<PAGE>




                            LORUS THERAPEUTICS INC.

                 FIRST QUARTER June 1, 2003 to August 31, 2003













                          BEING STRONG WHERE IT COUNTS




<PAGE>


   LETTER TO SHAREHOLDERS


Dear Shareholder:
We are very pleased to review with you the operating highlights of the first
quarter of fiscal 2004.

   Lorus completed a successful unit offering in June that provided Lorus with
approximately net $30 million in new capital. With this financing, Lorus had
cash and cash equivalents and short-term investments of $49.0 million on August
31, 2003 compared to $25.1 million at May 31, 2003.

   We expanded the Virulizin(R) Phase III clinical trial in patients with
advanced pancreatic cancer to over 100 global sites covering Europe and South
America in addition to North America and Latin America. This expansion will
assist Lorus to meet key milestones in the clinical trials. In addition, this
expansion strategically benefits Lorus' future commercial interests as global
trials optimize awareness of Virulizin(R) among oncologists worldwide well
before any commercial launch.

   Nuchem Pharmaceuticals Inc. (Nuchem), a subsidiary of Lorus, entered into a
worldwide exclusive out-licensing agreement with Cyclacel Limited of the UK for
NC381 and a library of clotrimazole analogs. Under the agreement, Cyclacel will
be responsible for all future drug development costs. Lorus will receive upfront
fees of U.S. $0.4 million, milestone payments of up to approximately U.S. $11.6
million assuming all future milestones are achieved and a royalty line on future
sale for NC381. Similar milestone and royalty payments will be received for each
of any other compounds developed from the library. This transaction allows Lorus
to focus its resources on the development of its advanced clinical programs and
other preclinical technologies, as well as continues the development of NC381
and the library of clotrimazole analogs by a company with world-class expertise
in cell cycle arrest mechanisms.

   During the first quarter of fiscal 2004 and subsequently, the United States
National Cancer Institute (NCI) started three of the six clinical trials with
GTI-2040 that are the subject of a clinical development agreement with Lorus.
The first trial is a Phase II clinical trial for patients with acute myeloid
leukemia (AML) in combination with cytarabine. The trial is being conducted at
the Ohio State University Medical Center. The second trial is for patients with
metastatic breast cancer in combination with capecitabine (Xeloda, Roche), and
the third clinical trial launched is for patients with non-small cell lung
cancer at the Princess Margaret Hospital in Toronto. In this trial GTI-2040 will
be used in combination with docetaxel.

   Patent applications are important to establishing and maintaining a
competitive position with respects to Lorus' products and technology. Lorus
continued to build its patent portfolio of issued and allowed patents with the
allowance of three new patents on three different platform technologies. In June
Lorus was allowed a patent in Europe protecting the Company's intellectual
property for its lead immunotherapeutic anticancer drug,Virulizin(R). In July
Lorus was allowed a patent by the Canadian patent office protecting the
intellectual property around a novel anticancer technology called "U-sense"
technology. In August Lorus' subsidiary NuChem was allowed a patent by the
European patent office protecting the Company's intellectual property interests
with regard to certain molecules that inhibit cancer progression characterized
by abnormal vascularization.

   During the quarter, Lorus' scientists continued to publish scientific data in
peer-reviewed journals, further validating the scientific significance of Lorus'
products and technology. In June, results of GTI-2040's anti-tumor activity were
published in a well-known journal, Cancer Research. Also, Lorus presented the
Phase I clinical study results of GTI-2040 at the American Society of Clinical
Oncology (ASCO) meeting. An abstract and presentation on the mechanism of action
of Virulizin(R) was also accepted for this meeting. Subsequent to the quarter
end, the company published results in Clinical Cancer Research of studies aimed
at developing an anticancer gene therapy based on over-expression of a novel
tumor suppressor gene in colon cancer cells


<PAGE>


MANAGEMENT'S DISCUSSION AND ANALYSIS

The following information should be read in conjunction with the unaudited
consolidated financial statements and notes prepared in accordance with Canadian
generally accepted accounting principles (GAAP) in this quarterly report, and
should also be read in conjunction with the audited consolidated financial
statements and notes, and management's discussion and analysis contained in the
Company's annual report for the year ended May 31, 2003. All amounts are
expressed in Canadian dollars unless otherwise noted.

RESULTS OF OPERATIONS

REVENUE

Lorus recorded revenue of $29,000 from the sale of Virulizin(R), in Mexico in
the quarter. The company does not anticipate product revenue in 2004 from any of
its other anticancer drugs currently under development.

RESEARCH AND DEVELOPMENT

Research and development expenses for the quarter ended August 31, 2003
increased to $7,263,000 compared to $3,047,000 for the same quarter last year.
Cost increases in fiscal 2004 primarily relate to higher clinical trial costs
for the expansion of the pivotal Phase III clinical trial of Virulizin(R) for
the treatment of advanced pancreatic cancer to over 100 worldwide sites, the
upfront supplying of GTI-2040 drug to the U.S. NCI for the NCI sponsored Phase
II clinical trial programs, and the expanded GTI-2040 Phase II clinical trial in
patients with renal cell carcinoma.

GENERAL AND ADMINISTRATIVE

   General and administrative expenses for the first quarter of fiscal 2004
decreased marginally to $1,231,000 compared to $1,304,000 for the same quarter
last year.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization for the first quarter of fiscal 2004 was $99,000,
comparable with $95,000 for the same quarter last year.

INTEREST INCOME

   Interest income for the quarter ended August 31, 2003 increased to $393,000
from $370,000 for the same quarter last year. The increase can be attributed
primarily to higher cash and short-term investment balance partially offset by
lower market interest rates in fiscal 2004.

NET LOSS

Net loss for the quarter ended August 31, 2003 totaled $8,171,000 ($0.05 per
share) compared to a loss of $4,076,000 ($0.03 per share) for the same quarter
last year. The increase in net loss relates primarily to the expanded
Virulizin(R) Phase III clinical trial, the drug supply for the U.S. NCI
sponsored GTI-2040 Phase II clinical trial programs and the expanded GTI-2040
Phase II clinical trial in patients with advanced renal cell carcinoma,
partially offset by lower administrative costs.

   The Company has incurred annual operating losses since inception related to
the research, manufacturing, and clinical development of its proprietary
compounds. Losses will continue as Lorus further invests in its drug development
programs.

LIQUIDITY AND CAPITAL RESOURCES

   Since inception, Lorus has financed its operations and technology
acquisitions primarily from equity financing, the exercise of warrants and stock
options, and interest income on funds held for future investment. The Company
believes that its available cash, cash equivalents and short-term investments,
and the interest earned thereon, should be sufficient to finance its operations
and capital needs for at least twelve months.


<PAGE>


OPERATING CASH REQUIREMENTS

Lorus' cash used in operating activities for the first quarter of fiscal 2004
increased to $5,889,000 compared to $2,487,000 for the same quarter last
year. The increase in the quarter is due mainly to higher clinical trial and
product development costs in the quarter partially offset by higher current and
accrued liabilities at August 31, 2003.

CASH POSITION

At August 31, 2003 Lorus had cash and cash equivalents and short-term
investments totaling $49.0 million compared to $25.1 million at May 31, 2003.
Working capital was $43.0 million at August 31, 2003 compared to $20.9 million
at May 31, 2003.



/S/ JIM A. WRIGHT
-----------------

DR. JIM A. WRIGHT
Chief Executive Officer

Forward Looking Statements

Except for historical information, this quarterly report contains forward-
looking statements, which reflect the Company's current expectation and
assumptions, and are subject to a number of risks and uncertainties that could
cause actual results to differ materially from those anticipated. These
forward-looking statements involve risks and uncertainties, including, but not
limited to, changing market conditions, the Company's ability to obtain patent
protection and protect its intellectual property rights, commercialization
limitations imposed by intellectual property rights owned or controlled by third
parties, intellectual property liability rights and liability claims asserted
against the Company, the successful and timely completion of clinical studies,
the establishment of corporate alliances, the impact of competitive products and
pricing, new product development, uncertainties related to the regulatory
approval process, product development delays, the Company's ability to attract
and retain business partners and key personnel, future levels of government
funding, the Company's ability to obtain the capital required for research,
operations and marketing and other risks detailed from time-to-time in the
Company's ongoing quarterly filings, annual information form, annual reports and
20-F filings. We undertake no obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise.

For more information:

GRACE TSE
Lorus Therapeutics Inc.
T 416 798 1200 ext. 380
F 416 798 2200
E ir@lorusthera.com
www.lorusthera.com




<PAGE>



CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT

(unaudited)

<TABLE>
<CAPTION>
                                                                                      Period from
                                                               THREE        Three      inception
                                                               MONTHS       months      Sept. 5,
                                                               ENDED        ended       1986 to
(amounts in 000's except for per common share data)           AUG. 31,     Aug. 31,     Aug. 31,
(Canadian Dollars)                                             2003         2002         2003
                                                            -----------  -----------  -----------
<S>                                                        <C>          <C>          <C>
REVENUES                                                    $        29  $        --  $        95
                                                            -----------  -----------  -----------
                                                                     29           --           95
                                                            -----------  -----------  -----------
Expenses
Cost of Sales                                                        --           --           55
Research and development                                          7,263        3,047       66,322
General and administrative                                        1,231        1,304       34,109
Depreciation and amortization                                        99           95        8,460
                                                            -----------  -----------  -----------
OPERATING EXPENSES                                                8,593        4,446      108,946
                                                            -----------  -----------  -----------
INTEREST AND OTHER INCOME                                          (393)        (370)      (9,177)
                                                            -----------  -----------  -----------
LOSS FOR THE PERIOD                                               8,171        4,076       99,674
Deficit, beginning of period                                     91,503       74,869           --
                                                            -----------  -----------  -----------
DEFICIT, END OF PERIOD                                      $    99,674  $    78,945  $    99,674
                                                            ===========  ===========  ===========
BASIC AND DILUTED LOSS PER COMMON SHARE                     $      0.05  $      0.03

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING USED
  IN THE CALCULATION OF BASIC AND DILUTED LOSS PER SHARE        171,517      144,416
                                                            ===========  ===========
</TABLE>


See accompanying notes to unaudited consolidated financial statements

CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)

<TABLE>
<CAPTION>
                                                                                       Period from
                                                                THREE        Three      inception
                                                                MONTHS       months      Sept. 5,
                                                                ENDED        ended       1986 to
(amounts in 000's)                                             AUG. 31,     Aug. 31,     Aug. 31,
(Canadian Dollars)                                               2003         2002         2003
                                                             -----------  -----------  -----------
<S>                                                         <C>          <C>          <C>
Operating Activities
Loss for the period                                          $    (8,171) $    (4,076) $   (99,674)
Add items not requiring a current outlay of cash:
  Depreciation and amortization                                      532          485       14,493
  Stock-based compensation                                             4           47        1,340
  Other                                                               --           --          500
Net change in non-cash working capital balances related to         1,746        1,057        5,095
  operations
                                                             -----------  -----------  -----------
CASH USED IN OPERATING ACTIVITIES                                 (5,889)      (2,487)     (78,246)
                                                             ===========  ===========  ===========

Investing Activities
Sale (purchase) of short-term investments, net                    (4,952)       3,478      (29,171)
Acquisition, net of cash received                                     --           --         (539)
Acquired research and development                                     --           --         (715)
Additions to fixed assets                                            (71)        (302)      (5,063)
Cash proceeds on sale of fixed assets                                 --           --          348
                                                             -----------  -----------  -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES                   (5,023)       3,176      (35,140)
                                                             ===========  ===========  ===========

Financing Activities
Issuance of warrants                                               4,537           --       36,414
Issuance of common shares                                         25,336            4       97,083
Additions to deferred financing costs                                 --           --         (245)
                                                             -----------  -----------  -----------
CASH PROVIDED BY FINANCING ACTIVITIES                             29,873            4      133,252
                                                             ===========  ===========  ===========
INCREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD           18,961          693       19,866
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                       905        1,165           --
                                                             -----------  -----------  -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD                     $    19,866  $     1,858  $    19,866
                                                             ===========  ===========  ===========
</TABLE>

See accompanying notes to unaudited consolidated financial statements


<PAGE>



CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                               AUGUST 31,    May 31,
(amounts in 000's)                                2003        2003
(Canadian Dollars)                            (UNAUDITED)   (audited)
                                              -----------  -----------
<S>                                          <C>          <C>
Assets
CURRENT ASSETS
Cash and cash equivalents                     $    19,866  $       905
Short-term investments                             29,171       24,219
Prepaid expenses and amounts receivable               906        1,104
                                              -----------  -----------
TOTAL CURRENT ASSETS                               49,943       26,228
FIXED ASSETS                                        1,483        1,507
GOODWILL                                              606          606
ACQUIRED RESEARCH AND DEVELOPMENT                   5,232        5,669
DEFERRED FINANCING COSTS                              245          245
                                              -----------  -----------
                                              $    57,509  $    34,255
                                              ===========  ===========

Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable                              $     3,003  $     1,318
Accrued liabilities                                 3,905        4,042
                                              -----------  -----------
TOTAL CURRENT LIABILITIES                           6,908        5,360
SHAREHOLDERS' EQUITY
Share capital (note 2)
  Common shares
    Authorized: unlimited number of shares;
    Issued and outstanding (000's):
    August 31, 2003 -- 171,517
    May 31, 2003 -- 145,285                       144,566      120,441
  Warrants (note 2)                                 4,324           --
  Compensation option (note 2)                      1,405           --
  Deferred stock-based compensation                   (20)         (43)
Deficit accumulated during
  development stage                               (99,674)     (91,503)
                                              -----------  -----------
TOTAL SHAREHOLDERS' EQUITY                         50,601       28,895
                                              -----------  -----------
                                              $    57,509  $    34,255
                                              ===========  ===========
</TABLE>


See accompanying notes to unaudited consolidated financial statements




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)


1. Basis of Presentation
These unaudited consolidated interim financial statements of Lorus Therapeutics
Inc. ("the Company") have been prepared by the Company in accordance with
accounting principles generally accepted in Canada and comply in all material
respects with accounting principles generally accepted in the United States and
follow the same accounting policies and methods of application as the audited
annual financial statements for the year ended May 31, 2003. These statements
should be read in conjunction with the audited consolidated financial statements
for the year ended May 31, 2003.

   The information furnished as at and for the three months ended August 31,
2003 and August 31, 2002 reflect, in the opinion of management, all adjustments
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of the interim periods presented. Interim results
are not necessarily indicative of results for a full year.


<PAGE>


2. Share capital
(A) SHARE ISSUANCE
On June 11, 2003, the Company raised gross proceeds of $32,775,000 by way of a
public offering of 26,220,000 units at a price of $1.25 per unit. Each unit
consists of one common share and one one-half of one purchase warrant. Each
whole warrant entitles the holder to purchase a common share at a price of $1.75
at any time on or before December 10, 2004. In addition the Company issued
1,835,400 compensation options with a fair value of $1,468,000 for services in
connection with the completion of the offering. Each compensation option
entitles the holder to acquire one unit for $1.27 at any time on or before
December 10, 2004. The company incurred expenses of $4,393,000 for the issuance,
which include the non-cash charge of $1,468,000 being the fair value of the
compensation option. The Company allocated $4,324,000 of the net proceeds to the
warrants, $1,405,000 to the compensation option and $24,121,000 to share
capital.

(B) STOCK OPTIONS
As of August 31, 2003 and May 31, 2003, there were 6,387,000 and 5,378,000
options outstanding to acquire common shares of the Company. During the three
month period ended August 31, 2003, 12,000 options were exercised to purchase
common shares of the Company.

(C) LOSS PER SHARE
The Company has excluded from the calculation of diluted loss per share all
common shares potentially issuable upon the exercise of stock options, warrants
and compensation options that could dilute basic loss per share, because to do
so would be anti dilutive.

3. Pro forma disclosure for Employee Stock Based Compensation

The Company accounts for its stock options granted to employees using the
intrinsic value method. Section 3870 requires companies not using the fair value
method to disclose pro forma net earnings and earnings per share information as
if the Company had accounted for employee stock options under the fair value
method. The Company has elected to disclose pro forma net loss and pro forma net
loss per share as if the Company had accounted for its options since 1995 under
the fair value method.

A summary of the pro forma impact on the statement of loss is presented in the
table below.


<TABLE>
<CAPTION>
                                        THREE     Three
                                        MONTHS    months
                                        ENDED     ended
                                        AUG 31,   Aug 31,
(amounts in 000's)                       2003      2002
                                       -------   -------
<S>                                   <C>       <C>
Loss for the period                    $ 8,172   $ 4,076
Compensation expense related
  to the fair value of stock options       250       675
                                       -------   -------
Pro forma loss for the period          $ 8,422   $ 4,751
                                       -------   -------
Pro forma loss per common share        $  0.05   $  0.03
                                       =======   =======
</TABLE>


The fair value of each option granted has been estimated at the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for options granted in the three months ended August 31, 2003: (i) dividend
yield of 0%; (ii) expected volatility of 110%; (iii) risk free interest rate of
2.85% and (iv) expected life of 5 years. The Company has assumed no forfeiture
rate as adjustments for actual forfeitures are made in the year they occur. The
weighted-average grant date fair values of options issued in the three month
periods ended August 31, 2003 and August 31, 2002 were $0.92 and $0.59 per share
respectively.

4. Subsequent event
Subsequent to the quarter-end, NuChem Pharmaceuticals Inc.("NuChem"), a
subsidiary of the Company, entered into an exclusive worldwide license agreement
with Cyclacel Limited for the development and commercialization of NC 381 and
other drug candidates from a library of clotrimazole analogs licensed by NuChem
from Harvard Medical School in 1997.

Under the terms of the agreement, NuChem will receive upfront fees of U.S.
$400,000 and milestone payments. NuChem will also receive royalties based on
product sales. Cyclacel will be responsible for all future drug development
costs.