<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

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

                                    FORM 10-Q

(Mark One)

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

For the quarterly period ended: December 31, 2002

                                       OR

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

For the transition period from _____________________ to ___________________

                        Commission File Number: 000-27977

                  Lumenon Innovative Lightwave Technology, Inc.
                  ---------------------------------------------
              Exact Name of Registrant as Specified in Its Charter

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

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

Registrant's Telephone Number, Including Area Code: (514) 331-3738

         Indicate by check whether the registrant: (1) has filed all reports 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. (X) Yes ( ) No

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 43,042,607 shares of
common stock, $.001 par value, as of February 14, 2003.

<PAGE>

                   LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page No.
                                                                                               --------
<S>        <C>                                                                                 <C>
PART I.    FINANCIAL INFORMATION.............................................................     1

           Item 1.       Financial Statements................................................     1

           Item 2.       Management's Discussion and Analysis of Financial
                         Condition and Results of Operations.................................    14

           Item 3.       Quantitative and Qualitative Disclosures About Market Risk..........    32

           Item 4.       Controls and Procedures.............................................    32

PART II.   OTHER INFORMATION.................................................................    34

           Item 1.       Legal Proceedings...................................................    34

           Item 3.       Defaults Upon Senior Securities.....................................    34

           Item 6.       Exhibits and Reports on Form 8-K....................................    35

SIGNATURES                                                                                       37

CERTIFICATIONS...............................................................................    37
</TABLE>

                                       i

<PAGE>

                           FORWARD-LOOKING STATEMENTS

         This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, otherwise known as the
Exchange Act. All statements in this quarterly report, other than statements of
historical fact, regarding our strategy, future operations, financial position,
estimated revenues, projected costs, prospects, plans and objectives of
management are forward-looking statements. When used in this quarterly report,
the words "will", "believe", "anticipate," "estimate", "expect" and similar
expressions are intended to identify forward-looking statements, although not
all forward-looking statements contain these words. All forward-looking
statements included in this quarterly report are based on information available
to us up to and including the date of this document, and we assume no obligation
to update any such forward-looking statements, even if our estimates change. You
should not place undue reliance on these forward-looking statements. Our actual
results could differ materially from those anticipated in these forward-looking
statements for many reasons, including the risks faced by us which are
identified and described below in the notes to our financial statements, under
the headings "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Certain Factors Which May Affect Future Results" and
elsewhere in this quarterly report, and in other documents we have filed with
the Securities and Exchange Commission, otherwise known as the SEC.

                                       ii

<PAGE>

                         PART I. FINANCIAL INFORMATION

ITEM 1.           FINANCIAL STATEMENTS

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
(Unaudited, in thousands of Canadian dollars, except where otherwise noted)

<TABLE>
<CAPTION>
===========================================================================================
                                               December 31,      December 31,      June 30,
                                                       2002              2002          2002
-------------------------------------------------------------------------------------------
                                                      (US$)            (CAN$)        (CAN$)
                                                   (note 6)
<S>                                              <C>               <C>           <C>
ASSETS

Current assets:
    Cash and cash equivalents                     $     222         $     350     $     686
    Deposits (note 2)                                   486               768             -
    Commercial papers and term deposits                   -                 -         6,358
    Loan receivable from an officer                       -                 -           200
    Interest, sales tax and other receivables           120               190           336
    Tax credits receivable                              317               500           450
    Prepaid expenses                                    184               290           247
-------------------------------------------------------------------------------------------
                                                      1,329             2,098         8,277

Deposits                                                332               525           784
Property and equipment (note 3)                       8,787            13,884        16,395
-------------------------------------------------------------------------------------------
                                                  $  10,448         $  16,507     $  25,456
===========================================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable                              $     635         $   1,003     $   1,199
    Accrued liabilities                                  42                67           289
    Compensation and related liabilities                541               854         1,274
    Obligations under capital leases                    648             1,024         1,163
    Convertible notes (note 4)                        7,606            12,017             -
-------------------------------------------------------------------------------------------
                                                      9,472            14,965         3,925

Obligations under capital leases                        144               227           666
Convertible notes (note 4)                                -                 -        10,594

Stockholders' equity:
    Share capital (note 5)                               39                62            61
    Additional paid-in capital                      201,253           317,979       317,114
    Accumulated deficit during the
        development stage                          (200,460)         (316,726)     (306,904)
-------------------------------------------------------------------------------------------
                                                        832             1,315        10,271
Going concern (note 1)
Contingencies (note 8)
Subsequent events (note 9)
-------------------------------------------------------------------------------------------
                                                  $  10,448         $  16,507     $  25,456
===========================================================================================
</TABLE>

See accompanying notes to consolidated financial statements

                                      -1-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
(Unaudited, in thousands of Canadian dollars, except per share amounts and as
otherwise noted)

<TABLE>
<CAPTION>
==================================================================================================================
                                                                    Three months    Three months      Three months
                                                                           ended           ended             ended
                                                                    December 31,    December 31,      December 31,
                                                                            2002            2002              2001
------------------------------------------------------------------------------------------------------------------
                                                                       (US$)           (CAN$)            (CAN$)
                                                                     (note 6)
<S>                                                                 <C>             <C>                <C>
Expenses:
     Research and development                                       $        666    $      1,052       $     1,581
     Research tax credits                                                    (25)            (40)             (398)
------------------------------------------------------------------------------------------------------------------
                                                                             641           1,012             1,183

     General and administrative                                              924           1,460             3,177
     Depreciation and amortization                                           808           1,277             1,511
     Write-down of property and equipment                                      -               -               384
------------------------------------------------------------------------------------------------------------------
                                                                           1,732           2,737             5,072

Other expenses:
     Interest expense                                                        198             313               423
     Interest income                                                          (7)            (11)             (125)
     Financing charges                                                       262             414               534
     (Gain) loss on foreign exchange                                         (19)            (30)              206
------------------------------------------------------------------------------------------------------------------
                                                                             434             686             1,038
------------------------------------------------------------------------------------------------------------------
Net loss                                                            $      2,807    $      4,435      $      7,293
==================================================================================================================

Net loss per share:
     Basic and diluted                                              $       0.07    $       0.11      $       0.19
==================================================================================================================

Weighted average number of shares outstanding                         41,108,705      41,108,705        38,763,784
==================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
==================================================================================================================
                                                                        Six months      Six months            From
                                                                             ended           ended    inception to
                                                                      December 31,    December 31,    December 31,
                                                                              2002            2001            2002
                                                                            (CAN$)          (CAN$)          (CAN$)
------------------------------------------------------------------------------------------------------------------
<S>                                                                 <C>             <C>               <C>
Expenses:
     Research and development                                       $      2,347    $      2,795      $    235,235
     Research tax credits                                                   (477)           (506)           (1,870)
------------------------------------------------------------------------------------------------------------------
                                                                           1,870           2,289           233,365

     General and administrative                                            3,288           5,034            35,475
     Depreciation and amortization                                         2,617           2,883            14,041
     Write-down of property and equipment                                      -             707             3,994
------------------------------------------------------------------------------------------------------------------
                                                                           5,905           8,624            53,510

Other expenses:
     Interest expense                                                        654             879             4,616
     Interest income                                                         (71)           (517)           (3,094)
     Financing charges                                                       834           1,107            27,968
     (Gain) loss on foreign exchange                                         630             784               361
------------------------------------------------------------------------------------------------------------------
                                                                           2,047           2,253            29,851
------------------------------------------------------------------------------------------------------------------
Net loss                                                            $      9,822    $     13,166      $    316,726
==================================================================================================================

Net loss per share:
     Basic and diluted                                              $       0.24    $       0.34
================================================================================================

Weighted average number of shares outstanding                         41,164,847      38,621,336
================================================================================================
</TABLE>

See accompanying notes to unaudited consolidated financial statements

                                      -2-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
(Unaudited, in thousands of Canadian dollars, except per share amounts and as
otherwise noted)

<TABLE>
<CAPTION>
==================================================================================================================
                                                                  Three months    Three months      Three months
                                                                         ended           ended             ended
                                                                  December 31,    December 31,      December 31,
                                                                          2002            2002              2001
------------------------------------------------------------------------------------------------------------------
                                                                        (CAN$)          (CAN$)            (CAN$)
                                                                      (note 6)
<S>                                                                 <C>             <C>               <C>
Cash flows from operating activities:
     Net loss                                                        $ (2,807)       $ (4,435)          $ (7,293)
     Adjustment for:
         Compensation costs                                               101             160                364
         Interest on convertible notes                                    165             260                343
         Common shares issued for services                                  -               -                  -
         Depreciation and amortization                                    808           1,277              1,511
         Write-down of property and equipment                               -               -                384
         Loss (gain) on disposal of property and equipment                 (3)             (4)                 -
         Financing charges                                                262             414                534
         Unrealized loss (gain) on foreign exchange                       (33)            (52)               215
     Net change in operating assets and liabilities                       349             551                618
----------------------------------------------------------------------------------------------------------------
                                                                       (1,158)         (1,829)            (3,324)
Cash flows from financing activities:
     Proceeds from issuance of common shares                                -               -                  9
     Principal repayments of obligations under capital leases            (183)           (291)              (274)
     Proceeds from issuance of convertible notes,
         net of issue costs                                                 -               -                  -
     Share issue expenses                                                   -               -                  -
     Deposit on subscription of shares                                      -               -                  -
     Cash from the acquisition of a subsidiary                              -               -                  -
----------------------------------------------------------------------------------------------------------------
                                                                         (183)           (291)              (265)
Cash flows from investing activities:
     Purchase of commercial papers and term deposits                        -               -                  -
     Disposal of commercial papers and term deposits                        -               -             17,854
     Additions to property and equipment                                    -               -               (123)
     Disposal of property and equipment                                     3               4                  7
     Deposits                                                            (370)           (584)                 -
----------------------------------------------------------------------------------------------------------------
                                                                         (367)           (580)            17,738
----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                   (1,708)         (2,700)            14,149
Cash and cash equivalents, beginning of period                          1,930           3,050                436
----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                             $    222        $    350           $ 14,585
================================================================================================================
</TABLE>

<TABLE>
<CAPTION>
==================================================================================================================
                                                                     Six months      Six months               From
                                                                          ended           ended       inception to
                                                                   December 31,    December 31,       December 31,
                                                                           2002            2001               2002
------------------------------------------------------------------------------------------------------------------
                                                                         (CAN$)          (CAN$)             (CAN$)
<S>                                                                 <C>             <C>               <C>
Cash flows from operating activities:
     Net loss                                                         $ (9,822)      $ (13,166)        $ (316,726)
     Adjustment for:
         Compensation costs                                                343             715              6,358
         Interest on convertible notes                                     527             708              3,945
         Common shares issued for services                                   -               -            217,359
         Depreciation and amortization                                   2,617           2,883             14,041
         Write-down of property and equipment                                -               -              3,994
         Loss (gain) on disposal of property and equipment                 (28)            707                 64
         Financing charges                                                 834           1,107             27,968
         Unrealized loss on foreign exchange                               585             960              2,771
     Net change in operating assets and liabilities                       (467)           (561)               530
-----------------------------------------------------------------------------------------------------------------
                                                                        (5,411)         (6,647)           (39,696)
Cash flows from financing activities:
     Proceeds from issuance of common shares                                 -               9             23,153
     Principal repayments of obligations under capital leases             (674)           (588)            (2,715)
     Proceeds from issuance of convertible notes,
        net of issue costs                                                   -               -             48,681
     Share issue expenses                                                    -               -             (1,138)
     Deposit on subscription of shares                                       -               -                147
     Cash from the acquisition of a subsidiary                               -               -                814
-----------------------------------------------------------------------------------------------------------------
                                                                          (674)           (579)            68,942
Cash flows from investing activities:
     Purchase of commercial papers and term deposits                         -               -           (302,934)
     Disposal of commercial papers and term deposits                     6,358          19,530            302,934
     Additions to property and equipment                                   (53)           (287)           (27,584)
     Disposal of property and equipment                                     28              36                 56
     Deposits                                                             (584)            150             (1,368)
-----------------------------------------------------------------------------------------------------------------
                                                                         5,749          19,429            (28,896)
-----------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents                      (336)         12,203                350
Cash and cash equivalents, beginning of period                             686           2,382                  -
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period                              $    350       $  14,585         $      350
=================================================================================================================
</TABLE>

See accompanying notes to unaudited consolidated financial statements

                                      -3-


<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

In the opinion of management, the accompanying unaudited interim financial
statements, prepared in accordance with US generally accepted accounting
principles, contain all adjustments (consisting of normal recurring accruals)
necessary to present fairly the financial position of Lumenon Innovative
Lightwave Technology, Inc. ("Lumenon" or the "Corporation") as of December 31,
2002 and June 30, 2002, its results of operations and cash flows for the three
and six-month periods ended December 31, 2002 and 2001 and from inception to
December 31, 2002.

While management believes that the disclosures presented are adequate, these
consolidated financial statements and notes should be read in conjunction with
Lumenon's consolidated financial statements at June 30, 2002, included in
Lumenon's Annual Report on Form 10-K, as amended, for the fiscal year ended June
30, 2002.

1.   GOING CONCERN:

     Lumenon's principal business activity is to design, develop and build
     integrated optic devices in the form of compact hybrid glass circuits on
     silicon chips. Lumenon's current activities are performed only through LILT
     Canada, Inc., a wholly owned subsidiary of Lumenon ("LILT"), in Canada.

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

     Lumenon has no current source of revenue and is currently in default under
     the terms of its Convertible Notes (as defined below in Note 4). The
     repayment of the Convertible Notes is secured by a security interest in all
     of the present and future property rights and assets of Lumenon and LILT,
     including the shares of LILT. On January 7, 2003, LILT filed a petition
     under the Canadian Companies' Creditors Arrangement Act ("CCAA") with the
     Superior Court of Quebec (the "Canadian Court") and obtained an order (the
     "Initial Order") granting it certain relief, including a stay of
     proceedings and protection from its creditors. Pursuant to the Initial
     Order, all payments in respect to any debt or obligations of LILT existing
     on or before January 8, 2003 were stayed and suspended pending development
     by LILT of a restructuring plan.

     On January 24, 2003, the holders of the Convertible Notes (the
     "Noteholders") filed a motion with the Canadian Court requesting that the
     Canadian Court rescind and annul the Initial Order. The Initial Order was
     set to expire pursuant to its original terms on February 7, 2003. The
     Canadian Court reviewed the Noteholders' motion on January 28, 2003.
     Following that review, the Canadian Court decided to postpone the hearing
     on the motion until February 6, 2003, the day before the Initial Order was
     set to expire. On February 5, 2003, LILT filed a petition with the Canadian
     Court seeking an extension of the Initial Order for an additional period of
     thirty-one (31) days

                                      -4-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

     to allow LILT more time to continue to explore various options related to
     the restructuring of its continuing operations and obligations.

     At a hearing of the Canadian Court commenced on February 6, 2003 and
     continued until February 7, 2003, the Canadian Court granted LILT an
     extension of the Initial Order until February 11, 2003. The Canadian Court
     indicated at the hearing that it intended to sign a Renewal Order following
     the expiration of the Initial Order. On February 12, 2003, the Canadian
     Court issued its Renewal Order thereby extending the protection afforded by
     the Initial Order until March 6, 2003. Although the Renewal Order is
     substantially similar in terms to the Initial Order, it does contain some
     modifications, including among other things a provision that allows the
     Noteholders to serve certain notices for the sole purpose of triggering
     delays provided for under Quebec law relating to the exercise of their
     rights as secured creditors of LILT. Allowing the Noteholders to serve such
     notices will enable them to move more quickly to exercise their rights as
     secured creditors of LILT in the event that the protection afforded to LILT
     by the Renewal Order expires or is terminated.

     On February 4, 2003, Lumenon received a default notice (the "Default
     Notices") from each of the Noteholders. The Default Notices requested the
     immediate repayment of all outstanding principal and accrued interest under
     the Convertible Notes, which at the time the Default Notices were
     received amounted to CDN$13,283,258 (US$8,407,125). Under the terms of the
     Convertible Notes, Lumenon was required to pay such amounts to the
     Noteholders within five (5) trading days after receipt of the Default
     Notices, or by February 11, 2003. Failure to pay such amounts by such date
     would ordinarily have allowed the Noteholders to pursue all their rights
     and remedies as secured parties of both Lumenon and LILT under the Uniform
     Commercial Code of the State of Delaware or of any jurisdiction in which
     the property, rights and assets of Lumenon or LILT are located, as well as
     any and all of the rights provided for under Quebec law, including the
     right to institute proceedings to take possession of such property, rights
     and assets (collectively, the "Secured Party Rights"). The assets of LILT
     are currently protected by the Canadian insolvency proceedings discussed
     above. Such proceedings, however, would not protect the assets of Lumenon,
     which consist primarily of the shares of LILT. Accordingly, because Lumenon
     did not have sufficient funds available to pay amounts owed under the
     Convertible Notes by February 11, 2003, Lumenon determined that it was in
     the best interests of the corporation, its creditors, stockholders and
     other interested parties that Lumenon seek relief under Chapter 11 of the
     U.S. Bankruptcy Code.

     Accordingly, on February 9, 2003, Lumenon filed a voluntary petition for
     reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
     States Bankruptcy Court in the District of Delaware (the "US Court") and,
     consequently, was granted an automatic stay of proceedings and protection
     from its creditors by the US Court. As a result of the Canadian and United
     States insolvency proceedings relating to LILT and Lumenon, respectively,
     the Noteholders are currently prohibited from pursuing their Secured Party
     Rights (except as described above in the discussion of the terms of the
     Renewal Order issued by the Canadian Court).

     As a result of Lumenon's Chapter 11 bankruptcy filing, and in accordance
     with Nasdaq's Marketplace Rules 4330(a)(1) and 4300, Nasdaq notified
     Lumenon on February 11, 2003 that it will delist Lumenon's securities from
     the Nasdaq SmallCap Market, subject to Lumenon's right to appeal. Lumenon
     has determined not to appeal Nasdaq's decision. Accordingly, Lumenon
     expects that its common stock will be delisted from the Nasdaq SmallCap
     Market at the opening of business on February 20, 2003, as specified by
     Nasdaq in the delisting

                                      -5-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

     notification. In addition, as a result of Lumenon's Chapter 11 filing, the
     fifth character "Q" has been appended to Lumenon's trading symbol such
     that, effective with the opening of trading on February 13, 2003, the
     trading symbol for Lumenon's securities was changed from LUMM to LUMMQ.

     In the delisting notification, Nasdaq also advised Lumenon that, because
     Lumenon is the subject of bankruptcy proceedings, Lumenon's securities will
     not be immediately eligible for quotation on the Over the Counter Bulletin
     Board (the "OTCBB") following the delisting by Nasdaq. According to Nasdaq,
     Lumenon's securities may become eligible for quotation on the OTCBB if a
     market maker makes application (a "Form 211") to register in and quote the
     securities in accordance with the SEC's Exchange Act Rule 15c2-11, and
     Nasdaq clears the application. Only a market maker, not Lumenon, may file a
     Form 211. There is no assurance that Lumenon's securities will become
     eligible to trade on the OTCBB in the future, or that a trading market will
     develop even if Lumenon's securities become eligible to trade on the OTCBB
     in the future. The OTCBB is a regulated quotation service that displays
     real-time quotes, last-sale prices, and volume information in
     over-the-counter securities.

     In addition, effective as of August 14, 2002, Lumenon entered into an
     equity line arrangement under the terms of a common stock purchase
     agreement (the "Equity Line Purchase Agreement") with Crossover Ventures,
     Inc. (the "Investor"). Under the terms of the Equity Line Purchase
     Agreement, Lumenon was granted an option to obtain a maximum of
     US$14,000,000 by issuing shares of its common stock in a series of periodic
     draw downs of funds, subject to certain limitations and the fulfillment of
     certain conditions. A principal condition to Lumenon's ability to draw down
     on the equity line was that Lumenon had to file a registration statement to
     register the shares of its common stock to be issued in the periodic draw
     downs by December 31, 2002. Lumenon did not register the shares by the
     specified date. Consequently, Lumenon lost the ability to draw down funds
     on the equity line and will not be able to obtain any funds from that
     equity line in the future.

     Lumenon is currently continuing to explore its options related to obtaining
     additional financing and the restructuring of its obligations, as well as
     the restructuring of the continuing operations and obligations of LILT
     within the guidelines established by the Canadian Court for LILT and its
     creditors. As of the date of this filing, Lumenon has not received any firm
     commitments from any third parties for additional financing. As a result of
     the filing of the petitions in Canada and in United States, Lumenon may
     file a plan that could alter significantly Lumenon's debt and capital.
     There is no assurance that Lumenon will successfully emerge from its
     reorganization proceedings.

     If a plan is filed, confirmation of such plan and Lumenon's emergence from
     the reorganization proceedings would be subject to a number of significant
     conditions and requirements, including a vote of creditors to accept the
     plan and certain of the statutory findings that must be made by the
     bankruptcy court(s). If no plan of reorganization can be confirmed, Lumenon
     may be petitioned into a liquidation bankruptcy which would result in the
     liquidation of Lumenon's assets, the proceeds of which would be distributed
     to its creditors, with the surplus remaining, if any, after the
     satisfaction of all of Lumenon's debt to be distributed to Lumenon's
     stockholders. There can be no assurance, however, that the proceeds
     resulting from any such liquidation would be sufficient to satisfy all of
     Lumenon's debts and obligations and, accordingly, there can be no assurance
     that there would be any remaining proceeds available for distribution to
     stockholders. The impact on carrying values of Lumenon's assets in a
     liquidation scenario cannot be determined. Even if Lumenon is able to
     obtain additional financing, restructure its obligations and operations and
     emerge from bankruptcy, there can be no assurance that under any confirmed
     reorganization plan the current outstanding shares of Lumenon will continue
     to have any value.

                                      -6-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002
and 2001 and period from inception (March 2, 1998) to December 31, 2002.

     The accompanying consolidated financial statements have been prepared on a
     "going concern" basis in accordance with United States generally accepted
     accounting principles ("GAAP"). The "going concern" basis of presentation
     assumes that Lumenon will continue in operation for the foreseeable future
     and will be able to realize its assets and discharge its liabilities and
     commitments in the normal course of business. There is substantial doubt
     about the appropriateness of the use of the "going concern" assumption
     because of the reorganization proceedings relating to Lumenon and LILT,
     respectively, and circumstances relating to those proceedings, including
     Lumenon's current debt structure, recent losses, cash flow losses and lack
     of financing at the present time to continue the development of the
     products and attain commercial and profitable operations. As such,
     realization of Lumenon's assets and discharge of its liabilities are
     subject to significant uncertainty.

     The consolidated financial statements do not reflect adjustments that would
     be necessary if the "going concern" basis was not appropriate. If the
     "going concern" basis was not appropriate for these consolidated financial
     statements, then significant adjustments may be necessary in the carrying
     value of assets and liabilities, the reported revenues and expenses, and
     the balance sheet classifications used. The appropriateness of the "going
     concern" basis is dependent upon, among other things, confirmation of a
     plan of reorganization, future profitable operations, the ability to
     renegotiate the terms and conditions of Lumenon and LILT's existing
     obligations, compliance with the terms of any debtor-in-possession credit
     facility relating to Lumenon or LILT and the ability to generate sufficient
     cash from operations and financing arrangements to meet obligations.

     Additionally, if a plan of reorganization is confirmed, Lumenon could be
     required to adopt "fresh start" accounting. This method of accounting will
     require that assets and liabilities be recorded at their fair values at the
     date of emergence from Lumenon's reorganization proceedings. As a result,
     the reported amounts in the consolidated financial statements could
     materially change, because they do not give effect to the adjustments to
     the carrying value of assets and liabilities that may ultimately result
     from the adoption of "fresh start" accounting.

2.   DEPOSITS

     During the three-month period ended December 31, 2002, LILT has entered
     into an escrow agreement with its lawyers and has transferred $700 in an
     escrow account for the settlement of employees' compensation, related
     fringe benefits, fees of the escrow agent and such other amounts as per
     instruction to be provided by LILT. In December 2002, the escrow agent
     disbursed an aggregate of $245. In addition, Lumenon has made a deposit of
     $303 (US$200) with a US law firm for services to be rendered by the law
     firm in connection with the financial difficulties of Lumenon.

3.   PROPERTY AND EQUIPMENT:

<TABLE>
<CAPTION>
===================================================================================================================
                                                                                                  December 31, 2002
-------------------------------------------------------------------------------------------------------------------
                                                                            Accumulated               Net book
                                                      Cost                  depreciation               value
-------------------------------------------------------------------------------------------------------------------
<S>                                                <C>                      <C>                   <C>
Plant equipment and laboratory installation        $  23,216                 $  11,617               $  11,599
Leasehold improvements                                 1,801                       564                   1,237
</TABLE>

                                      -7-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

<TABLE>
=================================================================================================================
<S>                                              <C>                       <C>                     <C>
Office equipment and fixtures                            1,329                       689                      640
Computer equipment and software                          1,348                       990                      358
Vehicle equipment                                          183                       133                       50

-----------------------------------------------------------------------------------------------------------------
                                                 $      27,877             $      13,993           $       13,884
=================================================================================================================
</TABLE>

     Cost and net book value of plant equipment, laboratory installation and
     vehicle equipment held under capital leases amount to $3,912 and $1,338,
     respectively, as of December 31, 2002.

4.   CONVERTIBLE NOTES:

     Lumenon completed a financing in July 2000 involving the issuance of
     convertible notes (the "Convertible Notes") in the aggregate principal
     amount of $51,243 (US$35,000). Due to the terms and conditions of the
     financing, the Convertible Notes were discounted and are presented net of
     the debt discount. Amortization is presented under financing charges in the
     consolidated statements of operations.

     On October 9, 2001, the Convertible Notes were amended and restated,
     pursuant to which the conversion price of the notes was fixed at US$1.44
     per share. The Convertible Notes with related accrued interest are payable
     on July 25, 2005. Since the date of issuance, a portion of the Convertible
     Notes including related interest has been converted into shares of common
     stock and as of December 31, 2002 $13,741 (US$8,650) of the gross principal
     amount remains outstanding.

     Lumenon is currently in default under the terms of the Convertible Notes.
     The repayment of the Convertible Notes is secured by a security interest in
     all of the present and future property rights and assets of Lumenon and
     LILT. As a result of Lumenon's defaults under the Convertible Notes, the
     Noteholders were entitled to demand, and (as described above in Note 1)
     have demanded, payment in full of the entire outstanding principal and all
     accrued interest under the Convertible Notes. In the absence of court
     protection, Lumenon would have been required to pay in full the outstanding
     principal and all accrued interest under the Convertible Notes to the
     Noteholders within five (5) trading days after the receipt of the Demand
     Notices, or by February 11, 2003. If Lumenon failed to pay such amounts
     within the specified time frame, the Noteholders would have been entitled,
     pursuant to the terms of the Convertible Notes and under applicable law, to
     pursue all their rights and remedies as secured parties under the Uniform
     Commercial Code of the State of Delaware or of any jurisdiction in which
     the property, rights and assets of Lumenon or LILT are located, as well as
     any and all of the rights provided for under Quebec law, including the
     right to institute proceedings to take possession of such property, rights
     and assets. As described above in Note 1, however, the Noteholders are
     currently prohibited from pursuing such rights as a result of the Canadian
     and United States insolvency proceedings related to LILT and Lumenon,
     respectively. Lumenon does not currently have sufficient funds available to
     pay the outstanding principal and accrued interest under the Convertible
     Notes.

                                      -8-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

5.   SHARE CAPITAL:

<TABLE>
<CAPTION>
========================================================================================================
                                                                        December 31,            June 30,
                                                                           2002                   2002
--------------------------------------------------------------------------------------------------------
<S>                                                                     <C>                     <C>
Authorized:
5,000,000 preferred shares, par value
    of US$0.001 per share
250,000,000 common shares, par value
    of US$0.001 per share

Issued and outstanding:
41,309,491 common shares (June 30, 2002: 40,984,375)                      $  62                  $  61
========================================================================================================
</TABLE>

     (a)    Issuance of stock:

            During the six-month period ended December 31, 2002, Lumenon issued
            325,116 shares of common stock as a result of the conversion of
            Convertible Notes amounting to CDN$568 (US$359) of principal and
            accrued interest.

     (b)    Stock option plan:

            Changes in outstanding options for the six-month period ended
            December 31, 2002, were as follows:

<TABLE>
<CAPTION>
===============================================================================================================
                                                                                           Weighted average
                                                             Number                    exercise price per share
---------------------------------------------------------------------------------------------------------------
<S>                                                        <C>                         <C>
Options outstanding, June 30, 2002                         5,284,250
Granted                                                      558,750                       $  0.77 (US$0.49)
Cancelled                                                   (203,667)                         4.98 (US$3.15)
Exercised                                                          -                                      -
---------------------------------------------------------------------------------------------------------------
Options outstanding, September 30, 2002                    5,639,333
Granted                                                       12,500                       $  0.22 (US$0.14)
Cancelled                                                    (68,250)                         6.76 (US$4.28)
Exercised                                                          -                                      -
---------------------------------------------------------------------------------------------------------------
Options outstanding, December 31, 2002                     5,583,583
===============================================================================================================
</TABLE>

     As of December 31, 2002, options to purchase 5,583,583 shares of common
     stock were outstanding, of which 2,916,792 were exercisable.

                                      -9-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

5.   SHARE CAPITAL (CONTINUED):

         (c) As described above in Note 1, under the terms of the Equity Line
         Purchase Agreement, Lumenon was granted the option to obtain a maximum
         of US$14,000,000 by issuing shares of its common stock in a series of
         periodic draw downs of funds, subject to certain limitations and the
         fulfillment of certain conditions. A principal condition to Lumenon's
         ability to draw down on the equity line was that Lumenon was obligated
         to file a registration statement to register the shares of its common
         stock to be issued in the periodic draw downs by December 31, 2002.
         Lumenon did not register the shares by the specified date.
         Consequently, Lumenon lost the ability to draw down funds on the equity
         line and will not be able to obtain any funds from that equity line in
         the future.

6.   FUNCTIONAL CURRENCY AND CONVENIENCE TRANSLATION:

     The functional currency of Lumenon is the Canadian dollar.

     US dollar amounts presented on the balance sheets, statements of operations
     and cash flows, and these notes are provided for convenience of reference
     only and are based on the noon buying rate in New York City for cable
     transfers in foreign currencies as certified for customs purposes by the
     Federal Reserve Bank of New York at December 31, 2002, which was $1.5800
     Canadian dollar per US dollar.

7.   SUPPLEMENTAL CASH FLOW DISCLOSURE:

     Non-cash investing and financing activities:

     Lumenon did not acquire any property or equipment through capital leases or
     otherwise during the three-month period ended December 31, 2002.

     Lumenon acquired property and equipment through capital leases of $96
     during the three-month period ended September 30, 2002.

     No capital expenditures are included in accounts payable as of December 31,
     2002.

                                      -10-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

8.   CONTINGENCIES:

     (a) In connection with employee terminations that occurred during fiscal
         2001, two employees filed lawsuits claiming various amounts totaling
         approximately $402. The outcome of the lawsuits is unpredictable at
         this time. Lumenon believes that the legal actions are without merit
         and intends to vigorously defend such lawsuits.

     (b) On August 30, 2002, Lumenon announced the temporary layoff of 37
         LILT employees, of which 23 are currently affect (14 employees having
         since resigned). Severance accruals may be required if the layoff
         becomes permanent. In connection with subsequent events mentioned in
         Note 9, Lumenon recorded a severance accrual amount that it considered
         reasonable with respect to applicable law and /or contractual
         obligations.

     (c) In October 2002, an employee filed a claim for approximately $142
         against Lumenon in connection with the layoff. The outcome of the
         lawsuit is unpredictable at this time. Lumenon believes that the legal
         action is without merit and intends to vigorously defend the lawsuit.

9.   SUBSEQUENT EVENTS:

     (a) As described above under Note 1, on January 7, 2003, LILT filed a
         petition under the CCAA with the Superior Court of Quebec. In response
         to that petition, the Canadian Court issued its Initial Order granting
         LILT certain relief, including a stay of proceedings and protection
         from creditors. On January 24, 2003, the Noteholders filed a motion
         with the Canadian Court requesting that the Canadian Court rescind and
         annul the Initial Order. The Initial Order was set to expire pursuant
         to its original terms on February 7, 2003. The Canadian Court reviewed
         the Noteholders' motion on January 28, 2003. Following that review, the
         Canadian Court decided to postpone the hearing on the motion until
         February 6, 2003, the day before the Initial Order was set to expire.
         On February 5, 2003, LILT filed a petition with the Canadian Court
         seeking an extension of the Initial Order for an additional period of
         thirty-one (31) days to allow LILT more time to continue to explore
         various options related to the restructuring of its continuing
         operations and obligations.

         At a hearing of the Canadian Court commenced on February 6, 2003 and
         continued until February 7, 2003, the Canadian Court granted LILT an
         extension of the Initial Order until February 11, 2003. The Canadian
         Court indicated at the hearing that it intended to sign a Renewal Order
         following the expiration of the Initial Order. On February 12, 2003,
         the Canadian Court issued its Renewal Order thereby extending the
         protection afforded by the Initial Order until March 6, 2003. Although
         the Renewal Order is substantially similar in terms to the Initial
         Order, it does contain some modifications, including among other things
         a provision that allows the Noteholders to serve certain notices for
         the sole purpose of triggering delays provided for under Quebec law
         relating to the exercise of their rights as secured creditors of LILT.
         Allowing the Noteholders to serve such notices will enable them to move
         more quickly to exercise their rights as secured creditors of LILT in
         the event that the protection afforded to LILT by the Renewal Order
         expires or is terminated.

     (b) On February 4, 2003, Lumenon received the Default Notices from the
         Noteholders. The Default Notices requested the immediate repayment of
         all outstanding principal and accrued interest under the Convertible
         Notes, which at the time the Default Notices were received amounted to
         CDN$13,283,258 (US$8,407,125). Under the terms of the Convertible
         Notes, Lumenon was required to pay such amounts to the

                                      -11-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

         Noteholders within five (5) trading days after receipt of the Default
         Notices, or by February 11, 2003. Failure to pay such amounts by such
         date would ordinarily have allowed the Noteholders to pursue all their
         rights and remedies as secured parties of both Lumenon and LILT under
         the Uniform Commercial Code of the State of Delaware or of any
         jurisdiction in which the property, rights and assets of Lumenon or
         LILT are located, as well as any and all of the rights provided for
         under Quebec law, including the right to institute proceedings to take
         possession of such property, rights and assets (collectively, the
         "Secured Party Rights"). The assets of LILT are currently protected by
         the Canadian insolvency proceedings discussed above. Such proceedings,
         however, would not protect the assets of Lumenon, which consist
         primarily of the shares of LILT. Accordingly, because Lumenon did not
         have sufficient funds available to pay amounts owed under the
         Convertible Notes by February 11, 2003, Lumenon determined that it was
         in the best interests of the corporation, its creditors, stockholders
         and other interested parties that Lumenon seek relief under Chapter 11
         of the U.S. Bankruptcy Code.

         On February 9, 2003, Lumenon filed a voluntary petition for
         reorganization under Chapter 11 of the U.S. Bankruptcy Code with the US
         Court and, consequently, was granted an automatic stay of proceedings
         and protection from its creditors by the US Court. As a result of the
         Canadian and United States insolvency proceedings relating to LILT and
         Lumenon, respectively, the Noteholders are currently prohibited from
         pursuing their Secured Party Rights (except as described above in the
         discussion of the terms of the Renewal Order issued by the Canadian
         Court).

     (c) As a result of Lumenon's Chapter 11 bankruptcy filing, and in
         accordance with Nasdaq's Marketplace Rules 4330(a)(1) and 4300, Nasdaq
         notified Lumenon on February 11, 2003 that it will delist Lumenon's
         securities from the Nasdaq SmallCap Market, subject to Lumenon's right
         to appeal. Lumenon has determined not to appeal Nasdaq's decision.
         Accordingly, Lumenon expects that its common stock will be delisted
         from the Nasdaq SmallCap Market at the opening of business on February
         20, 2003, as specified by Nasdaq in the delisting notification. In
         addition, as a result of Lumenon's Chapter 11 filing, the fifth
         character "Q" has been appended to Lumenon's trading symbol such that,
         effective with the opening of trading on February 13, 2003, the trading
         symbol for Lumenon's securities was changed from LUMM to LUMMQ.

     (d) As described above under Note 1, Lumenon is party to an Equity Line
         Purchase Agreement. Under the terms of the Equity Line Purchase
         Agreement, Lumenon was granted an option to obtain a maximum of
         US$14,000,000 by issuing shares of its common stock in a series of
         periodic draw downs of funds, subject to certain limitations and the
         fulfillment of certain conditions. A principal condition to Lumenon's
         ability to draw down on the equity line was that Lumenon had to file a
         registration statement to register the shares of its common stock to be
         issued in the periodic draw downs by December 31, 2002. Lumenon did not
         register the shares by the specified date. Consequently, Lumenon lost
         the ability to draw down funds on the equity line and will not be able
         to obtain any funds from that equity line in the future.

     (e) In January 2003, Lumenon issued 1,318,981 shares of common stock as a
         result of conversion of Convertible Notes of in the aggregate principal
         amount of $2,498 (US$1,600) plus accrued interest thereon of $467
         (US$299). In addition, Lumenon issued 414,315 shares of common stock in
         February 2003 as a result of additional conversions of the Convertible
         Notes in the aggregate principal amount of $790 (US$500) plus accrued
         interest thereon of $152 (US$96).

                                      -12-

<PAGE>

LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (Unaudited)
(in thousands of Canadian dollars, except per share amounts and as otherwise
noted)

Three-month period ended December 31, 2002 and 2001
and period from inception (March 2, 1998) to December 31, 2002.

10.  ACCOUNTING CHANGES:

     (a) Impairment or disposal of long-lived assets

         In August 2001, the Financial Accounting Standards Board ("FASB")
         issued SFAS No. 144, "Accounting for the Impairment or Disposal of
         Long-Lived Assets" ("SFAS 144"), which addresses financial accounting
         and reporting for the impairment or disposal of long-lived assets. SFAS
         144 applies to certain long-lived assets, including discontinued
         operations, and provides a single accounting model for long-lived
         assets to be disposed of. Although retaining many of the fundamental
         recognition and measurement provisions of SFAS No. 121, SFAS 144
         significantly changes the criteria that would have to be met to
         classify an asset as held-for-sale.

         SFAS 144 requires that long-lived assets to be disposed of by sale be
         measured at the lower of carrying amount or fair value less cost to
         sell, whether reported in continuing operations or in discontinued
         operations. Discontinued operations will no longer be measured at net
         realizable value or include amounts for operating losses that have not
         yet been incurred. SFAS 144 also broadens the reporting of discontinued
         operations to include the disposal of a component of an entity provided
         that the operations and cash flows of the component will be eliminated
         from the ongoing operations of the entity and the entity will not have
         any significant continuing involvement in the operations of the
         component.

         Lumenon adopted the provisions of SFAS 144 effective July 1, 2002. The
         adoption of SFAS 144 did not have a material effect on the business,
         results of operations, and financial conditions of Lumenon.

     (b) Costs associated with Exit or Disposal Activities

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
         Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146
         requires that a liability for the costs associated with an exit or
         disposal activity be recognized when the liability is incurred. SFAS
         146 also established that fair value is the objective for initial
         measurement of the liability. The provisions of SFAS 146 are effective
         for exit or disposal activities that are initiated after December 31,
         2002.

                                      -13-

<PAGE>

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

         This quarterly report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act. All statements in this quarterly report, other than
statements of historical fact, regarding our strategy, future operations,
financial position, estimated revenues, projected costs, prospects, plans and
objectives of management are forward-looking statements. When used in this
quarterly report, the words "will", "believe", "anticipate," "estimate",
"expect" and similar expressions are intended to identify forward-looking
statements, although not all forward-looking statements contain these words. All
forward-looking statements included in this quarterly report are based on
information available to Lumenon up to and including the date of this document,
and Lumenon assumes no obligation to update any such forward-looking statements,
even if its estimates change. You should not place undue reliance on these
forward-looking statements. Lumenon's actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks faced by Lumenon as described herein and below under the
heading "Certain Factors Which May Affect Future Results" and elsewhere in this
quarterly report, and in other documents Lumenon has filed with the SEC.

OVERVIEW

         Lumenon is a development stage enterprise that has not realized any
material revenues from operations to date. Lumenon was incorporated in the State
of Delaware in February 1996 under the name of WWV Development Inc. ("WWV"). In
July 1998, pursuant to the terms of an acquisition plan, WWV acquired all of the
issued and outstanding shares of LILT Canada Inc. ("LILT"), a Canadian
corporation. Upon consummation of the acquisition, WWV changed its name to
Lumenon. Lumenon's principal business activity is to design, develop and build
integrated optic devices in the form of compact hybrid glass circuits on silicon
chips. Lumenon's current activities are performed only through LILT, in Canada.

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

RECENT DEVELOPMENTS

         On January 7, 2003, LILT filed a petition under the Canadian Companies'
Creditors Arrangement Act ("CCAA") with the Superior Court of Quebec (the
"Canadian Court") and obtained an order (the "Initial Order") granting it
certain relief, including a stay of proceedings and protection from its
creditors. Pursuant to the Initial Order, all payments in respect to any debt or
obligations of LILT existing on or before January 8, 2003 were stayed and
suspended pending development by LILT of a restructuring plan.

                                      -14-

<PAGE>

         Lumenon had previously completed a financing in July 2000 involving the
issuance of convertible notes (the "Convertible Notes"). Lumenon is currently in
default under the terms of the Convertible Notes for a number of reasons,
including the CCAA filing by LILT. The repayment of the Convertible Notes is
secured by a security interest in all of the present and future property rights
and assets of Lumenon and LILT, including the shares of LILT. On January 24,
2003, the holders of the Convertible Notes (the "Noteholders") filed a motion
with the Canadian Court requesting that the Canadian Court rescind and annul the
Initial Order. The Initial Order was set to expire pursuant to its original
terms on February 7, 2003. The Canadian Court reviewed the Noteholders' motion
on January 28, 2003. Following that review, the Canadian Court decided to
postpone the hearing on the motion until February 6, 2003, the day before the
Initial Order was set to expire. On February 5, 2003, LILT filed a petition with
the Canadian Court seeking an extension of the Initial Order for an additional
period of thirty-one (31) days to allow LILT more time to continue to explore
various options related to the restructuring of its continuing operations and
obligations.

         At a hearing of the Canadian Court commenced on February 6, 2003 and
continued until February 7, 2003, the Canadian Court granted LILT an extension
of the Initial Order until February 11, 2003. The Canadian Court indicated at
the hearing that it intended to sign a Renewal Order following the expiration of
the Initial Order. On February 12, 2003, the Canadian Court issued its Renewal
Order thereby extending the protection afforded by the Initial Order until March
6, 2003. Although the Renewal Order is substantially similar in terms to the
Initial Order, it does contain some modifications, including among other things
a provision that allows the Noteholders to serve certain notices for the sole
purpose of triggering delays provided for under Quebec law relating to the
exercise of their rights as secured creditors of LILT. Allowing the Noteholders
to serve such notices will enable them to move more quickly to exercise their
rights as secured creditors of LILT in the event that the protection afforded to
LILT by the Renewal Order expires or is terminated.

         On February 4, 2003, Lumenon received a default notice (the "Default
Notices") from each of the Noteholders. The Default Notices requested the
immediate repayment of all outstanding principal and accrued interest under the
Convertible Notes, which at the time the Default Notices were received amounted
to CDN$13,283,258 (US$8,407,125). Under the terms of the Convertible Notes,
Lumenon was required to pay such amounts to the Noteholders within five (5)
trading days after receipt of the Default Notices, or February 11, 2003. Failure
to pay such amounts by such date would ordinarily have allowed the Noteholders
to pursue all their rights and remedies as secured parties of both Lumenon and
LILT under the Uniform Commercial Code of the State of Delaware or of any
jurisdiction in which the property, rights and assets of Lumenon or LILT are
located, as well as any and all of the rights provided for under Quebec law,
including the right to institute proceedings to take possession of such
property, rights and assets (collectively, the "Secured Party Rights"). The
assets of LILT are currently protected by the Canadian insolvency proceedings
discussed above. Such proceedings, however, would not protect the assets of
Lumenon, which consist primarily of the shares of LILT. Accordingly, because
Lumenon did not have sufficient funds available to pay amounts owed under the
Convertible Notes by February 11, 2003, Lumenon determined that it was in the
best interests of the corporation, its creditors, stockholders and other
interested parties that Lumenon seek relief under Chapter 11 of the U.S.
Bankruptcy Code.

         Accordingly, on February 9, 2003, Lumenon filed a voluntary petition
for reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court in the

                                      -15-

<PAGE>

District of Delaware (the "US Court") and, consequently, was granted an
automatic stay of proceedings and protection from its creditors by the US Court.
As a result of the Canadian and United States insolvency proceedings relating to
LILT and Lumenon, respectively, the Noteholders are currently prohibited from
pursuing their Secured Party Rights (except as described above in the discussion
of the terms of the Renewal Order issued by the Canadian Court).

         In addition, effective as of August 14, 2002, Lumenon entered into an
equity line arrangement under the terms of a common stock purchase agreement
(the "Equity Line Purchase Agreement") with Crossover Ventures, Inc. (the
"Investor"). Under the terms of the Equity Line Purchase Agreement, Lumenon was
granted an option to obtain a maximum of US$14,000,000 by issuing shares of its
common stock in a series of periodic draw downs of funds, subject to certain
limitations and the fulfillment of certain conditions. A principal condition to
Lumenon's ability to draw down on the equity line was that Lumenon had to file a
registration statement to register the shares of its common stock to be issued
in the periodic draw downs by December 31, 2002. Lumenon did not register the
shares by the specified date. Consequently, Lumenon lost the ability to draw
down funds on the equity line and will not be able to obtain any funds from that
equity line in the future.

         On June 7, 2002, the listing of Lumenon's common stock was transferred
from The Nasdaq National Market to The Nasdaq SmallCap Market. This transfer
provided Lumenon with a grace period until February 10, 2003 to comply with the
US$1.00 minimum bid price required by the Nasdaq Stock Market, Inc. Lumenon
failed to meet the $1.00 minimum bid price required by the Nasdaq Stock Market,
Inc. prior to the expiration of the grace period. As a result of Lumenon's
failure to meet the minimum bid price as well as its Chapter 11 bankruptcy
filing, Nasdaq notified Lumenon on February 11, 2003 that it will delist
Lumenon's securities from the Nasdaq SmallCap Market, subject to Lumenon's right
to appeal. Lumenon has determined not to appeal Nasdaq's decision. Accordingly,
Lumenon expects that its common stock will be delisted from the Nasdaq SmallCap
Market at the opening of business on February 20, 2003, as specified by Nasdaq
in the delisting notification. In addition, as a result of Lumenon's Chapter 11
filing, the fifth character "Q" has been appended to Lumenon's trading symbol
such that, effective with the opening of trading on February 13, 2003, the
trading symbol for Lumenon's securities was changed from LUMM to LUMMQ.

         In the delisting notification, Nasdaq also advised Lumenon that,
because Lumenon is the subject of bankruptcy proceedings, Lumenon's securities
will not be immediately eligible for quotation on the Over the Counter Bulletin
Board (the "OTCBB") following the delisting by Nasdaq. According to Nasdaq,
Lumenon's securities may become eligible for quotation on the OTCBB if a market
maker makes application (a "Form 211") to register in and quote the securities
in accordance with the SEC's Exchange Act Rule 15c2-11, and Nasdaq clears the
application. Only a market maker, not Lumenon, may file a Form 211.

         There is no assurance that Lumenon's securities will become eligible to
trade on the OTCBB in the future, or that a trading market will develop even if
Lumenon's securities become eligible to trade on the OTCBB in the future. The
OTCBB is a regulated quotation service that displays real-time quotes, last-sale
prices, and volume information in over-the-counter securities. When Lumenon's
common stock is delisted from The Nasdaq SmallCap Market, it could materially
adversely affect the market price and liquidity of Lumenon's common stock and
Lumenon's ability to raise necessary additional capital. If Lumenon is unable to
obtain

                                      -16-

<PAGE>

additional financing from another source or sources, or if Lumenon is unable to
successfully restructure its obligations, as well as the continuing operations
and obligations of LILT within the guidelines established by the Canadian Court
for LILT and its creditors, Lumenon will not be able to continue as a going
concern. As of the date of this filing, Lumenon has not received any firm
commitments from any third parties for additional financing.

RESULTS OF OPERATIONS

Research and Development Expenses.

         Research and development expenses for the three-month period ended
December 31, 2002, net of tax credits and grants, were CDN$1,012,000, compared
to CDN$1,183,000 during the same period in 2001, which represents a net decrease
of CDN$171,000 or 14.5%. For the six-month period ended December 31, 2002, these
expenses amounted to CDN$1,870,000 compared to CDN$2,289,000 during the same
period in 2001, which represents a decrease of CDN$419,000 or 18.3%. The
decreases in research and development expenses over these periods were mainly
attributable to the reduction in amounts paid for salaries and fringe benefits
resulting from the reduction of LILT's workforce through a temporary layoff of
37 employees in August 2002. The decreases were partially off set by LILT's
receipt of certain tax credits relating to research and development expenses
incurred by LILT, which tax credits are available to LILT pursuant to Canadian
law and which were recognized for the quarter ended December 31, 2002 in the
amount of CDN$40,000 compared to CDN$398,000 during the same period in 2001.

General and Administrative Expenses.

         General and administrative expenses were CDN$1,460,000 during the
three-month period ended December 31, 2002, compared to CDN$3,177,000 for the
same period in 2001, which represents a decrease of approximately CDN$1,717,000
or 54%. General and administrative expenses were CDN$3,288,000 during the
six-month period ended December 31, 2002, compared to CDN$5,034,000 for the same
period in 2001, which represents a decrease of approximately CDN$1,746,000 or
34.7%. The decreases during these periods were mainly attributable to the
implementation of LILT's restructuring plan at the end of fiscal year 2001.

         The depreciation and amortization of property and equipment amounted to
CDN$1,277,000 during the three-month period ended December 31, 2002, compared
to CDN$1,511,000 for the same period in 2001, which represents a decrease of
approximately CDN$234,000 or 15.5%. The depreciation and amortization amounted
to CDN$2,617,000 during the six-month period ended December 31, 2002, compared
to CDN$2,883,000 for the same period in 2001, which represents a decrease of
approximately CDN$266,000 or 9.2%. The decreases in depreciation and
amortization during these periods were the result of certain equipment becoming
fully depreciated at the end of the period ended December 31, 2002. In
addition, a write-down of $707,000 was recorded in 2001 to reflect the
impairment of long-lived assets under applicable accounting standards.

Other Expenses.

         Other expenses, net of interest income and gain on foreign exchange,
amounted to CDN$686,000 during the three-month period ended December 31, 2002,
compared to

                                      -17-

<PAGE>

CDN$1,038,000 during the same period in 2001, which represents a decrease of
approximately CDN$352,000 or 33.9%. During the six-month period ended December
31, 2002, other expenses, net of interest income and gain on foreign exchange,
amounted to CDN$2,047,000 compared to CDN$2,253,000 for the same period in 2001,
which represents a decrease of CDN$206,000 or 9.1%. These decreases were due
primarily to decreases in the outstanding principal amount of the Convertible
Notes resulting from the conversion of a portion of such outstanding principal
into common stock. The decreases in the interest expense portion of other
expenses were mainly attributable to the fact that the outstanding principal
amount of the Convertible Notes, which bear interest at 7.5% per annum,
decreased by CDN$200,000 during the quarter ended December 31, 2002 as a result
of the aforementioned conversion.

         Financing charges amounted to CDN$414,000 for the three-month period
ended December 31, 2002, compared to CDN$534,000 for the same period in 2001,
which represents a decrease of CDN$120,000 or 22.5%, which decrease was also
primarily due to a decrease in the outstanding principal amount of the
Convertible Notes as a result of the aforementioned conversion. Interest income
during the three-month and the six-month periods ended December 31, 2002,
amounted to CDN$11,000 and CDN$ 71,000, respectively, compared to CDN$125,000
and CDN$517,000 in the corresponding periods in 2001, which represents decreases
of CDN$114,000 (or 91.2%) and CDN$ 446,000 (or 86.3%), respectively. These
decreases in interest income were primarily due to decreases in cash, cash
equivalents, commercial papers and term deposits.

         As a result of the above expenses, Lumenon's net loss for the
three-month period ended December 31, 2002 was CDN$4,435,000 or CDN$0.11 per
share, compared to CDN$7,293,000 or CDN$0.19 per share for the same period in
2001. For the six-month period ended December 31, 2002 Lumenon's net loss was
CDN$9,822,000 or CDN$0.24 per share, compared to CDN$13,166,000 or CDN$0.34 per
share, for the same period in 2001.

LIQUIDITY AND CAPITAL RESOURCES

         As of December 31, 2002, Lumenon had cash and cash equivalents of
CDN$350,000 as compared to CDN$686,000 as of June 30, 2002 (including commercial
papers and terms deposits).

         As described above, Lumenon is currently in default under the
Convertible Notes. As a result of Lumenon's defaults under the Convertible
Notes, the Noteholders have demanded payment in full of all the outstanding
principal and all accrued interest under the Convertible Notes, which as of the
time the Default Notices were received amounted to CDN$13,283,258
(US$8,407,125). Under the terms of the Convertible Notes, Lumenon was required
to pay such amounts to the Noteholders within five (5) trading days after
receipt of the Default Notices, or by February 11, 2003. Failure to pay such
amounts by such date would ordinarily have allowed the Noteholders to pursue all
their rights and remedies as secured parties of both Lumenon and LILT under the
Uniform Commercial Code of the State of Delaware or of any jurisdiction in which
the property, rights and assets of Lumenon or LILT are located, as well as any
and all of the rights provided for under Quebec law, including the right to
institute proceedings to take possession of such property, rights and assets
(collectively, the "Secured Party Rights"). The assets of LILT are currently
protected by the Canadian insolvency proceedings discussed above. Such
proceedings, however, would not protect the assets of Lumenon, which consist
primarily of the shares of LILT. Accordingly, because Lumenon did not have
sufficient funds available to pay

                                      -18-

<PAGE>

amounts owed under the Convertible Notes by February 11, 2003, Lumenon
determined that it was in the best interests of the corporation, its creditors,
stockholders and other interested parties that Lumenon seek relief under Chapter
11 of the U.S. Bankruptcy Code.

Accordingly, on February 9, 2003, Lumenon filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the US Court
and, consequently, was granted an automatic stay of proceedings and protection
from its creditors by the US Court. As a result of the Canadian and United
States insolvency proceedings relating to LILT and Lumenon, respectively, the
Noteholders are currently prohibited from pursuing their Secured Party Rights
(except as described above in the discussion of the terms of the Renewal Order
issued by the Canadian Court). Nonetheless, if Lumenon is unable to successfully
restructure its obligations and the continuing operations and obligations of
LILT and obtain additional financing while it is under the protection of the
Canadian and United States courts, its assets (including the assets of LILT)
will be liquidated to satisfy its obligations under the Convertible Notes and
otherwise and Lumenon will not be able to continue as a going concern. There can
be no assurance that the proceeds resulting from any such liquidation would be
sufficient to satisfy all of Lumenon's debts and obligations and, accordingly,
there can be no assurance that there would be any remaining proceeds available
for distribution to stockholders. Furthermore, even if Lumenon is able to obtain
additional financing, restructure its obligations and operations and emerge from
bankruptcy, there can be no assurance that under any confirmed reorganization
plan the current outstanding shares of Lumenon will continue to have any value.
As of the date of this filing, Lumenon has not received any firm commitments
from any third parties for additional financing.

         During the three-month period ended December 31, 2002, Lumenon issued
164,294 shares of common stock as a result of the conversion of principal and
interest accrued under the Convertible Notes of CDN$316,000. During the
six-month period ended December 31, 2002, Lumenon issued 325,116 shares of
common stock as a result of the conversion of principal and interest accrued
under the Convertible Notes of CDN$568,000.

         In addition, under the terms of the Equity Line Purchase Agreement and
Registration Rights Agreement, Lumenon was obligated to file a registration
statement to register the shares of its common stock to be issued in the
periodic draw downs provided for in the Equity Line Purchase Agreement by
December 31, 2002. Because Lumenon did not register the shares by the specified
date, Lumenon lost the ability to draw down funds on the equity line and will
not be able to obtain any funds from that equity line in the future.

         On February 11, 2003, Nasdaq notified Lumenon that it will delist
Lumenon's securities from the Nasdaq SmallCap Market, subject to Lumenon's right
to appeal. Lumenon has determined not to appeal Nasdaq's decision. Accordingly,
Lumenon expects that its common stock will be delisted from the Nasdaq SmallCap
Market at the opening of business on February 20, 2003, as specified by Nasdaq
in the delisting notification.

         In the delisting notification, Nasdaq also advised Lumenon that,
because Lumenon is the subject of bankruptcy proceedings, Lumenon's securities
will not be immediately eligible for quotation on the OTCBB following the
delisting by Nasdaq. According to Nasdaq, Lumenon's securities may become
eligible for quotation on the OTCBB if a market maker makes application (a "Form
211") to register in and quote the securities in accordance with the SEC's
Exchange Act Rule 15c2-11, and Nasdaq clears the application. Only a market
maker, not Lumenon, may file a Form 211.

         There is no assurance that Lumenon's securities will become eligible to
trade on the OTCBB in the future, or that a trading market will develop even if
Lumenon's securities become eligible to trade on the OTCBB in the future. The
delisting of Lumenon's common stock from

                                      -19-

<PAGE>

the Nasdaq SmallCap Market, could have a materially adverse affect on the market
price and liquidity of Lumenon's common stock and Lumenon's ability to raise
necessary additional capital. If Lumenon is unable to obtain additional
financing from another source or sources, or if Lumenon is unable to
successfully restructure its obligations, as well as the continuing operations
and obligations of LILT within the guidelines established by the Canadian Court
for LILT and its creditors, Lumenon will not be able to continue as a going
concern.

         In August 2002, Lumenon announced the temporary layoff of 37 employees,
of which 23 are currently affected (14 employees having since resigned). Lumenon
expects to incur an accounting charge in connection with this layoff. However,
the magnitude and timing of the accounting charge will depend upon the duration
of the layoff. For example, if the layoff exceeds six months, under Quebec law
we would be obligated to make aggregated severance payments of up to
CDN$362,000.

         To date, three employees have filed lawsuits claiming damages and other
losses related to their severance. The outcome of these lawsuits is
unpredictable at this time. Lumenon believes that the legal actions are without
merit and intends to vigorously defend each lawsuit.


         In order to become profitable, Lumenon will have to devote substantial
resources to its research and development efforts and the marketing and
manufacturing programs associated with the commercialization of its products.
Lumenon's ability to succeed will depend on numerous factors, including the
delisting of Lumenon's common stock by Nasdaq, the outcome of the Canadian and
United States insolvency proceedings, Lumenon's ability to restructure or
refinance its obligations, as well as the continuing operations and obligations
of LILT, the receipt of new funding to support such marketing and manufacturing
efforts, the progress, level and timing of Lumenon's research and development
activities, the status of competitive products and Lumenon's ability to defend
its intellectual property rights. Even if Lumenon is able to obtain additional
financing, restructure its obligations and operations and emerge from
bankruptcy, Lumenon may never become profitable.

         Lumenon's cash balance at December 31, 2002 was CDN$350,000 which
should, in management's estimation, be sufficient to meet Lumenon's financial
needs only through March 6, 2003, which is the date on which the Renewal Order
is set to expire. Lumenon has no current source of revenue and as a result, in
order to remain a going concern, Lumenon must restructure or refinance its
obligations, as well as the continuing operations and obligations of LILT, raise
substantial funding by selling additional equity or debt securities, selling
some or all of its assets, or licensing potentially valuable technologies to
third parties. The sale of additional equity would result in further dilution to
Lumenon's stockholders. Moreover, Lumenon cannot be certain that additional
financing will be available in amounts or on terms acceptable to it, if at all.
If Lumenon is unable to obtain additional funding during the pendency of the
stay granted by the Canadian Court in the CCAA proceedings, Lumenon will likely
be required to cease its operations and liquidate its assets. There can be no
assurance that the proceeds resulting from any such liquidation would be
sufficient to satisfy all of Lumenon's debts and obligations and, accordingly,
there can be no assurance that there would be any remaining proceeds available
for distribution to stockholders. Even if Lumenon is able to obtain additional
financing, restructure its obligations and operations and emerge from
bankruptcy, there can be no assurance that under any confirmed reorganization
plan the current outstanding shares of Lumenon will continue to have any value.
As noted above, as of the date of this filing, Lumenon has not received any firm
commitments from any third parties for additional financing.

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

                                      -20-

<PAGE>

CRITICAL ACCOUNTING POLICIES

         Lumenon's discussion and analysis of its financial condition and
results of operations are based upon its condensed consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States. The preparation of these financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. In Lumenon's business and condensed consolidated financial
statements, significant judgments are made in the area of Impairment of
Long-Lived Assets. Actual results could differ materially from these estimates.

ACCOUNTING CHANGES

     (a) Impairment or disposal of long-lived assets

         In August 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets" ("SFAS 144"), which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS 144 applies to certain
long-lived assets, including discontinued operations, and provides a single
accounting model for long-lived assets to be disposed of. Although retaining
many of the fundamental recognition and measurement provisions of SFAS No. 121,
SFAS 144 significantly changes the criteria that would have to be met to
classify an asset as held-for-sale.

         SFAS 144 requires that long-lived assets to be disposed of by sale be
measured at the lower of carrying amount or fair value less cost to sell,
whether reported in continuing operations or in discontinued operations.
Discontinued operations will no longer be measured at net realizable value or
include amounts for operating losses that have not yet been incurred. SFAS 144
also broadens the reporting of discontinued operations to include the disposal
of a component of an entity provided that the operations and cash flows of the
component will be eliminated from the ongoing operations of the entity and the
entity will not have any significant continuing involvement in the operations of
the component.

         Lumenon adopted the provisions of SFAS 144 effective July 1, 2002. The
adoption of SFAS 144 did not have a material effect on our business, results of
operations, and financial conditions.

     (b) Costs associated with exit or disposal activities

         In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 requires
that liability for the costs associated with an exit or disposal activity be
recognized when the liability is incurred. SFAS 146 also established that fair
value is the objective for initial measurement of the liability. The provisions
of SFAS 146 are effective for exit or disposal activities that are initiated
after December 31, 2002.

CERTAIN FACTORS WHICH MAY AFFECT FUTURE RESULTS

         Investing in our common stock involves a high degree of risk. You
should carefully consider the risks and uncertainties described below before
purchasing our common stock. The risks and uncertainties described below are not
the only ones facing our company. Additional

                                      -21-

<PAGE>

risks and uncertainties may also impair our business operations. If any of the
following risks actually occur, our business, financial condition or results of
operations would likely suffer. In that case, the trading price of our common
stock could fall, and you may lose all or part of the money you paid to buy our
common stock.

OUR ABILITY TO CONTINUE AS A "GOING CONCERN" IS UNCERTAIN.

         To date, we have funded our operations through both private and public
debt and equity offerings. We have experienced significant net losses throughout
our history and are currently experiencing cash flow problems. We currently have
no source of revenue.

         Our wholly owned Canadian operating subsidiary, LILT Canada Inc.
("LILT"), is insolvent. On January 8, 2003, LILT filed a petition under the
Canadian Companies' Creditors Arrangement Act ("CCAA") with the Superior Court
of Quebec (the "Canadian Court") and obtained an order (the "Initial Order")
granting it certain relief, including a stay of proceedings and protection from
its creditors. All of our operations and activities are run through LILT. We are
also currently insolvent. On February 9, 2003, we filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court in the District of Delaware (the "US Court") and,
accordingly, were granted an automatic stay of proceedings and protection from
our creditors by the US Court.

         We are currently in default under the terms of our convertible notes
that we issued as part of a financing we completed in July 2000. The repayment
of the Convertible Notes is secured by a security interest in all of the present
and future property rights and assets of Lumenon and LILT. On February 4, 2003,
we received a default notice (the "Default Notices") from each of the
Noteholders. The Default Notices requested the immediate repayment of all
outstanding principal and accrued interest under the Convertible Notes, which at
the time the Default Notices were received amounted to CDN$13,283,258
(US$8,407,125). Under the terms of the Convertible Notes, we were required to
pay such amounts to the Noteholders within five (5) trading days after receipt
of the Default Notices, or by February 11, 2003. We did not make payment of the
outstanding principal and accrued interest under the Convertible Notes within
the specified time period and do not currently have sufficient funds available
to pay such amounts. In addition, our current assets may not be sufficient to
satisfy our obligations under the Convertible Notes.

         As a result of our failure to make such payment within the specified
time period, the Noteholders are entitled, pursuant to the terms of the
Convertible Notes and under applicable law, to pursue all their rights and
remedies as secured parties of Lumenon and LILT under the Uniform Commercial
Code of the State of Delaware or of any jurisdiction in which the property,
rights and assets of Lumenon or LILT are located, as well as any and all of the
rights provided for under Quebec law, including the right to institute
proceedings to take possession of such property, rights and assets. However, as
a result of both the Canadian and United States insolvency proceedings relating
to LILT and us, respectively, the Noteholders are currently prohibited from
exercising such rights.

         Nonetheless, if we are unable to successfully restructure our
obligations and the continuing operations and obligations of LILT and obtain
additional financing while we and LILT are under the protection of the United
States and Canadian courts, our assets (including the assets of LILT) will be
liquidated to satisfy its obligations under the Convertible Notes and otherwise
and we will not be able to continue as a going concern. There can be no
assurances

                                      -22-

<PAGE>
that we will be able to achieve a satisfactory restructuring of our obligations,
as well as the continuing operations and obligations of LILT or that we will be
able to continue as a going concern. If we are forced to liquidate, there can be
no assurance that the proceeds resulting from such liquidation would be
sufficient to satisfy all of Lumenon's debts and obligations and, accordingly,
there can be no assurance that there would be any remaining proceeds available
for distribution to stockholders. Furthermore, even if we are able to obtain
additional financing, restructure our obligations and operations and emerge from
bankruptcy, there can be no assurance that under any confirmed reorganization
plan the current outstanding shares of Lumenon will continue to have any value.

         The auditors report covering our audited financial statements that are
included in our Annual Report on Form 10-K, as amended, for the year ended June
30, 2002 contained going concern modifications. Our auditors noted in the notes
to our financial statements that we have no current source of revenue and
without the realization of additional capital, we will not be able to continue
our business as a going concern. As of December 31, 2002, we had CDN$350,000 of
cash and cash equivalents, which should be sufficient to meet our financial
needs until March 6, 2003, which is the date on which the stay of proceedings
granted by the Canadian Court is set to expire. In order to remain in business
beyond March 6, 2003, we will require substantial additional funding to allow us
to develop our technology, to broaden and commercialize our products and to
expand our manufacturing capacity.

         There can be no assurance that we will be able to obtain additional
financing on favorable terms or even at all. To date, we have received
approximately CDN$71.6 million from third parties through various debt and
equity financings. If we borrow more funds, we may become subject to restrictive
financial covenants and our interest obligations will increase. In addition, if
we raise additional capital by issuing additional equity securities, our
existing stockholders would suffer substantial dilution. As of the date of this
filing, Lumenon has not received any firm commitments from any third parties for
additional financing.

OUR COMMON STOCK WILL BE DELISTED FROM THE NASDAQ SMALLCAP MARKET AND MAY BE
TRANSFERRED TO THE OVER THE COUNTER BULLETIN BOARD OR THE PINK SHEETS, WHICH
WILL REDUCE THE LIQUIDITY, AND MAY DEPRESS THE PRICE, OF OUR COMMON STOCK.

         On June 7, 2002, the listing of our common stock was transferred from
The Nasdaq National Market to The Nasdaq SmallCap Market. This transfer provided
us with a grace period until February 10, 2003 to comply with the US$1.00
minimum bid price required by the Nasdaq Stock Market, Inc. We failed to meet
the $1.00 minimum bid price required by the Nasdaq Stock Market, Inc. prior to
the expiration of the grace period. On February 11, 2003, Nasdaq notified us
that, as a result both of our Chapter 11 bankruptcy filing and our failure to
meet the minimum bid price requirement, our common stock will be delisted from
The Nasdaq SmallCap Market, subject to our right to appeal. We have determined
not to appeal Nasdaq's decision. Accordingly, we expect that our common stock
will be delisted from The Nasdaq SmallCap Market at the opening of business on
February 20, 2003, as specified by Nasdaq in the delisting notification. In
addition, as a result of our Chapter 11 filing, the fifth character "Q" has been
appended to our trading symbol such that, effective with the opening of trading
on February 13, 2003, the trading symbol for our securities was changed from
LUMM to LUMMQ.

         In the delisting notification, Nasdaq also advised us that, because we
are the subject of bankruptcy proceedings, our common stock will not be
immediately eligible for quotation on the Over the Counter Bulletin Board (the
"OTCBB") following the delisting by Nasdaq. According to Nasdaq, our common
stock may become eligible for quotation on the OTCBB if a market maker makes
application (a "Form 211") to register in and quote the securities in accordance
with the SEC's Exchange Act Rule 15c2-11, and Nasdaq clears the application.
Only a market maker, not us, may file a Form 211. There can be no assurance that
our common stock will become eligible to trade on the OTCBB in the future, or
that a trading market will develop even

                                      -23-

<PAGE>

if our common stock becomes eligible to trade on the OTCBB in the future. The
OTCBB is a regulated quotation service that displays real-time quotes, last-sale
prices, and volume information in over-the-counter securities.

         When our common stock is delisted from The Nasdaq SmallCap Market,
there will be a reduction in the liquidity of any investment in our common stock
and there could also be a material adverse effect on the price of our common
stock. Delisting will reduce the ability of holders of our common stock to
purchase or sell shares as quickly and as inexpensively as they could have done
in the past. This lack of liquidity will make it more difficult for us to raise
capital in the future. Indeed, being delisted from The Nasdaq SmallCap Market
will subject us to a variety of significant consequences, including:

         -        the substantial impairment of the liquidity of our common
                  stock;

         -        the loss of certain state securities law exemptions which
                  impacts our ability to issue new securities, including
                  securities under our existing stock option plans and stock
                  purchase plans;

         -        the loss of coverage by securities analysts;

         -        the potential loss of current or potential investors; and

         -        the potential loss of current or potential customers.

         In addition, when our common stock is no longer listed on The Nasdaq
SmallCap Market, we may become subject to Rule 15g-9 under the Exchange Act
which imposes additional sales practice requirements on broker-dealers that sell
low-priced securities, referred to as "penny stocks", to persons other than
established subscribers and institutional accredited investors. A penny stock is
generally any equity security that has a market price or exercise price of less
than $5.00 per share, subject to certain exceptions. For transactions covered by
these rules, broker-dealers must make a special suitability determination for
the purchase of such securities and must have received the purchaser's written
consent to the transaction prior to the purchase. Additionally, for any
transaction involving a penny stock, unless exempt, the rules require the
delivery, prior to the transaction, of a risk disclosure document mandated by
the SEC relating to the penny stock market. The broker-dealer is also subject to
additional sales practice requirements. Consequently, the penny stock rules may
restrict the ability of broker-dealers to sell our securities and may affect the
ability of holders to sell these securities in the secondary market and the
price at which such holders can sell any such securities.

         Accordingly, when our common stock is delisted from The Nasdaq SmallCap
Market, it will materially adversely affect the liquidity of our common stock
and our ability to raise necessary additional capital and may also materially
adversely affect the market price of our common stock.

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

         We have no history in manufacturing and marketing our products. We are
a development stage company and, to date, have not had any revenues from sales
of our products. Our

                                      -24-

<PAGE>

operating history provides no basis for evaluating our prospects or us. Our
future success will depend on our ability to develop, manufacture and
commercialize products based upon our licensed proprietary technologies. We must
successfully develop and manufacture our products, address our competition,
attract, retain and motivate qualified employees, expand our operations and
market and sell products in large volumes to have significant revenues and to
become profitable. We have operated as a development stage company for an
extended period of time and there is no assurance that we will be successful in
creating products or processes that provide the stability, reproducibility,
reliability and performance required for commercialization or that potential
customers will accept our products. In addition, these products may be difficult
to produce in large volumes, fail to perform as expected, cost too much to
produce or be barred from production by the proprietary rights of others, which
would delay or prevent us from having significant revenues or from becoming
profitable.

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

         We have incurred operating losses since our inception and, as of
December 31, 2002, had an accumulated deficit of approximately CDN$316 million
(US$200 million). If we are able to obtain additional financing to continue our
operations, we expect to spend substantial funds to continue research and
product development, to establish sales, marketing, customer service and
manufacturing operations departments and for other general corporate purposes.
Over at least the next several years, we expect to continue incurring
considerable operating losses and negative cash flows as we incur significant
operating expenses and make capital expenditures in our business. The amount we
will lose and when, if ever, we will have profits is highly uncertain. If we are
unsuccessful at developing, manufacturing and marketing our products, we will
not generate sufficient revenues to ever become profitable.

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

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

         To date, we have not completed the development of our products. We will
have to spend significant resources to complete the development of our products.
Once development has been completed, we must effectively transfer production
information from our research and product development departments to our
manufacturing facility and rapidly achieve volume production. If we fail to
manage this process effectively, the shipments of products to our customers
could be delayed which could damage our reputation and cause us to lose
customers.

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

                                      -25-

<PAGE>

to our customers, which could damage our reputation, cause us to lose customers
or hinder our ability to attract new customers or achieve market acceptance.

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

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

IF OUR TEMPORARY LAYOFF OF EMPLOYEES, WHICH TOOK PLACE IN AUGUST 2002, BECOMES
PERMANENT, WE MAY BE OBLIGATED TO MAKE SUBSTANTIAL SEVERANCE PAYMENTS TO THESE
EMPLOYEES.

         In August 2002, we announced the temporary layoff of 37 LILT employees,
of which 23 are currently affected (14 having since resigned). Of the remaining
50 people employed with us as of August 30, 2002, 16 were employed in
engineering, test and manufacturing, 19 were employed in research and
development and the remainder were employed in sales, marketing and
administration. We expect to incur an accounting charge in connection with this
layoff. However, the magnitude and timing of the accounting charge will depend
upon the duration of the layoff. For example, if the layoff exceeds six months,
under Quebec law we would be obligated to make aggregated severance payments of
up to CDN$362,000.

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

         Our success will depend on the expansion of our operations and the
effective management of our growth, which will place a significant strain on our
management, operations and financial resources. In particular, once we begin
volume assembly of our products, our operations are anticipated to expand
substantially. We must hire and train additional scientists, chemists and
engineers, manufacturing, marketing, sales and administrative and management
personnel and acquire additional equipment, facilities, information technology
and other infrastructure. We must also continue to develop our management,
operational and financial systems, procedures and controls. Because we have no
history with the assembly, marketing or sale of our products in large
quantities, we do not know if we will be able to expand our business

                                      -26-

<PAGE>

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

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

         We are dependent on equipment suppliers and contract manufacturers who
could disrupt our business if they stopped, decreased or delayed shipments to
us. We rely on outside suppliers to provide some of the equipment we use in our
manufacturing process. We do not maintain long-term agreements with any of these
suppliers and, therefore, they could stop supplying equipment to us at any time.
If the equipment, which any particular supplier provides to us, were to
malfunction or were not supplied to us, we would, at a minimum, experience
delays in the shipment of our products and we could be required to find another
equipment supplier. Our Canadian insolvency proceedings, which currently provide
us with certain protections from our creditors, have also caused some of our
outside suppliers to change payment terms for new orders based on our financial
status and past due payables that are being held. This has forced us in certain
cases to find new outside suppliers and could potentially cause further negative
effects if other outside suppliers created payment terms that we find
unsatisfactory.

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

         -        reduced control over equipment delivery schedules;

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

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

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

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

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

         -        changes in foreign currency exchange rates;

         -        challenges inherent in managing geographically dispersed
                  operations;

         -        multiple, conflicting and changing governmental laws and
                  regulations;

         -        political and economic instability or conflicts;

                                      -27-

<PAGE>

         -        changes in tariffs, taxes and other trade barriers;

         -        lack of experience in a particular geographic market;

         -        significant presence of our competitors in international
                  markets;

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

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

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

         We must become a key supplier of components to the photonics industry
to be successful. The photonics market is highly competitive and subject to
continuous, rapid technological change, including changing industry standards,
frequent introduction of new products, anticipated and unanticipated decreases
in average selling prices and fierce price competition. As a result, our core
technology faces competition from new and revised technologies that may render
our existing technology less competitive or obsolete. We may be unable to adapt
to the rapid technological change exhibited in this market place.

In order to be successful, we must:

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

         -        incorporate those features and functions into our products;

         -        meet specific and exacting design requirements; and

         -        price our products competitively.

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

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

                                      -28-

<PAGE>

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

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

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

         Our competitors include much larger companies that have substantially
greater financial, technical, marketing, distribution and other resources,
broader product lines, greater name recognition and longer standing
relationships with leading original equipment manufacturers than we do. Our
competitors include companies already manufacturing large volumes of products
based on established technologies, as well as companies selling emerging
technological solutions, which could replace the technologies we are currently
using. Potential competitors could also include our own customers, which may
decide to manufacture products competitive with ours, rather than purchase our
products. As a result, the market for optical circuit technology has become and
continues to be intensely competitive. Some competitors have become more
aggressive with their pricing, payment terms and/or issuance of contractual
implementation terms or guarantees. We may not be able to compete successfully
with new and existing competitors without lowering prices or affecting other
favorable terms. We expect competition to persist and intensify, which could
affect our ability to commercialize our products, which would negatively impact
our future operating results.

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

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

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

                                      -29-

<PAGE>

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

         Our success depends in part on our ability to obtain and maintain
patents, protect trade secrets and operate without infringing upon the
proprietary rights of others. In the absence of patent and trade secret
protection, competitors may adversely affect our business by independently
developing and marketing substantially equivalent products and technology and
preventing us from marketing our products. It is also possible that we could
incur substantial costs in litigation if we are required to defend ourselves in
patent suits brought by third parties, or if we are required to initiate
litigation against others to protect our intellectual property rights.

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

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

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

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

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

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

         We handle small amounts of hazardous materials as part of our
manufacturing activities. As a result, our operations and assembly processes are
subject to certain federal, provincial and

                                      -30-

<PAGE>

local environmental protection laws and regulations. These relate to our use,
handling, storage, discharge and disposal of certain hazardous materials and
wastes, the pre-treatment and discharge of process waste waters and the control
of process air pollutants. Compliance with these laws and regulations requires
us to establish compliance procedures and safety programs. If environmental laws
or regulations were to change, forcing us to modify production processes or use
more costly materials, our manufacturing costs or product sales could be
adversely affected. We may be required to incur additional costs to comply with
current or future environmental laws. In addition, if we fail to comply with
either present or future environmental regulations, we may be subject to fines
and production halts. As with other companies engaged in manufacturing
activities that involve hazardous materials, the risk of environmental liability
is inherent in our manufacturing activities. The costs associated with
environmental compliance or remediation efforts or other environmental
liabilities could adversely affect our business.

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

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

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

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

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

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

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

                                      -31-

<PAGE>

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

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

ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Market risk is the potential loss arising from adverse changes in
market rates and prices, such as foreign currency exchange rates. To the extent
that Lumenon consummates financings outside of Canada, Lumenon receives proceeds
in currency other than the Canadian dollar. The exercise price of certain of
Lumenon's outstanding options and warrants are payable in US dollars. Lumenon's
outstanding Convertible Notes are also payable in US dollars. As a result,
ultimate proceeds received by Lumenon upon the exercise of such options and
warrants and the amount required to repay the Convertible Notes may vary due to
fluctuations in the value of the Canadian dollar relative to the US dollar.

         Other than the Convertible Notes mentioned above, Lumenon has minimal
monetary assets, liabilities and operating expenses that are denominated at
currencies other than the Canadian dollar. Lumenon does not enter into
derivatives or other financial instruments for trading or speculative purposes,
nor does Lumenon enter into financial instruments to manage and reduce the
impact of changes in foreign currency exchange rates. If Lumenon's international
operations expand and Lumenon decides to enter into hedging transactions to
minimize foreign currency exchange rate risk, the adoption of SFAS, No. 133, as
amended by SFAS, Nos. 137 and 138, could have a material impact on Lumenon's
operating results.

         Lumenon does not utilize any derivative security instruments.
Investments with original maturities of three months or less are classified as
cash and cash equivalents. As of December 31, 2002, Lumenon considers the
reported amounts of these investments to be reasonable approximations of their
values. Therefore, changes in market interest rates will not have a material
impact on Lumenon's financial position. Through December 31, 2002, interest
expense was not sensitive to the general levels of United States interest rates
because all of Lumenon's notes payable bear fixed interest rates.

ITEM 4.       CONTROLS AND PROCEDURES

         (a)  EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. Based on the
evaluation of our disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Exchange Act) as of a date within 90 days of
the filing date of this quarterly report on Form 10-Q, our Chief Executive
Officer and Acting Chief Financial Officer has concluded that our disclosure
controls and procedures are designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms and are operating in an effective manner.

                                      -32-

<PAGE>

         (b)      CHANGES IN INTERNAL CONTROLS. There were no significant
changes in our internal controls or in other factors that could significantly
affect these controls subsequent to the date of the most recent evaluation.

                                      -33-

<PAGE>

                           PART II. OTHER INFORMATION

ITEM 1.           LEGAL PROCEEDINGS

         (a)      As of December 31, 2002, three employees had filed lawsuits
against LILT claiming damages and other losses related to their
termination or lay-off and related severance. The outcome of these lawsuits is
unpredictable at this time. Lumenon believes that the legal actions are without
merit and intends to vigorously defend each lawsuit.

         (b)      As described above in Item 2 of Part I, on January 7, 2003,
LILT filed a petition under the CCAA with the Superior Court of Quebec and
obtained an Initial Order granting it certain relief, including a stay of
proceedings and protection from creditors. Pursuant to the Initial Order, all
payments in respect to any debt or obligations of LILT existing on or before
January 8, 2003 were stayed and suspended pending development by LILT of a
restructuring plan.

         On January 24, 2003, the holders of the Convertible Notes (the
"Noteholders") filed a motion with the Canadian Court requesting that the
Canadian Court rescind and annul the Initial Order. The Initial Order was set to
expire pursuant to its original terms on February 7, 2003. The Canadian Court
reviewed the Noteholders' motion on Tuesday, January 28, 2003. Following that
review, the Canadian Court decided to postpone the hearing on the motion until
Thursday, February 6, 2003, the day before the Initial Order was set to expire.
LILT then filed a petition with the Canadian Court seeking an extension of the
Initial Order for an additional period of thirty-one (31) days to allow LILT
more time to continue to explore various options related to the restructuring of
its continuing operations and obligations.

         At a hearing of the Canadian Court commenced on February 6, 2003 and
continued until February 7, 2003, the Canadian Court granted LILT an extension
of the Initial Order until February 11, 2003. The Canadian Court indicated at
the hearing that it intended to sign a Renewal Order following the expiration of
the Initial Order. On February 12, 2003, the Canadian Court issued its Renewal
Order thereby extending the protection afforded by the Initial Order until March
6, 2003. Although the Renewal Order is substantially similar in terms to the
Initial Order, it does contain some modifications, including among other things
a provision that allows the Noteholders to serve certain notices for the sole
purpose of triggering delays provided for under Quebec law relating to the
exercise of their rights as secured creditors of LILT.

         (c)      On February 9, 2003, Lumenon filed a voluntary petition for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the United
States Bankruptcy Court in the District of Delaware (the "US Court") and,
accordingly, was granted an automatic stay of proceedings and protection from
its creditors by the US Court.

ITEM 2.           CHANGES IN SECURITIES AND USE OF PROCEEDS

         Not applicable.

ITEM 3.           DEFAULTS UPON SENIOR SECURITIES

         Lumenon is currently in default under the Convertible Notes. As a
result of Lumenon's defaults under the Convertible Notes, the Noteholders have
demanded payment in full of all the outstanding principal and all accrued
interest under the Convertible Notes, which as of the date

                                      -34-

<PAGE>

the Default Notices were received amounted to CDN$13,283,258 (US$8,407,125).
Under the terms of the Convertible Notes, Lumenon was required to pay such
amounts to the Noteholders within five (5) trading days after receipt of the
Default Notices. Lumenon did not make payment of such amounts within the
specified time period and does not currently have sufficient funds available to
pay such amounts.

         As a result of Lumenon's failure to make such payment within the
specified time period, the Noteholders are entitled, pursuant to the terms of
the Convertible Notes and under applicable law, to pursue all their rights and
remedies as secured parties under the Uniform Commercial Code of the State of
Delaware or of any jurisdiction in which the property, rights and assets of
Lumenon or LILT are located, as well as any and all of the rights provided for
under Quebec law, including the right to institute proceedings to take
possession of such property, rights and assets. However, as a result of both the
Canadian and United States insolvency proceedings (described above in Item 1 of
this Part II) relating to LILT and Lumenon, respectively, the Noteholders are
currently prohibited from exercising such rights.

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

         Not applicable.

ITEM 5.           OTHER INFORMATION

         Not applicable.

ITEM 6.           EXHIBITS AND REPORTS ON FORM 8-K

     (a) Exhibits

         The Exhibits filed as part of this Quarterly Report on Form 10-Q are
listed on the Index to Exhibits immediately preceding such Exhibits, which Index
to Exhibits is incorporated herein by reference.

     (b) Reports on Form 8-K

         On January 9, 2003, Lumenon filed a Current Report on Form 8-K
reporting under Item 5 (Other Events) that it had issued a press release
announcing the filing of a petition by LILT under the CCAA with the Superior
Court of Quebec.

         On January 30, 2002, Lumenon filed a Current Report on Form 8-K
reporting under Item 5 (Other Events) that it had issued a press release
regarding the filing of a motion by the Noteholders with the Court seeking the
rescission of the Court's Initial Order.

         On February 6, 2003, Lumenon filed a Current Report on Form 8-K
reporting under Item 5 (Other Events) that it had issued a press release
regarding its receipt of default notices from each of the holders of its
convertible notes.

         On February 10, 2003, Lumenon filed a Current Report on Form 8-K
reporting (i) under Item 3 (Bankruptcy or Receivership) that it had filed a
voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code in
the U.S. Bankruptcy Court for the District of Delaware and (ii) under Item 5
(Other Events) that it had issued a press release reporting that its

                                      -35-

<PAGE>

LILT had been granted an extension of the Initial Order issued by the Superior
Court of Quebec, on January 8, 2003.

         On February 13, 2003, Lumenon filed a Current Report on Form 8-K
reporting under Item 5 (Other Events) that it had issued a press release
regarding (i) its receipt of a delisting notification from Nasdaq and (ii) the
final terms of the Renewal Order issued by the Superior Court of Quebec granting
LILT an extension of the stay of proceedings and protection against its
creditors until March 6, 2003.

                                      -36-

<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.

Dated: February 19, 2003                LUMENON INNOVATIVE LIGHTWAVE
                                        TECHNOLOGY, INC.

                                        By:/s/ Gary S. Moskovitz
                                           -------------------------------------
                                           Gary S. Moskovitz
                                           President, Chief Executive Officer
                                           and Acting Chief Financial Officer
                                           (Principal Financial Officer)

                                 CERTIFICATIONS

I, Gary S. Moskovitz, certify that:

     1.  I have reviewed this quarterly report on Form 10-Q of Lumenon
         Innovative Lightwave Technology, Inc.;

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

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

     4.  The registrant's other certifying officers and I are responsible for
         establishing and maintaining disclosure controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

                  a) designed such disclosure controls and procedures to ensure
                     that material information relating to the registrant,
                     including its consolidated subsidiaries, is made known to
                     us by others within those entities, particularly during the
                     period in which this quarterly report is being prepared;

                  b) evaluated the effectiveness of the registrant's disclosure
                     controls and procedures as of a date within 90 days prior
                     to the filing date of this quarterly report (the
                     "Evaluation Date"); and

                  c) presented in this quarterly report our conclusions about
                     the effectiveness of the disclosure controls and procedures
                     based on our evaluation as of the Evaluation Date;

                                      -37-

<PAGE>

     5.  The registrant's other certifying officers and I have disclosed, based
         on our most recent evaluation, to the registrant's auditors and the
         audit committee of registrant's board of directors (or persons
         performing the equivalent function):

                  a) all significant deficiencies in the design or operation of
                     internal controls which could adversely affect the
                     registrant's ability to record, process, summarize and
                     report financial data and have identified for the
                     registrant's auditors any material weaknesses in internal
                     controls; and

                  b) any fraud, whether or not material, that involves
                     management or other employees who have a significant role
                     in the registrant's internal controls; and

     6.  The registrant's other certifying officers and I have indicated in this
         quarterly report whether or not there were significant changes in
         internal controls or in other factors that could significantly affect
         internal controls subsequent to the date of our most recent evaluation,
         including any corrective actions with regard to significant
         deficiencies and material weaknesses.

         Dated: February 19, 2003         /s/ Gary S. Moskovitz
                                          --------------------------------------
                                          Gary S. Moskovitz
                                          President, Chief Executive Officer
                                          and Acting Chief Financial Officer
                                          (principal executive officer and
                                          principal financial officer)

                                      -38-

<PAGE>

                                INDEX TO EXHIBITS

<TABLE>
<CAPTION>
Exhibit No.     Description
-----------     ------------
<S>             <C>
   99.1         Certification pursuant to 18 U.S.C. Section 1350, as adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
</TABLE>