPORTS ON FORM 8K


(a)     Exhibits. The following Exhibits are included as part of this report.

<TABLE>
<CAPTION>
        Exhibit
        Number
        -------
        <S>           <C>
        3.1           Amended and Restated Certificate of Incorporation
                      (incorporated by reference to Exhibit 3.1 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        3.2           Amended and Restated Bylaws of the Registrant
                      (incorporated by reference to Exhibit 3.2 filed with our
                      Registration Statement on Form S-1, File No. 333-42238, on
                      July 26, 2000).

        4.1           Specimen Common Stock Certificate (incorporated by
                      reference to Exhibit 4.1 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on September
                      13, 2000).

        10.1          Amended and Restated 2000 Stock Option Plan (incorporated
                      by reference to Exhibit 10.1 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on September
                      13, 2000).

        10.2          Employment Agreement dated as of July 11, 2000 between
                      William R. Spivey and the Registrant (incorporated by
                      reference to Exhibit 10.2 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on July 26,
                      2000).

        10.3          Stock Option Agreement dated July 11, 2000 between William
                      R. Spivey and the Registrant (incorporated by reference to
                      Exhibit 10.3 filed with our Registration Statement on Form
                      S-1, File No. 333-42238, on September 13, 2000).

        10.4          Stock Option Agreement dated July 11, 2000 between William
                      R. Spivey and MRV (incorporated by reference to Exhibit
                      10.4 filed with our Registration Statement on Form S-1,
                      File No. 333-42238, on July 26, 2000).

        10.5          Employment Agreement dated as of July 12, 2000 between
                      Eric Blachno and the Registrant (incorporated by reference
                      to Exhibit 10.5 filed with our Registration Statement on
                      Form S-1, File No. 333-42238, on July 26, 2000).

        10.6          Stock Option Agreement dated July 12, 2000 between Eric
                      Blachno and the Registrant (incorporated by reference to
                      Exhibit 10.6 filed with our
</TABLE>



                                                                              41
<PAGE>   42

<TABLE>
        <S>           <C>
                      Registration Statement on Form S-1, File No. 333-42238, on
                      October 5, 2000).

        10.7          Stock Option Agreement dated July 12, 2000 between Eric
                      Blachno and MRV (incorporated by reference to Exhibit 10.7
                      filed with our Registration Statement on Form S-1, File
                      No. 333-42238, on October 5, 2000).

        10.8          Real Property Lease for Registrant's headquarters at 20550
                      Nordhoff in Chatsworth, CA dated July 13, 1999 and
                      expiring July 13, 2004 (incorporated by reference to
                      Exhibit 10.8 filed with our Registration Statement on Form
                      S-1, File No. 333-42238, on July 26, 2000).

        10.9          Real Property Lease for Registrant's foundry at 8917
                      Fullbright in Chatsworth, CA dated November 14, 1997 and
                      expiring December 31, 2002 (incorporated by reference to
                      Exhibit 10.9 filed with our Registration Statement on Form
                      S-1, File No. 333-42238, on July 26, 2000).

        10.10         First Amendment to Employment Agreement dated as of July
                      11, 2000 between William R. Spivey and the Registrant
                      (incorporated by reference to Exhibit 10.10 filed with our
                      Registration Statement on Form S-1, File No. 333-42238, on
                      September 13, 2000).

        10.11         Form of Indemnification Agreement (incorporated by
                      reference to Exhibit 10.11 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on September
                      13, 2000).

        10.12         Stock Purchase Agreement by and between MRV
                      Communications, Inc. ("MRV") and the shareholders of Fiber
                      Optic Communications, Inc. ("FOCI"), dated February 21,
                      2000 (incorporated by reference to Exhibit 2.1(a) of the
                      Form 8-K of MRV filed with the SEC, File No. 001-11174, on
                      May 9, 2000).

        10.13         Escrow Agreement dated as of 21st day of February, 2000,
                      by and among MRV, the Selling Shareholders of FOCI and the
                      law firm of Baker & McKenzie, Taipei Office (incorporated
                      by reference to Exhibit 2.1(b) of the Form 8-K of MRV
                      filed with the SEC, File No. 001-11174, on May 9, 2000).

        10.14         Addendum to Stock Purchase Agreement dated as of April 14,
                      2000 by and among FOCI, Registrant and the selling
                      shareholders of FOCI (incorporated by reference to Exhibit
                      2.1(c) of the Form 8-K of MRV filed with the SEC, File No.
                      001-11174, on May 9, 2000).

        10.15         Addendum to Escrow Agreement dated as of April 14, 2000 by
                      and among FOCI, Registrant and the selling shareholders of
                      FOCI
</TABLE>



                                                                              42
<PAGE>   43

<TABLE>
        <S>           <C>
                      (incorporated by reference to Exhibit 2.1(d) of the Form
                      8-K of MRV filed with the SEC, File No. 001-11174, on
                      May 9, 2000).

        10.16         Addendum No. 2 to Escrow Agreement dated as of June 26,
                      2000 by and among FOCI, MRV and the selling shareholders
                      of FOCI (incorporated by reference to Exhibit 2.1(d) of
                      the Form 8-K/A of MRV filed with the SEC, File No.
                      001-11174, on July 7, 2000).

        10.17         Addendum No. 2 to Stock Purchase Agreement dated as of
                      June 26, 2000 by and among FOCI, MRV and the selling
                      shareholders of FOCI (incorporated by reference to Exhibit
                      2.1(e) of the Form 8-K/A of MRV filed with the SEC, File
                      No. 001-11174, on July 7, 2000).

        10.18         Memorandum of Understanding dated as of June 26, 2000
                      between MRV and the remaining shareholders of FOCI
                      (incorporated by reference to Exhibit 2.1(f) of the Form
                      8-K/A of MRV filed with the SEC, File No. 001-11174, on
                      July 7, 2000).

        10.19         Stock Purchase Agreement by and between MRV and the
                      shareholders of Optronics International Corp. ("OIC")
                      dated April 23, 2000 (incorporated by reference to Exhibit
                      10.19 filed with our Registration Statement on Form S-1,
                      File No. 333-42238, on July 26, 2000).

        10.20         Escrow Agreement, dated as of the 23rd day of April 2000,
                      by and among MRV, the selling shareholders of OIC and the
                      law firm of Baker & McKenzie, Taipei Office (incorporated
                      by reference to Exhibit 10.20 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on July 26,
                      2000).

        10.21         Stock Purchase Agreement by and between MRV and the
                      shareholders of Quantum Optech Inc. ("QOI") dated April
                      26, 2000 (incorporated by reference to Exhibit 10.21 filed
                      with our Registration Statement on Form S-1, File No.
                      333-42238, on July 26, 2000).

        10.22         Escrow and Stock Pledge Agreement dated as of April 26,
                      2000 by and between MRV and certain shareholders of QOI
                      (incorporated by reference to Exhibit 10.22 filed with our
                      Registration Statement on Form S-1, File No. 333-42238, on
                      July 26, 2000).

        10.23         Addendum to Stock Purchase Agreement made as of June 16th,
                      2000 by and among MRV, QOI and shareholders of QOI
                      (incorporated by reference to Exhibit 10.23 filed with our
                      Registration Statement on Form S-1, File No. 333-42238,on
                      July 26, 2000).

        10.24         Addendum to Escrow and Stock Pledge Agreement dated as of
                      June 16, 2000 by and between MRV and certain shareholders
                      of QOI (incorporated
</TABLE>



                                                                              43
<PAGE>   44

<TABLE>
        <S>           <C>
                      by reference to Exhibit 10.24 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on July 26,
                      2000).

        10.25         Underwriting Agreement dated as of November 9, 2000 by and
                      between MRV, the Registrant and Credit Suisse First Boston
                      Corporation, acting on behalf of themselves and as the
                      Representatives of the several Underwriters (incorporated
                      by reference to Exhibit 10.25 filed with our 10-K, File
                      No. 000-31393, on April 2, 2001).

        10.26         Master Separation and Distribution Agreement dated as of
                      July 25, 2000 between MRV and the Registrant (incorporated
                      by reference to Exhibit 2.1 filed with out Registration
                      Statement on Form S-1, File No. 333-42238, on July 26,
                      2000).

        10.27         Amendment to Master Separation and Distribution Agreement
                      dated as of September 8, 2000, between MRV and the
                      Registrant (incorporated by reference to Exhibit 10.27
                      filed with our 10-K, File No. 000-31393, on April 2,
                      2001).

        10.28         General Assignment and Assumption Agreement dated as of
                      September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.28 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        10.29         Master Technology Ownership and License Agreement dated as
                      of September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.29 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        10.30         Employee Matters Agreement dated as of September 8, 2000
                      between MRV and the Registrant (incorporated by reference
                      to Exhibit 10.30 filed with our 10-K, File No. 000-31393,
                      on April 2, 2001).

        10.31         Real Estate Matters Agreement dated as of September 8,
                      2000 between MRV and the Registrant (incorporated by
                      reference to Exhibit 10.31 filed with our 10-K, File No.
                      000-31393, on April 2, 2001).

        10.32         Master Transitional Services Agreement dated as of
                      September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.32 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        10.33         Master Trademark Ownership and License Agreement dated as
                      of September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.33 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).
</TABLE>



                                                                              44
<PAGE>   45

<TABLE>
        <S>           <C>
        10.34         Master Patent Ownership and License Agreement dated as of
                      September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.34 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        10.35         Indemnification and Insurance Matters Agreement dated as
                      of September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.35 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        10.36         Master Confidential Disclosure Agreement dated as of
                      September 8, 2000 between MRV and the Registrant
                      (incorporated by reference to Exhibit 10.36 filed with our
                      10-K, File No. 000-31393, on April 2, 2001).

        10.37         Tax Sharing Agreement dated as of September 8, 2000
                      between MRV and the Registrant (incorporated by reference
                      to Exhibit 10.37 filed with our 10-K, File No. 000-31393,
                      on April 2, 2001).

        10.38         Employment Agreement dated September 25, 2000 between
                      James S. Locke and the Registrant (incorporated by
                      reference to Exhibit 10.38 filed with our 10-K, File No.
                      000-31393, on April 2, 2001).

        10.39         Employment Agreement dated October 16, 2000 between Monika
                      Arboles, Esq. and the Registrant (incorporated by
                      reference to Exhibit 10.39 filed with our 10-K, File No.
                      000-31393, on April 2, 2001).

        10.40         Employment Agreement dated November 9, 2000 between Glenn
                      A. Weinman, Esq. and the Registrant (incorporated by
                      reference to Exhibit 10.40 filed with our 10-K, File No.
                      000-31393, on April 2, 2001).

        10.41         Employment Agreement dated April 23, 2001 between Aaron
                      Uri Levy and the Registrant.

        10.42         Lease Agreement dated January 30, 2001 between Abronson,
                      Cole & Eisele, a California General Partnership and the
                      Registrant.

        21.1          List of Registrant's Subsidiaries (incorporated by
                      reference to Exhibit 21.1 filed with our Registration
                      Statement on Form S-1, File No. 333-42238, on September
                      13, 2000).
</TABLE>


(b)     Reports on Form 8-K.

        No reports on Form 8-K were filed by the Registrant during the last
        quarter of the period covered by this Report.



                                                                              45
<PAGE>   46


                                   SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934
(the "Exchange Act"), the Registrant caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Chatsworth,
State of California, on May 14, 2001.

                                    LUMINENT, INC.

                                    By: /s/ William R. Spivey
                                       --------------------------------------
                                        William R. Spivey, President
                                        and Chief Executive Officer


                                    By: /s/ Eric I. Blachno
                                       ----------------------------------------
                                       Eric I. Blachno, Vice President, Finance
                                       and Chief Financial Officer


                                                                              46