I'm not at all surprised by your assessment. I've spent parts of the last two days scouring their SEC documents and am appalled at the lack of substance.
* Their one analyst, Groome, has been paid off in stock and warrants.
* Their current secondary is being handled internally, no IBs involved.
* Their arrangement with Molex is structured so Molex gets all products the first year and exclusive right of first refusal for the following three years. What OEMs will co-develop under those conditions?
* Molex holds the majority position and if anyone should try to buy them out, they have a poison pill in place.
* Their current chip is 8-channel and their pilot facility is capable of fabricating up to 20 a day. The new facility they've mentioned is a lease on a building that hasn't even broken ground and for which they'll have to float another secondary.
* Their IPO was a "back door" variety done by buying a shell company. This results in no Bay or Wall Street backing. Zip. (I'll ignore the paid touts.)
* They don't own any patents. They're licensing from the proposed owners ---- the patents are still pending.
* Their warrant arrangement with Molex is similar to Terayon's with Shaw and Rogers --- even if products don't sell, if the stock does reasonably well, they'll make enough to justify the relationship.
Here's some of what I found:
Latest Financing
September 1, 1999 Lumenon reached an agreement with Groome Capital for a private placement of 407,000 units at US$4.00 per unit for gross proceeds of US$1,628,000. Each unit includes on common share and one common share purchase warrant. Each warrant entitles its holder to acquire one common share of the company at a price of US$6.00 on or before September 1, 2000. The closing took place on September 14, 1999. The net proceeds of this placement will be used to initiate the expansion of Lumenon's productionc apacity.
From 10-Q
The Company accepted in January 2000 an offer to lease space for its future manufacturing facilities. Under the terms of the offer, annual minimum payments for a twelve year lease agreement commencing on July 1, 2000 will amount to US$246,882 (CDN$356,325) per year for the first six years and to US$292,195 (CDN$421,725) per year for the remaining period. Total payments amount to US$3,234,255 (CDN$4,668,000). The Company has made a deposit in the amount of US$519,642 (CDN$750,000) in connection with the offer. The Company estimates the necessary funding for the construction of such facility and installation of manufacturing equipment therein to be approximately US$20 million (CDN$29 million). The Company is actively investigating potential sources for such funding.
From 10-12-G
Lumenon's plan of operations for calendar year 2000 is focused on finalizing its 8, 16 and 32 channel DWDM devices and bringing them to market by mid-2000 under the Teaming Agreement. Over the next five months, product development at Lumenon's existing pilot facility, which is capable of producing up to 20 chips per day, will focus on four aspects: (i) defining processing sequences and conditions (wafer coating, photolithography, etc.) that distinguish fabrication of 8 channel from 16 and 32 channel DWDM devices, (ii) use of this information to guide the selection and implementation of automation of equipment for higher volume manufacturing of these devices in a larger manufacturing facility (described below) planned for operation in January 2001, (iii) establishing quality control criteria for the Company's processes and operations, and (iv) upgrading its on-site DWDM packaging and fiber pigtailing capability for its optical chips. The Company plans (i) to complete the construction of its larger manufacturing facility, which will be capable of producing up to 500 units per day in 2001 and up to 1,000 units per day in 2002, (ii) to increase its work force to approximately 175 persons to fully staff this facility, and (iii) to commence marketing activities for its DWDM products. (See Manufacturing andItem 3. Description of Properties for information in respect of the proposedfacility.) For more detailed description of the Company's future plans and theproducts to be developed and manufactured, see the Business Strategy and Technology and Products sections of this Item 1. As a development stagecompany, to date, Lumenon has not generated product revenues and does not anticipate generating product revenues until mid-2000. It is subject to numerous risks, including risks associated with product development, growth, manufacturing and competition. See "Risk Factors regarding the risks the Company will face in its growth and in the manufacture and marketing of its products.
Lumenon makes DWDM products in the form of an optical chip on silicon through a licensed sol-gel manufacturing process, for which patent protection ispresently being sought under the laws of the United States and Canada. Lumenonacquired its rights to the sol-gel process under a license agreement with EcolePolytechnique and McGill University expiring in October 2017. (See Material Agreements - Agreement with Polyvalor and McGill University for a description of the terms of such agreement.) The Company is perfecting the materials and processes for its DWDM products in its existing pilot facility in preparation for the expansion of production. Under the Teaming Agreement, the Company will produce and deliver to Molex up to a maximum of 400 units per month, upon satisfactory testing of such devices commencing in July 2000. All of the Company's production of the jointly developed products (the 8, 16 and 32-channel DWDM devices) for the first year is reserved for Molex, and thereafter Molex will have the option to purchase all of such products at fair market value for the succeeding three year period. The Company anticipates making sales of itsproducts to customers other than Molex after the first year of production. To the knowledge of the Company, there are no other manufacturers of DWDM products on silicon using a sol-gel manufacturing process. Lumenon has chosen an optical chip form for its product development because it believes that this form and itslicensed process will allow it to provide low cost, high volume manufacturing ofhigh quality DWDM technology and devices that will be preferred over otherpresently available industry DWDM technologies, such as micro-optic thin film orfiber filters. The bases for the Company's belief are: (i) lower capitalinvestment in equipment for the sol-gel process, because there is no need forvacuum thin film deposition and vacuum coating technology; (ii) less manual labor (piece-work assembly) is required to make the DWDM chip; (iii) fewer stepsare required in the optical chip manufacturing process, which reduces the likelihood of manufacturing defects and (iv) as the optical chip's channel count grows, the chip's cost does notncrease proportionally. (See the Business Strategy and Technology and Products sections of this Item 1. for a description of the Company's products and its strategy for such products.)
Lumenon is finalizing negotiations with Liberty Sites Ltd., an industrial park located in Ville St-Laurent, a suburb of Montreal, Canada for the lease and construction of Lumenon's larger manufacturing facility. The planned 32,000 square foot manufacturing facility will feature materials preparation, fabrication, packaging, optical test and quality control facilities. This larger facility will house the Company's corporate infrastructure and large-scale production facilities for Lumenon's DWDM products. Upon completion of the construction of the building, Lumenon will commence the internal construction of
the production facility, consisting of clean rooms and associated laboratories, and will install manufacturing equipment.
The Company's prospective customers are expected to require high volumes of products manufactured to high quality standards at gradually decreasing prices. The Company will be required to expand beyond its existing pilot facility to a full scale manufacturing facility, with a production capability of 1,000 chips per day. The Company is finalizing negotiations for the lease of the 32,000 square foot facility discussed above to be constructed and equipped for production beginning in 2001. The Company estimates the necessary funding for such expansion to be approximately US$20 million (CDN$29 million) and is actively investigating potential sources for such funding. The Company plans to produce chips at the rate of 20 per day in July 2000 and to increase its capacity to 500 chips per day in 2001 and to 1,000 per day in 2002.
As of February 2000, Lumenon does not sell a finished product in the openmarket, as its entire first year of production of 8, 16 and 32-channel DWDMdevices has been reserved for Molex under the Teaming Agreement. The current generation of 8-channel devices is undergoing testing, with 16 and 32-channel models to follow by the end of June 2000. Upon completion of testing,
satisfactory to Molex, the 8-channel devices manufactured to date will be delivered to Molex for its use or for resale and distribution. As each channel device completes its testing phase to the satisfaction of Molex, it will be delivered to Molex. The Company has also entered development and test phases for pigtailing optical fiber to its DWDM devices, and for housing its optical chips in hermetic, semi-hermetic and non-hermetic packages.
Lumenon will pay a royalty of 5% on gross sales, up to a maximum cumulative amount of $2,377,717 (CDN$3,500,000) to the Licensor until October 2017 at which time the License Agreement will expire. The Company does not believe that the
rights granted it thereunder will be of significant value after that date. If this is not the case, the Company would seek to extend the term of the License Agreement. Polyvalor is a company created by Ecole Polytechnique for the purpose of commercializing the technology in which Polytechnique has an interest.In connection with the License Agreement, the Company issued to each of McGill University and Polyvalor 750,000 shares of the Common Stock and granted them jointly the right to nominate one director to the Company's Board of Directors. Customer RelationsIn addition to the relationship created under the Molex Agreements, themanufacture of DWDM products implies that the Company will work in closeassociation with DWDM system manufacturers. Examples of these manufacturers areNortel Networks, Pirelli Cables and Systems, Alcatel, Lucent Technologies, andCiena. Lumenon believes that it will be important to its success to work withcustomers directly to meet performance requirements
in the design of its DWDMproducts and devices throughout the entire life-cycle of its products. This willallow the Company to foster a strong commitment to service, and to gain insightsinto its customers' future plans and needs, identify emerging industry trendsand consequently deliver high-performance, cost-effective products with widemarket appeal.
Lumenon intends to market 4, 8, 16, 32 and 64-channel DWDM products that it has designed. The Company has begun producing, testing and manufacturing a limited number of 8-channel product devices with production and testing of its 16 and 32 channel product devices to be completed by June 2000. . . .
<<<<<
With so many great companies to choose among, I see no reason to touch this one. I wasn't impressed by what I saw and heard at OFC and after studying the SEC filings, I'm even less impressed.
Just one person's opinion.
Pat |
