Significant matters from the S-1:
+++++++++++++++++++
Our plan of operations for fiscal year 2001 to finalize the development
of our 8, 16 and 32 channel DWDM devices and to bring them to market. We will
focus product development on four aspects:
o defining processing steps and conditions (wafer coating,
photolithography, etc.) for DWDM devices
o readying automation equipment for manufacturing of these devices
in our new manufacturing facility
o setting quality control criteria for our processes and operations
o upgrading our on-site DWDM packaging and fiber pigtailing
capability for our optical chips.
We plan to finalize the construction of the clean room in our new
manufacturing facility, with the capacity of producing up to 500 devices per day
in 2001 and up to 1,000 units per day in 2002, increase our work force to
approximately 175 persons to fully staff this facility and launch marketing
activities for our DWDM products. As a development stage company, we have not
generated product revenues to date and do not anticipate generating product
revenues until 2001.
++++++++++++++++++++++++++++++
Employee Growth
We currently have 90 employees. Over the past 12 months, we have
increased our corporate division to seven persons. The existing R&D division of
27 meets current requirements and will be increased at a measured pace as we
identify new requirements. Most of our personnel growth will be within the
operations division, which must increase its manufacturing component of
approximately 75 hourly employees and 25 specialists/technicians in order to
meet the current sales forecasts for fiscal 2001 and first quarter of fiscal
2002. Headcount growth thereafter will depend on volume requirements and will
primarily focus on hourly employees. Most of the manufacturing employees that we
will hire will be fully trained in a few months. We intend to increase the
remainder of our administrative staff by 35 persons within marketing and sales,
engineering, accounting and administrative staff. Combined with the employees
remaining at the Dorval pilot facility, the total employee count is anticipated
to be in the range of 225 employees by the end of fiscal 2001.
Business Strategy
We believe that there is a substantial market for our devices for DWDM
systems. This market may be best supplied using AWG, which provides high channel
counts in a single compact device.
Optical chips in AWG format are currently used in DWDM systems.
Companies that produce the AWG format are PIRI (a subsidiary of JDS Uniphase),
Kymata, Siemens and us. These AWG devices perform in a similar way. However,
DWDM devices can differ both in composition and method of fabrication depending
on how they are processed. AWG DWDM devices made by PIRI, Kymata and Siemens use
a high temperature (greater than 1,000(degree)C) vacuum deposition process
called "flame hydrolysis deposition" (FHD). This method of manufacturing optical
chips uses a repetition of step by step processing to achieve final composition
of a device.
The AWG DWDM devices that we produce differ in composition and method
of fabrication. Our AWG devices are made of hybrid sol-gel glass. They are made
by spin- or dip coating of fluids and at temperatures about 1,000(0)C lower than
those used in FHD. The devices are created by photolithography directly in the
hybrid sol-gel glass avoiding vacuum film deposition, and they have optical
properties that can be changed over a broader range than those provided by
commercial forms of FHD. The latter difference allows us to make smaller DWDM
devices (measuring less than 5 cm x 5 cm) than those produced by FHD. Smaller
devices permit manufacturers of DWDM systems to make more compact products so
their systems can be deployed in locations where space is limited, providing
greater design flexibility. The materials and method of fabrication that we use
also allow us to make AWG devices more simply (through a simplified process),
using less equipment, faster and in larger quantities per unit of processing
time than FHD component manufacturers. We believe, at present, that no other
manufacturer utilizes the sol-gel method in the commercial production of optic
devices for use in the DWDM market.
Our goal is to provide high quality, cost effective and high volume
DWDM devices. We developed our PHASIC(TM) process because we believe that high
volume manufacturing methods similar to those used by the microelectronics
manufacturing industry are necessary to meet telecommunications customer demands
for high volume and reliability. We believe that our materials, design tools and
process give us a technological edge that will allow us to improve yield in
optical chip production.
We have begun producing and testing a limited number of product devices
with the intention to market 4, 8, 16, 32 and 40 DWDM product. In addition, we
intend to offer services based on our capability to design new customized DWDM
devices according to specific client needs. These needs may include, among
others, channel count, channel spacing, central wavelength and optical loss
characteristics. Because our DWDM is created on a silicon substrate, there is
the potential for product enhancement by combining other features such as
lasers, on the same silicon substrate.
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Our products will address existing demand and create conditions for
expanded use of our devices by using our technology and expertise to develop
products for specific client needs. For example, we are presently targeting an
existing DWDM market that has for the most part, very specific needs. Because we
manufacture our DWDM devices from platform technology, we can use similar
materials and processes to produce both devices related generally to the DWDM
industry and optical internetworking and customized devices for the DWDM
industry. Examples include optical chips for selectively adding or dropping
wavelengths (channels) and optical cross-connects.
The platform technology allows us to expand from our DWDM chip into new
kinds of optical chip products. We believe that customers may favorably view the
idea of having optical devices that are all related to one another through a
common (generic) technology. Photonics is a nascent industry and we believe that
it will be necessary to work with customers closely to meet their specific
needs. In such a competitive industry, we face many risks, including market
acceptance of our products and our ability to adapt our products to
technological change.
To implement our strategy, we intend to :
o Establish Technology Leadership
There are three primary multiplexer component technologies currently
used in DWDMs: thin film filters, fiber Bragg gratings and array waveguides
(AWG). According to a report in Laser Focus World Supplement, "WDM Solutions,"
in 1998, thin filters held a 26% share of the DWDM market, AWG had a 47% share
of the DWDM market and Bragg gratings had a 19% market share. Within the
industry, AWG technology currently provides the least costly manufacturing
alternative to expanding existing capacity over that of thin filter and Bragg
gratings technology.
In existing AWG technology, a "flame hydrolysis deposition" (FHD)
method is used to manufacture DWDM components and devices. This method employs a
hydrogen-oxygen nozzle flame to burn the desired combinations of gases of
silicon tetrachloride, phosphorous oxychlorides, chlorides of phosphorous, boron
or germanium, for example, that may be transported by a gas like argon to a
heated silicon wafer surface. Combustion of the gases produces a glass soot on
the surface of a silicon substrate. The soot is melted and consolidated at high
temperature (greater than 1,000(degree)C) in a lengthy thermal process. The
procedure is repeated at least three times to achieve the final composition. The
second coating step is usually followed by a series of coating and vacuum
etching steps used to create the AWG component. In some cases, a thin section of
polymer (a half wave plate) is inserted into the array waveguide section to
desensitize the device to the polarization state of the light.
Thin filters use one-millimeter square glass windows coated with
multi-layers of metal oxide. This layered structure is used to pass through some
wavelengths of light and reflect others in transferring information or data.
These windows act as an optical filter when many are assembled together with
lenses and appropriate input and output filters. Then, together they can
selectively separate wavelengths of light for transmission of information. In
this way, the thin filter device acts in the same capacity as a mutliplexer
device.
Bragg gratings act as micro optical filters. The grating spacing is
selected in such a way that it allows some wavelengths of light to pass through
the filter and reflects other wavelengths of light. When Bragg gratings are
created in optical fiber and fibers are assembled together in a structure like
an interferometer, the Bragg gratings assembly acts in the same capacity as a
multiplexer device.
We believe that the following three variables, discussed in detail
below, will determine the relative successes of the above competing
technologies:
o Chip manufacturing cost per channel
o Size of the optical component
o Suitability to high volume manufacture.
We believe that our products, which are based on AWG technology, will
enjoy an advantage in each case.
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Chip Manufacturing Cost Per Channel. In AWG technology, cost does not
scale with an increase in the number of channels per chip because all channels
are created simultaneously or in parallel. There is little increase in the cost
of manufacturing an 8-channel, 16-channel or other channel AWG DWDM chip because
the circuits and optical channels are all created in the same step. In contrast,
in thin filter and Bragg gratings technologies, additional channels must be
added sequentially (one at a time), increasing the complexity of the task and
adding time and cost to the process. Thus, the current manufacturing cost per
channel is lower for AWG technology than for the thin filter and Bragg gratings
technologies. The cost of making an AWG DWDM component will depend on the method
and materials used. Our products are distinguishable from those of our AWG
competitors in their composition and method of fabrication. We believe that our
simple one-mask manufacturing process should be cost effective and will be
suitable for high volume and high yield manufacturing.
Size of Optical Components. AWG technology products are significantly
smaller than those produced by competing technologies. This may prove an
advantage where space is at a premium.
Suitability to High Volume Manufacture. Our manufacturing process is
simpler, because the complexity of the process does not increase linearly with
an increase in the number of channels per chip, as is the case with competing
technologies. We anticipate that as optical chip technology matures, customer
demand and competition will drive down the price of chips. Our low temperature
manufacturing process, which distinguishes it from other producers utilizing the
AWG technology, should permit lower cost production and higher product yield.
Our AWG DWDM devices differ from other waveguide DWDM devices in
composition and method of fabrication. Our AWG devices are made from different
materials (our hybrid glass) and through a different method of fabrication (our
low temperature sol-gel process). The use of hybrid glass and the sol-gel
processing gives us the advantage of being able to use spin-coating and
dip-coating manufacturing methods to cover silicon wafers rather than vacuum
deposition techniques. Our hybrid glasses are made at temperatures about
1,000(degree)C lower than those used in FHD chip production. This gives us an
energy saving advantage and provides a greater choice in the range of substrates
e.g., glass, plastic that might be used in the future to support DWDM devices
and future product development. Our DWDM optical chips are created by
photolithography directly in the hybrid glass. This avoids complex
post-processing sequences in which chemical resists and masks must be used in
conjunction with vacuum reactive ion etching methods to create the AWG for the
DWDM. The properties of the hybrid glass materials can be altered so that the
glasses have properties that are more like those of plastics or inorganic
glasses or properties that are intermediate between plastics and glasses. This
permits hybrid glasses to be adapted into more commercially usable and compact
or miniature forms than those produced by FHD. Smaller DWDM devices also permit
manufacturers of DWDM systems to make more compact products.
++++++++++++++++++++++++++++++++++++++
Proprietary Rights
Our future success and ability to compete are dependent, in part, upon
our licensed and owned technology. We rely in part on patent, trade secret,
trademark and copyright law to protect our intellectual property. We are the
licensee of three patent applications under the terms of a license agreement
with Polyvalor and McGill University expires in October 2017. These three patent
applications are:
1. Title: "Solvent-assisted lithographic process using
photosensitive sol-gel derived glass for depositing ridge
waveguides on silicon"
Use: Intellectual property relating to our sol-gel process
used to make our optical circuit devices on a broad range of
substrates, including silicon through simplified
photolithographic processes and wet etching techniques, which
is fundamental to the success of our manufacturing process.
Country: United States
Assignee: McGill University
Status: Allowed and issued as patent No. 6,054,253 on April
25, 2000.
2. Title: "Solvent-assisted lithographic process using
photosensitive sol-gel derived glass for depositing ridge
waveguides on silicon"
Use: Intellectual property relating to our sol-gel process
used to make our optical circuit devices on a broad range of
substrates, including silicon through simplified
photolithographic processes and wet etching techniques, which
is fundamental to the success of our manufacturing process.
Country: Canada
Assignee: None
Status: Pending. The next step in this patent application is
to file the request for examination.
3. Title: "Self-processing of diffractive optical components in
hybrid sol-gel glasses"
Use: Intellectual property used to make diffraction gratings
in hybrid glass without the need for device development steps,
which is not material to our present manufacture of products,
but is relevant and being sought for later generation products
planned for production.
Country: United States
Assignee: None
Status: Pending Provisional: the patent application is pending
but is incomplete and the priority date for filing the
complete patent application in the United States and for
extending the patent application in other countries is October
26, 2000. We are presently in the process of finalizing the
application.
We have also filed the following patent applications:
4. Title: "On-substrate cleaving of sol-gel waveguide"
Use: Intellectual property used to make optical coupling
between glass fiber and optical circuit device waveguides,
which is not material to our present production of products,
but is relevant and being sought for later generation products
planned for production.
Country: United States
Owner: Co-ownership between Lumenon and Paul Coudray
Status: Pending: the patent was filed on July 1st 1999 and is
awaiting review and comments from the examiner. The priority
date for filing of the patent application in other countries
was July 1, 2000.
5. Title: "Sol gel film coating process using chilled solution"
Use: Intellectual property used to make a sol gel film where
the thickness and roughness of resulting film are improved by
dispensing a chilled sol gel solution instead of
conventionally dispensing such a sol gel at room temperature.
We presently use this technology in our manufacturing process.
Country: Canada
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Status: Pending Informal: the patent application is pending
but is informal and the priority date for filing the complete
patent application in Canada and for extending the patent
application in other countries is July 28, 2001.
6. Title: "Flattening the response of a planar wavelength
division multiplexer using a Y-junction"
Use: Intellectual property used to flatten the response of a
planar wavelength division multiplexer through a Y-junction.
We presently use this technology in its manufacturing process.
Country: Canada
Status: Pending Informal: the patent application is pending
but is informal and the priority date for filing the complete
patent application in Canada and for extending the patent
application in other countries is August 4, 2001.
+++++++++++++++++++++++++++++++++++++++++
Agreement with Polaroid
We entered into an agreement dated July 21, 2000 with Polaroid
Corporation for the irrevocable non-exclusive license of certain patents held by
Polaroid in connection with AWG. We agreed to pay to Polaroid an initial
licensing fee of US $395,000 (CDN$584,047). In addition, we will pay royalties
on the net selling price of our products, at an annual rate of 5% for aggregate
net selling prices of US$5 million, 3.5% for aggregate net selling prices over
five and up to US$40 million, and 1.75% for aggregate net selling prices over
US$40 million, for each year of the agreement.
++++++++++++++++++++++++++++++++++++++
The proceeds of sale of the notes are being used in part to complete
the buildout of our new manufacturing facility in Ville Saint-Laurent. Such
proceeds will also be used to pursue our overall growth strategy and to finance
our research and development program.
++++++++++++++++++++++++++++++++++++++++++++
Customer Relations
In addition to the relationship created under the Molex agreements, we
will need to work in close association with DWDM system manufacturers. Examples
of these manufacturers are Nortel Networks, Cisco, Alcatel, Lucent Technologies,
and Ciena. We believe that it will be important to our success to work with
customers directly to meet performance requirements in the design of our DWDM
products and devices throughout the entire life cycle of our products. This will
allow us to foster a strong commitment to service, and to gain insights into our
customers' future plans and needs, identify emerging industry trends and
consequently deliver high-performance, cost-effective products with wide market
appeal. |
