As filed with the Securities and Exchange Commission on September 11, 2000
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------------------------------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------------------------------------------------
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
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<CAPTION>
<S> <C> <C>
Delaware 3220 98-0213257
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
8851 Trans-Canada Highway
Ville Saint-Laurent, (QC) Canada H4S 1Z6
(514) 331-3738
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
S. Iraj Najafi
Chief Executive Officer
Lumenon Innovative Lightwave Technology, Inc.
8851 Trans-Canada Highway
Ville Saint-Laurent, (QC) Canada H4S 1Z6
(514) 331-3738
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copy to:
David J. Adler, Esq.
Olshan Grundman Frome Rosenzweig & Wolosky LLP
505 Park Avenue
New York, New York 10022
(212) 753-7200
---------------------
Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
---------------------
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act of 1933 registration statement number
of the earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
<PAGE>
If delivery of the Prospectus is expected to be made pursuant to Rule
434, check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities Amount to be Offering Price Aggregate Registration
to Be Registered Registered Per Share Offering Price Fee
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<S> <C> <C> <C> <C>
Common stock, $.001 par value 2,000,000 $21.625(1) $43,250,000(1) $11,418.00
---------------------------------------------------------------------------------------------------------------
Shares of common stock issuable
upon exercise of outstanding
warrants and upon conversion of
outstanding convertible notes(2) 8,800,000(3) $21.625(2) $190,300,000(2) $50,239.20
---------------------------------------------------------------------------------------------------------------
Total Registration Fee ------ ----- $233,550,000 $61,657.20
---------------------------------------------------------------------------------------------------------------
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(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended,
based on the average of the high and low prices of the common stock as
reported on the Nasdaq National Market on September 6, 2000.
(2) The outstanding warrants and notes were issued in connection with a
private placement financing. The warrants are exercisable at an
exercise price based upon the volume weighted average price of the
common stock during the five consecutive trading days preceding
vesting. The warrants vest in January 2002. The convertible notes are
convertible at a conversion price equal to the average of the closing
bid price of the common stock as listed on the Nasdaq National Market
for the five consecutive trading days ending immediately prior to
conversion, but in no event less than $7.00 per share and no more than
$25.00 per share. The price set forth in the table has been determined
solely for purposes of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933, as amended, based on the
average of the high and low prices of the common stock as reported on
the Nasdaq National Market on September 6, 2000.
(3) In addition to the shares of common stock set forth in the calculation
of Registration Fee Table, which includes a good faith estimate of the
number of shares of common stock underlying the warrants and
convertible notes, pursuant to Rule 416 of the Securities Act of 1933,
as amended, this registration statement also registers such additional
number of shares of common stock as may become issuable as a result of
stock splits, stock dividends or similar transactions.
---------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
================================================================================
<PAGE>
SUBJECT TO COMPLETION, PRELIMINARY PROSPECTUS DATED SEPTEMBER 11, 2000
Prospectus
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
10,800,000 SHARES OF COMMON STOCK
The selling stockholders listed in this prospectus are offering and
selling up to 10,800,000 shares of our common stock. We will not receive any
proceeds from the sale of these shares.
Our common stock is traded on The Nasdaq National Market under the
symbol "LUMM." The last reported sale price for our common stock on The Nasdaq
National Market on September 6, 2000 was $21.25 per share. The selling
stockholders may offer their shares of common stock from time to time, in the
open market, on The Nasdaq National Market, in privately negotiated
transactions, in an underwritten offering, or a combination of such methods, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The selling stockholders may
engage brokers or dealers who may receive commissions or discounts from the
selling stockholders. Any broker-dealer acquiring the common stock from the
selling stockholders may sell such securities in normal market making
activities, through other brokers on a principal or agency basis, in negotiated
transactions, to its customers or through a combination of such methods. See
"Plan of Distribution." We will bear all of the expenses and fees incurred in
registering the shares offered by this prospectus. The selling stockholders will
pay any brokerage commissions and discounts attributable to the sale of the
shares.
Investing in the common stock involves a high degree of risk. Please
see "Risk Factors" beginning on page 8 for a discussion of the risks associated
with our business.
Neither the Securities and Exchange Commission or any other regulatory
body has approved or disproved of these securities or passed on the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
Commissions received by the selling stockholders or any broker-dealers,
agents or underwriters that help distribute the shares and any profit on the
resale of the shares purchased by them may be considered underwriting
commissions or discounts under the Securities Act of 1933.
The date of this prospectus is ____________, 2000
<PAGE>
[INSIDE COVER OF PROSPECTUS]
<PAGE>
TABLE OF CONTENTS
Page
----
Prospectus Summary.............................................................4
Risk Factors...................................................................8
Forward-Looking Statements....................................................14
Use of Proceeds...............................................................14
Dividend Policy...............................................................14
Market Price of the Registrant's Common Equity
and Related Stockholder Matters............................................15
Selected Financial Data.......................................................16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations..............................................................18
Business......................................................................20
Management....................................................................36
Summary Compensation Table....................................................38
Security Ownership of Certain Beneficial
Owners and Management......................................................40
Certain Relationships and Related Transactions................................42
Selling Stockholders..........................................................42
Description of Capital Stock..................................................45
Indemnification of Directors and Officers.....................................46
Where you can find more information...........................................47
Quantitative and Qualitative Disclosures
about Market Risk..........................................................48
Plan of Distribution..........................................................48
Legal Matters.................................................................49
Experts.......................................................................49
Index to Financial Statements................................................F-1
3
<PAGE>
PROSPECTUS SUMMARY
As used in this prospectus, unless the context otherwise requires, the
terms "we," "us" or "Company" mean Lumenon Innovative Lightwave Technology, Inc.
This summary highlights information contained elsewhere in this prospectus and
is not complete and may not contain all the information you should consider
before investing in our common stock. You should read the entire prospectus
carefully.
The Company
We are a development stage company that designs and develops products
related to the Dense Wavelength Division Multiplexing ("DWDM") market and other
optical or photonic segments of the global telecommunications and data
communications optical networking markets. DWDM is a technology that permits a
user to send multiple sources of information and data at the same time over a
single optic fiber. DWDM allows network operators to remove an entire class of
equipment in their emerging, high-capacity, data-backbone networks. We are
developing and manufacturing devices for use in the DWDM market under a teaming
agreement with Molex Incorporated. We do not expect to generate product revenues
until 2001.
Our plan of operations for fiscal year 2001 is 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 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 have begun producing and testing a limited number of product devices
and intend to market 4, 8, 16, 32 and 40 channel DWDM chips. In addition, we
intend to offer services based on our capability to design new customized DWDM
devices according to specific client needs. 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.
Service providers like AT&T and MCI WorldCom are creating fiber optic
networks to transmit large quantities of data and information at high speeds to
meet demand for such uses as the Internet, e-mail, and electronic commerce. Such
service providers desire to increase the capacity of their networks to carry and
deliver more information at high speeds without the additional costs of
installing new fiber optic cable. DWDM products allow providers to greatly
increase their information carrying capacity on existing fiber at significantly
lower cost. Survey data on the size of the global and North American DWDM
markets vary from source to source. What is common to all surveys is that the
DWDM market is large and growing at a compound annual growth rate of 50%.
We believe that there is a substantial market for our devices in DWDM
systems. We make our devices in the form of an "optical chip" on silicon through
a patented sol-gel process. To our knowledge, there are no other manufacturers
of DWDM devices on silicon using a sol-gel manufacturing process. The advantages
of our process include:
o lower capital investment in process equipment
o less manual labor required in the assembly process
o fewer process steps, reducing the likelihood of manufacturing
defects
o the cost of an optical chip does not increase proportionality as
the number of channels on the chip grows.
We are incorporated under the laws of the State of Delaware. Our
principal executive offices are located at 8851 Trans-Canada Highway, Ville
Saint-Laurent, (QC) Canada H4S 1Z6, and our telephone number at that address is
(514) 331-3738.
4
<PAGE>
The Offering
Common stock offered by the selling
stockholders............................. 10,800,000, of which 8,800,000 are
issuable upon exercise of
outstanding warrants and conversion
of outstanding convertible notes.
Common stock outstanding................. 34,752,039 shares(1)
Use of proceeds.......................... We will not receive any proceeds
from the sale of the shares of
common stock by the selling
stockholders.
Risk factors............................. An investment in the common stock
offered by the selling stockholders
involves a high degree of risk. See
"Risk Factors" beginning on page 8.
Nasdaq National Market symbol............ "LUMM"
(1) Based on information available to us as of August 31, 2000. Does not
include (i) 6,000,000 shares of common stock reserved for issuance upon
exercise of options granted or to be granted under our stock option
incentive plan, under which options to purchase 3,312,650 shares of
common stock are outstanding; (ii) 6,086,011 shares of common stock
reserved for issuance upon exercise of outstanding common stock
purchase warrants, or (iii) 5,000,000 shares of common stock reserved
for issuance upon conversion of outstanding convertible notes. Except
as otherwise indicated, all references in this prospectus to the number
of shares of common stock outstanding do not include the foregoing
shares.
5
<PAGE>
Summary Financial Information
The following summary financial information is taken from our financial
statements included elsewhere in this prospectus. The summary financial
statements should be read in conjunction with the financial statements and
related notes beginning on page F-2 of this prospectus, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." Our
financial statements as of and for the fiscal years ended June 30, 2000, June
30, 1999 and December 31, 1998 have been audited by KPMG LLP, Montreal, Canada,
independent certified public accountants. Unless otherwise indicated, all dollar
amounts in this prospectus are expressed in United States dollars. We changed
our fiscal year end to June 30, effective in 1999. The amounts reported and
reflected below for fiscal year 1999 are for the six-month period ended June 30,
1999.
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<CAPTION>
December 31, June 30,
1998 June 30, 1999 2000 June 30, 2000
---- ------------- ---- -------------
(in Canadian dollars) (in U.S. dollars)
<S> <C> <C> <C> <C>
Current Assets $552,912 $2,044,584 $6,058,929 $4,097,745
Capital Assets - 1,492,495 4,602,682 3,112,865
Total Assets 553,155 3,547,080 12,199,898 8,250,978
Liabilities 119,349 1,002,582 1,606,715 1,086,645
Stockholders' 433,806 2,544,498 10,314,497 6,975,853
Equity
</TABLE>
<TABLE>
<CAPTION>
From Inception Six Months Fiscal Year Fiscal Year
to December 31, Ended Ended Ended
1998 June 30, 1999 June 30, 2000 June 30, 2000
---- ------------- ------------- -------------
(in Canadian dollars) (in U.S. dollars)
<S> <C> <C> <C> <C>
Research and
Development
Expenditures (1) $12,291 $162,370 $218,968,358 $148,091,681
General and
Administrative (2) 290,435 569,507 4,913,579 3,323,130
Other Income
(Loss) 15,217 (17,674) 319,823 216,301
Net Loss 287,509 749,551 223,562,114 151,198,510
Loss Per Share (2) $0.03 $0.04 $8.80 $5.95
</TABLE>
-----------------------------
(1) Amounts shown are net of tax credits and grants and include non-cash
expenses resulting from the issuance of common stock upon exercise of
the Molex services warrant.
6
<PAGE>
(2) Includes depreciation of US$604,369 (CDN$893,620) for the year ended
June 30, 2000 and none before.
(3) As of December 31, 1998, June 30, 1999 and June 30, 2000, we had
16,455,000, 20,215,000 and 32,970,039 issued and outstanding shares,
respectively. We have never paid dividends on our common stock.
At December 31, 1998, June 30, 1999 and June 30, 2000, the exchange
rate between the Canadian dollar and the U.S. dollar were CDN$1.533, CDN$1.472
and CDN$1.4786 to US$1.00, respectively, based on the rate as of each date
issued by the Bank of Canada.
7
<PAGE>
RISK FACTORS
An investment in our common stock is highly speculative and involves a
high degree of risk. You should only consider investing in our common stock if
you are able to afford to lose your entire investment. In evaluating our
business, you should carefully consider the following risk factors in addition
to the other information included in this prospectus
Risks Relating to Our Financial Condition
We are a development stage company.
We were founded in 1998. We are a development stage company and, to
date, have not had any revenues from sales of our products. Our operating
history provides no basis for evaluating us and our prospects. We must, among
other things, successfully develop and commercialize our products, meet
competition, attract, retain and motivate qualified employees, expand our
operations and market and sell products using our technology in volume to have
significant revenues and to be profitable.
Our future will depend on our ability to develop, manufacture and
commercialize products based upon our licensed proprietary technologies. Our
first product, the DWDM optical chip, has only recently entered production in
limited quantities and we expect to make only limited shipments of prototype
chips in 2000. Even if our products appear promising when introduced, potential
customers may not accept them, they may be difficult to produce in large volumes
at an acceptable cost, fail to perform as expected, cost too much or be barred
from production by the proprietary rights of others.
We project future losses.
We expect to spend considerable sums to develop and market our new
products. We expect our operating expenses to increase as we develop our
technology and products, increase our sales and marketing activities and expand
our assembly operations. We will not have revenues from product sales before
2001. The amount that we will lose and when, if ever, we will have profits is
highly uncertain. If we become profitable, we do not know how much we will earn
and our profits may vary significantly from quarter to quarter.
We have limited working capital; we may be unable to obtain funding to meet our
future capital needs.
We will require substantial additional funding over the next several
years to develop our technology, to broaden and commercialize our products and
to expand assembly capacity. Our capital needs will depend on a number of
factors, including:
o How many new products we develop
o How fast we develop and commercialize our technologies and
products and expand our assembly operations
o The response of competitors o The level of acceptance of our
products o Competing technological developments o Changes in
market demand.
In addition, if we develop or commercialize our technology and products
more slowly than we expect, we may need substantially more funding and we may be
required to spend our cash faster than we currently plan.
We expect to raise additional working capital primarily from the
following sources:
o Sales of equity or debt securities
o Equipment leasing and other secured debt financing
o Manufacturing and other strategic partners.
8
<PAGE>
If we borrow funds, we may become subject to restrictive financial
covenants and our interest obligations will increase. If we issue more stock,
our present stockholders may experience substantial dilution.
We do not know whether additional funding will be available on
favorable terms, or at all. If it is not, we may have to delay or abandon some
or all of our anticipated spending, cut back our operations significantly, sell
assets, or license to third parties potentially valuable technologies that we
currently plan to commercialize ourselves.
Risks Relating to Our Business
The market for our products requires us to adapt to rapid technological change
and to continue new product development.
We must become a key supplier of components to the photonics industry
to be successful. Our target markets are highly competitive and are marked by
rapidly changing technology and industry standards and declining average selling
prices. We must:
o Anticipate what our clients and their end-users will need and
demand in the manufacture of products, both for general industry
use and specific custom-made usage
o Incorporate those anticipated features and functions into our
products o Meet specific and exacting design requirements
o Price our products competitively
o Introduce our products at the right time to meet market demand.
The success of our new products will depend on many factors, including:
o Proper product definition
o Timely completion and introduction of designs
o Ability of our customers to incorporate our product into theirs
o Quality and performance of our products
o Differentiation of our products from those of our competitors
o Acceptance of our products and those of our customers.
The market for our products is characterized by short product lifecycles,
declining average selling prices and fluctuating industry conditions.
Our target markets are 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. This means that the life cycle of a product we make
may be short, we must introduce new products on a timely basis and we must spend
a great deal to develop new products. Other competing technologies may force us
to sell our products at lower prices than we expect. Thus, we will need to
introduce new products to compete effectively and to maintain our selling
prices. This may require greater development time and expense than we presently
anticipate. We could experience delays in introducing new products because they
are complex.
Our products have certain risks in their manufacture and assembly.
The assembly of our chips is a sophisticated process, requiring a clean
room and precision assembly equipment. Very small amounts of contaminants in
assembly, defects in components, difficulties in the assembly process or other
factors can cause a significant number of chips to be nonfunctional or to have
unacceptable defects. Many of these problems are difficult to find and require
much time and/or expense to fix.
We have never assembled large amounts of products. It may be difficult
for us to do this.
9
<PAGE>
Because we use our own plant, we could be subject to significant risks,
including lack of adequate capacity, technical difficulties and events limiting
production, such as fires or other damage. Furthermore, if demand for our
products increases, we will have to build another facility and may have to rely
on contractors to manufacture our products for us. Building another facility
will cost a great deal and will involve the risks found in all manufacturing,
including poor production yields, technical difficulties and events limiting
production.
The manufacture of our products involves complex and precise processes.
Changes in our manufacturing processes or those of our suppliers, or the
inadvertent use of defective materials, could significantly reduce our
manufacturing yields and product reliability. Because most of our manufacturing
costs are relatively fixed, manufacturing yields are critical to our results of
operations. Lower than expected production yields could delay product shipments
and reduce our gross margins. We may not obtain acceptable yields in the future.
Because we plan to introduce new products and product enhancements
regularly, we must effectively transfer production information from our research
and development department to our manufacturing group and coordinate our efforts
with those of our suppliers to rapidly achieve volume production. If we fail to
effectively manage this process or if we experience delays, disruptions or
quality control problems in our manufacturing operations, our shipments of
products to our customers could be delayed.
We are dependent on equipment suppliers and contract manufacturers.
We rely on outside suppliers for certain equipment we will use in our
manufacturing process. We do not maintain long-term agreements with any of them.
If important manufacturing equipment were to malfunction, we would, at a
minimum, experience delays in the shipment of our products and could be required
to find another equipment manufacturer. Delays in shipment could result in the
loss of customers and reductions in our revenues.
We may rely on third party manufacturers for certain components of our
products. Risks associated with our potential dependence upon third party
manufacturing relationships include:
o Reduced control over delivery schedules o Lack of quality
assurance
o Poor manufacturing yields and high costs
o Potential inadequate capacity during periods of excess demand
o Potential misappropriation of our intellectual property.
We do not know if we will be able to enter into third party
manufacturing contracts on favorable terms, if at all, or that our current or
future third party manufacturers will meet our requirements for quality,
quantity or timeliness.
We depend on our relationship with Molex
We have entered into certain agreements with Molex under which, among
other things, we are to jointly develop certain products. The agreements with
Molex contain certain restrictions on our ability to sell our products and grant
to Molex preferential rights to acquire our products at favorable prices. See
"Business-Material Agreements - Agreements with Molex."
There will be a small number of customers for our products
For the foreseeable future, we intend to market our products to only a
limited number of leading original equipment manufacturer (OEM) customers. We
will rely on our OEM customers to develop their own systems, creating demand for
our products. OEM customers may be expected to exert considerable leverage in
negotiating purchases from us. The telecommunications equipment industry, a
principal industry customer, is dominated by a small number of large companies
with few optical components suppliers. Existing suppliers could exert pressure
to keep out new entrants.
10
<PAGE>
The market for our products is very competitive; our competition may be able to
more effectively develop and market their products.
The photonics industry is highly competitive and is marked by rapid
technological change and product obsolescence. We expect such conditions to
continue.
Our competitors include large companies that have substantially greater
financial, technical, marketing, distribution and other resources, broader
product lines, greater name recognition and longer standing relationships with
customers than we do. Our competitors include both companies already
manufacturing large volumes of products based on established technologies, as
well as companies selling emerging technological solutions. Potential
competitors could also include our own customers, which may decide to
manufacture products competitive with ours, rather than purchasing our products.
Potential competitors may develop technology and products comparable or superior
to ours.
We do not know if we can effectively manage the growth of our business.
Our success will depend on the expansion of our operations and the
effective management of 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 engineering, manufacturing,
marketing, sales, administrative and management personnel, and buy 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 had 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 rapidly enough or adequately manage this growth.
If we do not accurately predict demand for our products, we may have too much or
too little production capacity. If we overestimate demand, we may incur fixed
production expenses that are excessive.
We are dependent on key personnel; we need to attract, train and retain
additional qualified personnel.
Our success will depend to a significant degree upon the continued
services of key management, technical, and scientific personnel, including Dr.
S. Iraj Najafi, our President and Chief Executive Officer, Dr. Mark Andrews, our
Chief Technical Officer, and Dr. Chia-Yen Li, our Chief Operating Officer. We do
not currently maintain key-man life insurance on any of our personnel.
Our success will also depend on our ability to attract, train and
retain additional management and other highly skilled personnel. Currently, we
are seeking to hire skilled engineers for our assembly process. Our competitors
for qualified personnel are often long-established, highly profitable companies
and the process of hiring qualified personnel is often lengthy. Our management
and other employees may voluntarily leave us at any time.
We lack sales and marketing history and may not be able to retain qualified
salespeople.
We have no history in marketing, selling and distributing our products.
Our future profitability will depend on our ability to develop an effective
sales force. Competition for employees with sales and marketing experience is
intense. We do not know if we will be able to attract and retain qualified
salespeople or if we can build an effective sales and marketing organization.
We are subject to additional risks related to international sales and operations
We expect that international sales will account for a significant
portion of our total revenues. International sales and operations are subject to
a number of risks, including:
o Imposition of government controls
11
<PAGE>
o Export license requirements
o Restrictions on the export of critical technology
o Political and economic instability or conflicts
o Trade restrictions, changes in tariffs and taxes
o Challenges to patents and other intellectual property rights
o Difficulties in staffing and managing international operations
o Problems in establishing or managing distributor relationships
o General economic conditions.
In addition, as we expand our international operations, we may be
required to invoice our sales in local currencies, the value of which may
fluctuate in relation to the Canadian and U.S. dollars.
We lack patent protection of our products.
The patent positions of technology companies, including ours, are
uncertain and involve complex legal and factual questions. In addition, the
coverage claimed in a patent application can be significantly reduced before a
patent is issued. We do not know if our patent applications will result in
patents being issued or that any patents issued to us will provide protection
against competing technologies or will be held valid if challenged. Others may
independently develop products similar to ours or design around or otherwise
avoid patents issued to us.
Others may assert claims against us that will result in litigation.
Litigation, regardless of its outcome, would result in significant cost to us,
as well as diversion of management time. If we were to infringe upon a valid
patent, we might have to change our products or obtain licenses from the patent
owners. We do not know if such licenses would be available on terms favorable to
us or that we would be successful in any attempt to change our products or
processes to avoid infringement. In addition, we could be liable for significant
monetary damages.
We also rely on trade secret and copyright law and employee and
third-party nondisclosure agreements to protect our intellectual property
rights. We can not be sure whether agreements and measures will provide
meaningful protection of our trade secrets, copyrights, know-how or other
proprietary information in the event of infringement by others or that others
will not independently develop similar technologies.
The laws of certain foreign countries do not protect our intellectual
property rights to the same extent as do the laws of the United States. Our
intellectual property may be at additional risk in such markets.
We must comply with environmental regulations, which could be costly.
Our operations and assembly processes are subject to certain federal,
provincial and 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. We have put into place procedures to
comply with these laws and regulations. We also have safety programs, including
training of personnel on safe storage and handling of hazardous materials and
wastes. We believe that we are in compliance in all material respects with
applicable environmental regulations. Environmental laws and regulations,
however, may become more stringent over time. If we fail to comply with either
present or future regulations, we may have significant expenses and may be
subject to fines and production halts.
Corporate Governance Risks
We are controlled by insiders, which may prevent a change of control or other
corporate transactions.
As of the date hereof, our management, Molex, Polyvalor and McGill
University collectively own in excess of 50% of our outstanding common stock.
Together, they determine the composition of the Board of Directors and will be
able to determine the outcome of corporate actions requiring stockholder
approval. This ability may have the effect of delaying or preventing a change in
control that may be favorable to other stockholders or causing a change of
control that may not be favorable to other stockholders.
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<PAGE>
Under the agreements with Molex, Molex will acquire the non-exclusive
right to manufacture and sell certain jointly developed optical chip products in
the event we have a change in control. Molex also has rights of first refusal
with respect to any sale of stock by certain of our stockholders. Such rights of
Molex may have the effect of delaying or preventing a change in control that may
be favorable to stockholders other than Molex.
Certain provisions of our corporate documents and state law may prevent or
hinder a change of control.
Certain provisions of our certificate of incorporation and by-laws and
of Delaware law could make it more difficult for another party to acquire us or
discourage another party from attempting to acquire us. For example, our
certificate of incorporation and by-laws permit us to issue preferred stock with
rights senior to the common stock in respect of voting and dividend rights and
rights upon liquidation without any further vote or action by stockholders, and
provide for a classified board of directors. Although we have no present plans
to issue preferred stock, the issuance of preferred stock could have the effect
of delaying, deterring or 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, any such
preferred stock may have preference over and harm the rights of the holders of
common stock.
We have a significant number of outstanding warrants and options, which could
adversely affect the price of our common stock and our ability to sell
additional common stock.
As of August 31, 2000, we had outstanding options to purchase a total
of 3,312,650 shares of common stock at a weighted average exercise price of
US$14.73 per share and outstanding warrants to purchase an aggregate of 933,211
shares of our common stock at a weighted average exercise price of US$4.68 per
share. We also have outstanding warrants to purchase an aggregate of 5,000,800
shares of common stock, subject to certain anti-dilution provisions, at a price
to be determined in the future. The $35,000,000 five-year convertible notes
issued in July 2000 are also convertible into a maximum of 5,000,000 shares of
common stock. 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 such exercise of options and warrants and conversion of notes could depress
the price of our common stock. The holders of options, warrants and convertible
notes can be expected to exercise or convert them at a time when we would be
able to sell common stock on terms more favorable than those provided by such
options, warrants and convertible notes. This may adversely affect our ability
to sell common stock.
Other Risks
We do not pay dividends
We have never paid any dividends on our common stock. We do not
anticipate paying such dividends in the foreseeable future. We will use any
future earnings to finance our growth.
The market price of our common stock may increase or decrease significantly.
The market price of our common stock has both increased and decreased
significantly. Such market price could be subject to significant future changes
in response to various factors and events including:
o The depth and liquidity of the trading market for the common
stock o Quarter-to-quarter variations in our operating results
o The correlation of operating results with the expectations of
stockholders and the investment community
o The introduction of our products
o Conditions in our industry.
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<PAGE>
In addition, from time to time, the public markets, and in particular
the shares of high technology companies, have experienced broad price and volume
fluctuations that often have been unrelated to the operating performance of
issuers.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The words "believe," "anticipate," "estimate," "expect" or
words of similar import identify these forward-looking statements. These
forward-looking statements are contained principally under the headings
"Summary," Risk Factors," "Management's Discussion and Analysis to Financial
Condition and Results of Operations" and "Business." Although we have based
these forward-looking statements on reasonable assumptions, these may not prove
to be correct. Because these forward- looking statements are subject to certain
risks and uncertainties, actual results may differ materially from the
expectations expressed by such forward-looking statements. Important factors
that may cause actual results to differ materially from the expectations
reflected in the forward-looking statements include those set forth below, as
well as:
o general economic, business and market conditions
o customer acceptance of new products
o the occurrence or nonoccurrence of circumstances beyond our
control.
All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements. We
caution readers not to place undue reliance on these forward-looking statements,
which speak only as of their dates. We undertake no obligations to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
USE OF PROCEEDS
The selling stockholders will receive all of the proceeds from the sale
of the shares of common stock offered by this prospectus. We will not receive
any of the proceeds from the sale of the shares of the common stock by the
selling stockholders.
DIVIDEND POLICY
We have not paid and do not intend to pay cash dividends on our common
stock. We currently intend to reinvest earnings, if any, in the development and
expansion of our business. The declaration of dividends in the future will be at
the election of our board of directors and will depend upon our earnings,
capital requirements and financial position, general economic conditions and
other relevant factors.
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<PAGE>
MARKET PRICE OF THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Our common stock has been traded on The Nasdaq National Market under
the symbol "LUMM" since April 13, 2000. From July 27, 1998 (the day on which
trading in the common stock commenced) through January 19, 2000, the common
stock was quoted on the OTC Bulletin Board. From January 20, 2000 to March 9,
2000, pending the effectiveness of our registration statement on Form 10,
trading in our common stock was reported by the National Quotation Bureau in the
pink sheets. From March 9, 2000 through April 12, 2000, our common stock was
quoted on the OTC Bulletin Board. The following table sets out the high and low
bid prices of the common stock during the periods indicated based on a calendar
year presentation. Such prices through April 12, 2000 reflect inter-dealer
prices, without retail mark-up, mark-down or commissions and may not necessarily
represent actual transactions.
High Low
1998
Third Quarter (from July 27th).............. $4.00 $0.63
Fourth Quarter.............................. $1.50 $0.25
1999
First Quarter............................... $1.56 $0.25
Second Quarter.............................. $3.50 $0.44
Third Quarter............................... $14.25 $1.63
Fourth Quarter.............................. $49.00 $3.50
2000
First Quarter............................... $51.00 $14.16
Second Quarter.............................. $28.00 $9.13
Third Quarter (through September 6th)....... $28.50 $14.50
On September 6, 2000, the last reported sale price of the common stock
on The Nasdaq National Market was $21.25 per share.
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data are taken from our financial
statements included elsewhere in this prospectus and are qualified by reference
to and should be read in conjunction with such financial statements, including
the notes thereto, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. Our
financial statements as of and for the fiscal year ended June 30, 2000, June 30,
1999 and December 31, 1998 have been audited by KPMG LLP, Montreal, Canada,
independent certified public accountants. Unless otherwise indicated, all dollar
amounts in this prospectus are expressed in United States dollars. We changed
our fiscal year end to June 30, effective in 1999. The amounts reported and
reflected below for fiscal year 1999 are for the six-month period ended June 30,
1999.
<TABLE>
<CAPTION>
December 31, June 30,
1998 June 30, 1999 2000 June 30, 2000
---- ------------- ---- -------------
(in Canadian dollars) (in U.S. dollars)
<S> <C> <C> <C> <C>
Current Assets $552,912 $2,044,584 $6,058,929 $4,097,745
Capital Assets - 1,492,495 4,602,682 3,112,865
Total Assets 553,155 3,547,080 12,199,898 8,250,978
Liabilities 119,349 1,002,582 1,606,715 1,086,645
Stockholders' 433,806 2,544,498 10,314,497 6,975,853
Equity
</TABLE>
<TABLE>
<CAPTION>
From Inception Six Months Fiscal Year Fiscal Year
to December 31, Ended Ended Ended
1998 June 30, 1999 June 30, 2000 June 30, 2000
---- ------------- ------------- -------------
(in Canadian dollars) (in U.S. dollars)
<S> <C> <C> <C> <C>
Research and
Development
Expenditures (1) $12,291 $162,370 $218,968,358 $148,091,681
General and
Administrative (2) 290,435 569,507 4,913,579 3,323,130
Other Income
(Loss) 15,217 (17,674) 319,823 216,301
Net Loss 287,509 749,551 223,562,114 151,198,510
Loss Per Share (2) $0.03 $0.04 $8.80 $5.95
</TABLE>
-----------------------------
(1) Amounts shown are net of tax credits and grants and include non-cash
expenses resulting from the issuance of common stock upon exercise of
the Molex services warrant.
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<PAGE>
(2) Includes depreciation of US$604,369 (CDN$893,620) for the year ended
June 30, 2000 and none before.
(3) As of December 31, 1998, June 30, 1999 and June 30, 2000, we had
16,455,000, 20,215,000 and 32,970,039 issued and outstanding shares,
respectively. We have never paid dividends on our common stock.
At December 31, 1998, June 30, 1999 and June 30, 2000, the exchange
rate between the Canadian dollar and the U.S. dollar were CDN$1.533, CDN$1.472
and CDN$1.4786 to US$1.00, respectively, based on the rate as of each date
issued by the Bank of Canada.
Currency Exchange Rates
All dollar amounts stated in this prospectus are in U.S. dollars,
except where otherwise specifically indicated. The following table sets forth,
for the dates indicated, the rates at the specific date for the Canadian dollar
per one U.S. dollar, each expressed in Canadian dollars and based on the noon
buying rate in New York City for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York:
Fiscal Year Ended June 30
1998 1999 2000
Rate at end of period 1.4717 1.5070 1.4798
Average rate during the 1.4178 1.5105 1.4732
period
High of the period 1.4721 1.5770 1.5079
Low for the period 1.3690 1.4512 1.4350
On August 31, 2000, the noon buying rate in the New York City for cable
transfers in Canadian dollars as certified for customs purposes by the Federal
Reserve Bank of New York was CDN$1.4720 = US$1.00.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
From inception (March 2, 1998) to December 31, 1998, our activities
were mainly oriented to our organization. In 1999, we changed our fiscal year
end to June 30, so information for the year ended June 30, 1999 reflects a
six-month period. During that period, highlights of the activities are
represented by certain financial arrangements entered into in connection with
the construction of the pilot plant and the acquisition of related capital
assets. This management's discussion and analysis focuses on the fiscal year
ended June 30, 2000 compared to the period from inception to June 30, 1999.
Results of Operations
We are a development stage company that has not realized any revenues
from operations.
Research and development expenses in 2000, net of tax credits and
grants, were US$148,091,681 (CDN$218,968,358). Of these costs, US$147,003,070
(CDN$217,358,739) are non-cash expenses resulting from the issuance of common
stock issued in consideration of certain services rendered by Molex under the
terms of a teaming agreement. In connection with such agreement, we issued to
Molex an aggregate of 5,800,000 shares of Common Stock upon the exercise of the
Molex services warrant. These expenses were recorded at the average monthly
market price of the shares issued during the period in which the services were
rendered. The services warrant was exercised in full as of June 30, 2000.
Research and development expenditures, other than those recorded under
the Molex services warrant, net of tax credits and grants, were US$1,088,611
(CDN$1,609,619) during the twelve-month period ended June 30, 2000, compared to
US$118,655 (CDN$174,661) for the period from inception to June 30, 1999, an
increase of US$969,956 (CDN$1,434,958). From inception to June 30, 1999, we
incurred little research and development expenses because we were not yet
engaged in full operations. At June 30, 2000, we had an existing operation
consisting of a sizeable research and development group, a facility and an
expansion project underway. During the year ended June 30, 2000, we designed new
DWDM and WWDM products, developed materials and processes and produced prototype
devices.
General and administrative expenses were US$2,718,761 (CDN$4,019,959)
in 2000, compared to US$584,200 (CDN$859,942) for the period from inception to
June 30, 1999, an increase of US$2,134,561 (CDN$3,160,017). The charges for the
period from inception to June 30, 1999, consist mainly of salaries as a result
of the increased number of administrative personnel and related expenses to
manage our expansion project and the increase in activities resulting from such
project. During 2000, we built a corporate structure consisting of teams in
corporate finance, research and development, manufacturing, business development
and corporate development.
Other income, net of interest expense, consisting of interest on cash
and term deposits and gain on foreign exchange, earned during the year ended
June 30, 2000 amounted to US$216,301 (CDN$319,823) compared to a loss of
US$1,669 (CDN$2,457) for the period from inception to June 30, 1999, an increase
of US$217,970 (CDN$322,280). The increase is due to the fact that we had more
cash on hand during fiscal 2000 than in the preceding period as a result of
capital raised through private placements and the exercise of warrants and
options and because of a favorable variation in the exchange rate between the
Canadian and the US dollar.
As a result of the above, our overall loss for the year ended June 30,
2000 amounted to US$151,198,510 (CDN$223,562,114) or US$5.95 (CDN$8.80) per
share, compared to US$704,524 (CDN$1,037,060) for the period from inception to
June 30, 1999.
Financial Condition, Liquidity and Capital Resources
From our inception to June 30, 1999, we had been engaged in capital
raising, developmental and organizational activities and construction of our
pilot plant. During the year ended June 30, 2000, we made significant
investments in staffing and equipment. These investments and costs have been
financed mainly through proceeds of private placements, the exercise of warrants
issued in such private placements and the exercise of options. In 2000, we
realized net proceeds of US$9,213,670 (CDN$13,623,333) from these sources.
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<PAGE>
In July 1999, we issued 960,000 units at a price of US$1.00 per unit.
Each unit comprised one share of common stock and one warrant for the purchase
of one additional share at a price of US$1.50 per share before June 2001.
In September 1999, we issued 407,000 additional units at a price of
US$4.00 per unit. Each unit comprised one share of common stock and one warrant
for the purchase of one additional share at a price of US$6.00 per share before
September 2000. Of these warrants, 125,000 were exercised in October 1999.
In September 1999, we issued 400,000 additional units to holders of the
convertible notes issued in March 1999 upon the full conversion of their notes.
Each unit comprised one share of common stock and one warrant for the purchase
of one additional share at a price of US$0.90 per share before September 30,
2001. We issued an additional 30,000 units for US$15,000 (CDN$22,179) to the
underwriter who had placed the securities upon conversion of the notes into
units. The warrants included in the units issued to the underwriter were
exercised in December 1999 for proceeds of US$27,000 (CDN$39,922).
In November 1999, we issued 21,500 units at a price of US$7.00 per
unit. Each unit comprised one share of common stock and one warrant for the
purchase of one additional share at a price of US$9.00 per share before
September 30, 2000.
In November 1999, we issued 10,000 additional units at a price of
US$10.50 per unit. Each unit comprised one share of common stock and one warrant
for the purchase of one additional share at a price of US$15.50 per share before
October 31, 2000.
In November 1999, Molex exercised warrants issued to it in June 1999 to
acquire 1,666,667 shares at a price of US$0.90 per share for total proceeds of
US$1,500,000 (CDN$2,217,900).
In January 2000, we issued 86,022 additional units at a price of
US$23.25 per unit for a total consideration of US$2,000,000 (CDN$2,957,200).
Each unit comprised one share of common stock and one half of a common share
purchase warrant per share of common stock purchased. Each of these warrants can
be exercised to acquire one half share of common stock at a price of US$30.00
per share before December 7, 2000.
The second closing under the stock purchase agreement with Molex, which
was subject to our proving out our technology and our ability to manufacture and
deliver certain devices, took place in March 2000 and resulted in the issuance
of 1,500,000 shares of common stock for cash consideration of US$750,000
(CDN$1,108,950).
Options to acquire a total of 742,850 shares were exercised during the
twelve-month period ended June 30, 2000 for total proceeds of US$742,850
(CDN$1,098,378).
Additionally, warrants to acquire a total of 2,747,667 shares
(including 1,666,667 shares issued to Molex upon exercise of its warrants) were
exercised in the twelve-month period ended June 30, 2000 for total proceeds of
US$3,348,000 (CDN$4,950,352).
The funds raised through the above financing activities have been
partially offset by operating activities amounting to US$3,641,421
(CDN$5,384,204). The Company has disbursed US$1,974,110 (CDN$2,918,919) in
property and equipment during the twelve-month period ended June 30, 2000 and
made deposits of US$1,031,495 (CDN$1,525,168) on lease agreement and equipment
ordered.
At June 30, 2000, we had cash on hand of US$761,113 (CDN$1,125,382). In
addition, we had US$2,907,891 (CDN$4,299,608) in term deposits with maturity
dates no later than August 23, 2000 and with no restriction in their use. At
June 30, 2000, the market value approximated the carrying value.
The above balances in cash and term deposits, along with proceeds from
a financing of a US$35,000,000 (CDN$51,751,000) five-year convertible note on
July 25, 2000 should, in management's estimation, be sufficient to meet our
financial needs until at least December 31, 2001, excluding unforeseen
significant capital expenditures. We had no financial obligations of
significance at June 30, 2000 other than operating lease commitments for our
19
<PAGE>
existing premises and equipment, and employment agreements. Minimum lease
payments under operating lease agreements for premises and equipment for the
next twelve months amount to US$661,773 (CDN$978,497).
We do not believe that inflation has had a significant impact on our
results of operations.
Subsequent Event
On July 25, 2000, we sold US$35,000,000 (CDN$51,751,000) aggregate
principal amount of convertible notes due July 25, 2005 to two institutional
investors.
Functional Currency
Because the Canadian dollar is primary in the economic environment in
which we operate, the Canadian dollar is its functional currency. Accordingly,
amounts presented in U.S. dollars are provided for convenience of reference only
and are based on the closing exchange rate at December 31, 1998, June 30, 1999
and June 30, 2000, which were CDN$1.533, CDN$1.472 and CDN $1.4786 per U.S.
dollar, respectively. The rate stated is from the Bank of Canada for each
respective date.
BUSINESS
Overview
We are a development stage company that designs and develops products
related to the Dense Wavelength Division Multiplexing (DWDM) market and other
optical or photonic segments of the global telecommunications and data
communications optical networking markets. DWDM is a technology that permits a
user to send multiple sources of information and data at the same time over a
single optic fiber. DWDM allows network operators to remove an entire class of
equipment in their emerging, high-capacity, data-backbone networks. We are
developing and manufacturing devices for use in the DWDM market under a teaming
agreement with Molex Incorporated.
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.
Service providers like AT&T and MCI WorldCom are creating fiber optic
networks to transmit large quantities of data and information at high speeds to
meet demand for such uses as the Internet, e-mail and electronic commerce. Such
service providers desire to increase the capacity of their networks to carry and
deliver more information at high speeds without the additional costs of
installing new fiber optic cable. DWDM products allow providers to greatly
increase their information carrying capacity on existing fiber at significantly
lower cost. Existing DWDM products use the following technologies: thin film
filters (thin filters), fiber Bragg gratings (Bragg gratings) or array
waveguides (AWG).
DWDM is a technology that allows multiple wavelengths of light (the
information carrier) to be transported on a single fiber optical strand,
increasing the carrying capacity of optical fiber and transmitting information
at the speed of light. The multiplexing component of the DWDM allows different
wavelengths of light (that is, different colors or channels of information) to
be added to the optical fiber, which means more (denser)
20
<PAGE>
channels or communication pathways can be added to existing optical fiber for
simultaneous transport. To date, the solution to resolve capacity constraint has
been to add or lay additional fiber in the ground or to use one of three kinds
of DWDM devices presently available. The devices can be circuits that have been
etched into chips (AWG), thin filters or Bragg gratings. Using DWDM technologies
to add capacity is significantly less costly than installing new fiber in the
ground, which installation includes costs associated with construction,
purchases of rights of way, work and regulatory permits and weather delays.
We make DWDM products in the form of an AWG "optical chip" on silicon
through a patented sol-gel manufacturing process. We acquired its rights to the
sol-gel process under a license agreement with Ecole Polytechnique and McGill
University. To our knowledge, there are no other manufacturers of DWDM products
on silicon using a sol-gel manufacturing process. We have chosen an optical chip
form for our product development because we believe that our licensed process
will allow us to provide high volume and high quality DWDM devices. These
devices will address market demand that cannot be fully served by other devices
manufactured with competing technologies.
We believe this because:
(1) the sol-gel process requires a lower capital investment in
equipment, because there is no need for vacuum thin film
deposition and vacuum coating technology
(2) making the AWG chip requires less manual labor (piece-work
assembly)
(3) the optical chip manufacturing process requires fewer steps,
reducing the likelihood of manufacturing defects
(4) as the optical chip's channel count grows, cost does not increase
proportionally.
We have focused on developing and producing DWDM devices and products
because we believe that DWDM technology offers a bandwidth solution to a
potentially large market, the telecommunications market. The telecommunications
market includes long distance, metropolitan, and access. Bandwidth or
information carrying capacity is critical in each segment. DWDM is in a nascent
stage for the metropolitan and access markets.
Industry Background
Survey data on the size of the global and North American DWDM markets
vary from source to source. What is common to all surveys is the fact that the
DWDM market is large and growing at a compound annual growth rate of
approximately 50%. The U.S. market for DWDM systems in 1995 stood at
approximately US$50 million. According to Laser Focus World, the North American
DWDM market reached US$1.3 billion and the global market for DWDM systems grew
to US$2.2 billion in 1998.
Communications Industry Researchers, Inc., an industry authority,
reported that DWDM and related optical technologies will grow to a market of
US$7.6 billion by 2003. Manufacturers of DWDM systems that use DWDM devices
include:
o Lucent Technologies, Inc.
o Ciena Corp.
o Alcatel
o Cisco
o Nortel Networks Corp.
o NEC
o Fujitsu.
Several of these systems manufacturers (Lucent, Ciena, Alcatel, and
NEC) also manufacture DWDM products. Other DWDM component suppliers include:
o JDS-Uniphase Corp.
o Gould, Instruments SA
o Corning OCA
o Ditech Communications Corp.
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o DiCon
o Sumitomo
o Bosch.
Large companies like AT&T Corp. and MCI WorldCom Inc. are part of the
DWDM market. AT&T has used equipment supplied by Lucent Technologies, while MCI
has used DWDM equipment supplied by Hitachi Ltd. and Nortel.
Unprecedented Growth of Information Traffic
The telecommunications industry has experienced the shift in traffic
from voice to data-dominated.
Computers increasingly process and send more information across
networks with greater speed and in greater quantity than the quantity for which
voice-centered networks were designed. New data-handling protocols have been
introduced to handle data more efficiently. New data communications equipment
has been designed and created to route and switch data transmission at very high
speeds.
The popularity and increased usage of the Internet, new users and
applications are putting pressure on the existing network capacity and
performance of service providers. Service providers are continually in need of
network improvements and increases in their available bandwidth in order to stay
competitive. They are looking for ways to optimize their investment in their
existing network and a low cost solution to increase capacity. Optical fiber
networks are widely deployed by telecommunications service providers for
domestic and international carriage. Recent increases in information traffic,
growing competition and increased demand for reliability at lower cost have
required carriers to enhance the service they provide. Part of the solution has
been the deployment of DWDM systems.
The flow of traffic has also increased by the growing capacity and
processing speed of data communications equipment, like asynchronous transfer
mode (ATM) switches and internet protocol (IP) routers and the development of
high bandwidth network access technologies, such as cable modems, hybrid fiber
coaxial architectures and digital subscriber lines. According to Ryan, Hankin &
Kent, a leading market researcher, Internet traffic will increase from 350,000
tera bytes per month at the end of 1999 to over 15 million tera bytes per month
in 2003.
Competition
Widespread telecommunications industry deregulation in the United
States has resulted in increased competition among service providers. Some
industry analysts believe this has increased the need for greater bandwidth
capacity on networks. As carriers seek to differentiate themselves from
competitors, they have emphasized high capacity technology to sell their
services.
Reliability
Consumers and generators of information are becoming more dependent on
network reliability. End-users are less and less tolerant of service
interruptions. Network carriers have responded by introducing fiber optic
networks that can overcome cable cuts or other equipment failure between two
points. These networks frequently utilize a "ring architecture" in which routes
are linked in a ring configuration, permitting rerouting of traffic along the
reverse path of the ring in the event of a service interruption caused by a
fiber optic cable cut or other equipment failure. Ring architectures require
twice the fiber capacity of non-ring systems. These system designs therefore
place greater bandwidth demand on existing fiber networks.
Other capacity drivers
Other capacity drivers on fiber optic networks include technologies
such as digital subscriber lines (DSL). DSL promises higher access speeds to
residences and businesses. With potential speeds in excess of a megabit, this
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<PAGE>
is expected to continue to impose additional strain (demand for bandwidth) on
the optical network backbone. According to W. Carter, an industry analyst, such
constraints can be resolved by utilizing DWDM technology.
PHASIC(TM) Process
Our patented manufacturing process is called PHASIC(TM). PHASIC(TM)
stands for Photonic Hybrid Active Silica Integrated Circuit, which refers to the
materials and processes we use to produce our devices in the form of an
integrated optical circuit on silicon microchips similar to those used in
computers. For DWDM devices, the optical circuit consists of a collection of
micron size array waveguide gratings (AWG) that have been arranged to combine
(multiplex) or separate (demultiplex) light at the telecommunications wavelength
near 1.55 microns. More specifically, we use hybrid glasses for making our AWG
and a simplified manufacturing process for creating our optical circuits on
silicon. The "hybrid glass" (a glass-polymer solution) can be used to print
(through light) circuits on chips without the costly vacuum etching process and
the use of manual labor for assembly of micro-optic devices. We expect to be the
first to commercialize hybrid glasses for use in integrated optics.
The optical chip contains an optical circuit analogous to the
micro-electronic circuit that is produced on silicon microchips used in
computers. Optical circuits can be made with 4, 8, 16, 32, 40, 64 and more
channels to transport different optical signals (light) carried at different
wavelengths. Light signals are combined and separated on the optical chip by
taking advantage of the differences in the length of the individual waveguides
in the AWG. These path differences translate into optical phase differences.
This means that light of a given wavelength (a given optical channel) can be
combined with others for input to an optical fiber (multiplexing). With the same
device, light can also be separated for output to individual optical fibers
(demultiplexing). This technology simplifies the process while providing a
product and technology that can be adapted to the industry's changing needs.
Plan of Operations
Our plan of operations for fiscal year 2001 is to get our plant and
volume production up and running in order to produce 8, 16, 32 and 40 channel
DWDM devices and bring them to market. Volume production will be realized by:
o completing the construction of our facility and setting up our
manufacturing infrastructures
o defining processing sequences and conditions (wafer coating,
photolithography, etc.) that distinguish fabrication of devices
o increasing staffing and investing in the training of our
employees
o implementing a framework for quality control and reliability
testing
o expanding our DWDM packaging and fiber pigtailing capability
o broadening our product portfolio
o securing our supply chain.
Research and Development
Research and development activities for fiscal year 2001 will be
centered on finalizing the packaging of our DWDM products and optimizing our
manufacturing processes. We will also focus on developing new products that we
judge to be of value to the photonics market.
Manufacturing
At the end of June 2000, we moved our headquarters to a site located in
Ville St-Laurent, a suburb of Montreal, Canada. The 53,427 square-foot facility
has a 34,400 square foot manufacturing facility that features materials
preparation, fabrication, packaging, optical test and quality control facilities
for our DWDM products. We have commenced the internal construction of the
production facility, consisting of cleanrooms and associated
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laboratories, and have ordered the required manufacturing equipment. Our
existing R&D facility, located in Dorval, Quebec, will be used for prototyping
once the Ville St. Laurent facility is operational.
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.
o Leverage Existing Customer Relationship and Develop New
Relationships
In May 1999, we entered into a teaming agreement with Molex, a global
manufacturer of electronic, electrical and fiber optic interconnection products
and systems. The teaming agreement was amended in March 2000. Under the teaming
agreement, we agreed with Molex to jointly develop 8, 16 and 32-channel DWDM
products for sale to Molex and distribution and marketing by Molex to other
customers. Subject to testing of our technology and proof of our manufacturing
capability, Molex is committed to purchase 400 units per month for the first 12
months, and has the option to purchase 50% of our DWDM production. This
arrangement should provide a firm customer base for our early production. We
also propose to establish relationships with telecommunications equipment
manufacturers and with manufacturers in other industries with potential
applications for its devices.
o Target Long Distance, Metropolitan Area and Access Markets
We believe that much of the potential expansion of the markets for our
products will occur not in long distance telecommunications, but in new markets,
such as metropolitan area, local area and office environments. This is a result
of technological advances and the potential to reduce manufacturing costs. We
have chosen to target these market segments for DWDM technology because
combined, they are anticipated by Pioneer Consulting, an industry authority, to
account for market growth from US $200 million in 1998 to approximately US$1
billion in 2003.
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o Expand Manufacturing Capability
Our prospective customers are expected to require high volumes of
products manufactured to high quality standards at gradually decreasing prices.
We are currently expanding beyond our existing Research and Development facility
in Dorval to a full scale manufacturing facility in Ville Saint-Laurent, with a
production capability of 500 devices per day. We are finalizing the completion
of the 34,400 square foot manufacturing facility in order to begin production in
2001.
Technology and Products
We use a solution or liquid sol-gel process to produce our DWDM optical
devices. Sol-gel processing converts molecules of silicon-containing compounds
into a network of glasses. We produce our glass at temperatures below 200(0)C,
which is considerably lower than the temperatures otherwise used in the FHD
process. We believe we are the only producer of compact AWG DWDM devices using a
low temperature sol-gel process for its hybrid glass on silicon. The licensed
low-temperature sol-gel process allows films of glass to be dip-coated or
spin-coated onto silicon substrates in large quantities and at greater speed
than vacuum coating. We use conventional photolithography (also known as
photo-microlithography), which is a method to "print" optical circuits and
devices directly into its hybrid glasses. The glass also contains a second
monomer (an organic component) that can be polymerized when it is exposed to
light in the ultra-violet end of the spectrum. Polymerization creates the
optical AWG that comprises the DWDM technology. A pattern of the AWG is made by
projecting an image of the pattern, exposing a patterned mask (an optical mask)
to ultra-violet light. The light passes through the patterned openings of the
mask and "writes" or "projects" the image directly into the micron-thin hybrid
glass film on a silicon substrate. The procedure is similar to the way
photographs are printed in a darkroom.
Platform Material Technology
Our licensed "hybrid glass" technology combines the features of
inorganic silica glass and organic polymeric materials in a single matrix
(material glass platform), which we refer to as our platform technology. The
"hybrid glass" provides a more flexible material for use in the design,
fabrication and manufacturing of devices, resulting in greater adaptability and
increased options within the performance of a DWDM system. This technology
permits the manufacture of customized devices to meet a customer's specific
needs. DWDM devices may be required to meet certain performance standards
established by regulatory groups. Our DWDM technology can be adapted to meet
such performance standards.
We believe we are the only producer to introduce a sol-gel technology
for integrated optics that combines both polymer and glass material platforms in
a single material base for integrated optics devices on silicon. We use polymer
photolithographic manufacturing methods that have been long accepted by the
semiconductor and microelectronics industries that we adapted to produce hybrid
silica glass integrated optics devices. Based on our own experience in the
research and development of the platform technology, we believe that we have a
two-to three-year lead-time over the industry competition that may arise in the
production of optical chips from hybrid glasses. The materials used to formulate
the hybrid glasses are custom designed and readily available "off-the-shelf"
products supplied by well-known manufacturers like Dow Corning, Aldrich Chemical
and Ciba Specialty Chemicals Ltd. Because the quantity of material used to make
a device is very small (the films are less than 20 microns thick), the cost of
the materials is less than 5% of the total cost of the DWDM product, making the
material cost-competitive with silica or polymers. Additionally, the methodology
used to manufacture such products avoids complex and costly processing and
etching sequences, thereby reducing production costs. Through the use of the
platform technology, we will, in the future, be able to target products for a
customer's product line by supplying a variety of valuable customized products.
For example, in the photonic circuit market, we can market our products to meet
the broadest possible range of applications. These applications might call for
material properties very similar to those of glass. Alternatively, these
applications might require material properties similar to those of organic
polymers. Neither polymers nor silica alone are as flexible or adaptable as a
hybrid glass. Further, other target products that could be produced and utilized
in the telecommunications long-haul networks are optical add-drop multiplexers,
optical cross connects and photonic switches, which can create more transparent
all-optical networks and replace many synchronous optical network (SONET)
sub-systems. We believe that the relative simplicity of
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our PHASIC(TM) process, using hybrid glasses, will enable us to fabricate
optical chips across the broadest range of photonic market opportunities in high
volume.
Technological Leadership
We have assembled a team of scientists, engineers and technologists
with broad expertise in materials formulation, photonic device design, hybrid
glass integrated optics circuit fabrication, product definition and industrial
process engineering. This team has pioneered the development of "photonic chips
on silicon" based on proprietary formulations of hybrid glasses and the creation
of software design tools and processing our knowledge. Our technical structure
comprises software development/optical circuit design, materials formulation and
process engineering. This should allow us to evolve as a significant provider of
integrated optics products to the photonic industry, including local area
networks and future home network applications.
We have also created a technical advisory board to advise us on
photonic market trends and technology and to assist in the development of an
optical information technology "roadmap" for our benefit. This board consists of
three external scientists with extensive experience and expertise in the
industry.
Advanced Software Design Tools
We use both proprietary and industry standard design tools to create
our DWDM devices. We have developed in-house theories and software algorithms
for creating product designs such as our complex AWG for DWDM. We are unaware of
any commercially available design packages that compete with our software
capability. Whether or not other entities have developed software design tools
of quality competitive with ours should have no impact on our business, which
uses our software in a manner uniquely adapted to the photonic materials and
processes we have developed. We have also obtained licenses for industry
standard computer aided design (CAD) and beam propagation method (BPM) software
to model or design selected performance features of simpler devices, such as
couplers and splitters.
We have built a library of design tools and designed elements that can
be used in modular form to assemble more complex device structures
(multi-functional devices on a chip). Our technical marketing and design
application engineers have a broad knowledge of integrated optics device systems
design (architectures) and their integration in subsystems and systems. With
such expertise, we will be able to develop photonic chip products that are
flexible, modular and designed to be deployed in existing and future networks
and for use in modern data and telecommunications equipment. This modular
approach facilitates the re-use of complex functional DWDM devices in new and
customized designs, reducing our DWDM product development cycles. We believe
that a large library of complex functions is required to compete effectively in
the market, especially in terms of cost and length of development cycles.
Manufacturing
We have commenced the manufacture of our prototype devices in our
custom-designed pilot microfabrication facility located at Dorval, Quebec. The
capacity of this facility is 20 DWDM chips per day. As of August 2000, we have
not sold a finished product in the open market. The current generation of chips
is being used for development and test phases. This includes the development of
solutions for pigtailing optical fiber to the DWDM chips, and for hermetic,
semi-hermetic and non-hermetic packaging.
We rely largely on our own processes for the manufacture of our
products. In order to meet the projected demand for high volume, low cost
photonic chip production, we will be required to equip and staff a full scale
production facility. We are in the process of completing construction of our new
manufacturing facility in Ville St.-Laurent. We anticipate developing a
manufacturing capacity to 500 devices per day in 2001 and 1,000 per day in 2002
in the new facility.
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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.
There can be no assurance that any patents will be issued under our
current or future patent applications or that any issued patents will not be
invalidated, circumvented, challenged or licensed to others. In addition, there
can be no assurance that the rights granted under any such patents will provide
competitive advantages to us. There can be no assurance that any patents issued
to us will be adequate to safeguard and maintain our proprietary rights, to
deter misappropriation or to prevent an unauthorized third party from copying
our technology, designing around the patents owned by us or otherwise obtaining
and using our products, designs or other information. In addition, there can be
no assurance that others will not develop technologies that are similar or
superior to our technology.
We also rely on confidentiality agreements to protect its proprietary
rights. It is our policy to require employees and consultants and, when
possible, suppliers, to execute confidentiality agreements upon the commencement
of their relationships with us. Litigation may be necessary to enforce our
intellectual property rights and to protect our trade secrets, and there can be
no assurance that such efforts will be successful. Our inability to protect its
proprietary rights effectively would have a material adverse effect on our
business, financial condition and results of operations.
Many participants in the photonics and related communications
industries have a significant number of patents and have frequently demonstrated
a readiness to commence litigation based on allegations of patent and other
intellectual property infringement. Although we are not aware of any claim of
infringement or misappropriation against us, there can be no assurance that
third parties will not assert such claims in the future with respect to our
current or future products. We expect that companies will increasingly be
subject to infringement claims as the number of products and competitors in our
industry segment grows and the functionality of products in different industry
segments overlaps. Responding to such claims, regardless of merit, could cause
product shipment delays or require us to enter into royalty or licensing
arrangements. Any such claims could also lead to time-consuming, protracted and
costly litigation that would require significant expenditures of time, capital
and other resources by us and its management. Moreover, no assurance can be
given that any necessary royalty or licensing agreement will be available or
that, if available, such agreement could be obtained on commercially reasonable
terms.
Material Agreements
Agreements with Molex
On May 19 and June 21, 1999, we entered into several agreements with
Molex (NASDAQ: MOLX), based in Lisle, Illinois. Molex is a 60-year-old global
manufacturer of electronic, electrical and fiber optic interconnection products
and systems, switches, value-added assemblies and application tooling. The Molex
agreements include a teaming agreement, a stock purchase agreement, a stock
restriction agreement and a registration rights agreement. The teaming agreement
was amended on March 3, 2000.
Under the teaming agreement, as amended, we agreed with Molex to
jointly develop 8, 16 and 32-channel DWDM products for use in the DWDM market
and other photonics markets. Subject to our testing and proving our technology
and our ability to manufacture and deliver certain devices, Molex is committed
to purchase our entire DWDM production for the first 12 months of production, up
to 400 units per month. Molex also has the option to buy 50% of our remaining
chip production. After the first 12-month period, Molex will have the option to
purchase
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50% of our DWDM production for the succeeding three-year period. Any product
sold by us to Molex will be priced at our gross cost. In addition, Molex will
pay to us 30% of the profits obtained on final products built from the chips
supplied, 50% of the profits from sales of functionally unmodified packaged
products and 30% of the profits from sales of other final products. We are free
to package and sell any remaining products, with all profits going to us.
However, we cannot sell unpackaged chips for telecommunication applications,
except for special order or exploratory purposes, without written agreement from
Molex. In the event we are unable to supply Molex on a timely basis with a
commercially reasonable quantity of the devices (which may trigger termination
of the teaming agreement) or in the event we have a change of control, Molex has
the non-exclusive right to manufacture all components of the devices in return
for a royalty equal to 50% of the profits from sales of functionally unmodified
packaged products and 30% of the profits from sales of other final products.
Under the stock purchase agreement, Molex agreed to purchase 3,000,000
shares of our common stock at a price of US$0.50 per share in two stages. The
first closing was held on June 21, 1999 for 1,500,000 shares of common stock and
the second closing was held in March 2000 for an additional 1,500,000 shares of
common stock. We also issued to Molex a warrant to purchase 1,666,667 additional
shares of common stock at a price of US$0.90 per share, which was exercised on
November 15, 1999.
In addition, we issued Molex a services common stock purchase warrant
(the services warrant) to receive 5,800,000 additional shares of common stock in
exchange for certain services to be rendered by Molex to us under the teaming
agreement as part of the development of our technology. These shares were issued
in 2000 as Molex performed services.
Under the stock restriction agreement, certain stockholders have agreed
not to sell their respective shares of our common stock to a competitor of Molex
without Molex's prior consent. This agreement includes a right of first refusal
and certain preemptive rights in favor of Molex, except that we can, without
Molex's consent, issue up to 6,000,000 units (comprising one share of common
stock and a warrant for the purchase of one share of common stock at a price of
not less than US$0.90 per share) at a price not less than US$0.50 per unit to
raise capital within the 24-month period ending in June 2001. The stock
restriction agreement also requires the consent of Molex for certain
extraordinary actions relating to our governance and our operations. Certain
rights or restrictions contained in the stock restriction agreement terminate
upon completion of a public sale or a public offering, as described in the
agreement. The stock restriction agreement will also terminate if the teaming
agreement is terminated.
The net proceeds of the issuances of stock to Molex were added to our
working capital and are being used in part to accelerate the commercialization
of our DWDM products.
Agreement with Polyvalor and McGill University
We entered into a license agreement with Polyvalor, a Canadian limited
partnership, as represented by its General Partner, Polyvalor Inc. and McGill
University (together, Polyvalor and McGill University are referred to as the
Licensor) pursuant to which we acquired the right to produce, sell, distribute
and promote products derived from using the patents and know-how (as such terms
are described in the license agreement) of the licensor subject only to the
license granted to QPS Technology Inc. in May 1998. To date, QPS Technology Inc.
has not demonstrated any desire or capability to utilize its license for
production of any related technology or products. These patents and know-how are
based on the work of Dr. Iraj Najafi at Ecole Polytechnique and Dr. Mark Andrews
at McGill University and their respective team of collaborators. We will pay a
royalty of 5% on gross sales, up to a maximum cumulative amount of US$2,367,104
(CDN$3,500,000) to the licensor until October 2017 at which time the license
agreement will expire. We do not believe that the rights granted to us under the
license agreement will be of significant value after that date. If this is not
the case, we 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, we issued to each of McGill
University and Polyvalor 750,000 shares of our common stock and granted them
jointly the right to nominate one director to our board of directors.
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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.
Convertible Note Financing
On July 25, 2000, we sold US$35,000,000 (CDN$51,751,000) aggregate
principal amount of convertible notes due July 25, 2005 to two institutional
investors. The notes bear interest at rate of 7 1/2% per annum, which is payable
upon the earlier to occur of the repayment or conversion of the notes. The notes
are convertible from and after issuance into shares of common stock at a price
equal to the average of the closing bid prices of our common stock for the five
consecutive trading days ending immediately prior to conversion, but in no event
less than US$7.00 nor more than US$25.00 per share (unless a default under the
notes has occurred). Commencing 30 months after the issuance of the notes, we
may require their conversion provided that (i) the volume weighted average price
for our common stock for any 40 consecutive trading days equals or exceeds
$50.00, (ii) the average trading volume of our common stock during such 40
consecutive trading days equals or exceeds 120,000 shares per day, (iii) the
shares of common stock issuable upon conversion of the notes are authorized and
reserved for issuance, registered for resale and eligible to be traded on the
New York Stock Exchange, the American Stock Exchange or The Nasdaq National
Market and (iv) there is not an uncured event of default under the notes. The
notes provide for various events of default, which would entitle their holders
to require the immediate repayment of the notes, together with an additional
default amount. The amount payable upon an event of default would be equal to
the greater of (i) 115% of aggregate principal amount of the notes plus all
accrued and unpaid dividends on the notes and (ii) the quotient of (a) the
aggregate principal amount of the notes plus all accrued and unpaid dividends on
the notes divided by (b) the conversion price on the date we receive notice of
the default multiplied by the highest closing bid price of our common stock
during the period beginning on the date we receive notice of the default and
ending the date preceding the payment of the default amount. Such events of
default include our failure to pay the principal amount of the notes or accrued
interest on the notes for five trading days after the due date, our failure to
make any payment with respect to any indebtedness greater than $100,000 to a
third party, our default under any agreement that would materially adversely
effect us, the suspension of our common stock from trading for an aggregate of
10 trading days in any nine month period, the failure to have the registration
statement of which this prospectus forms a part declared effective by April 21,
2001, the suspension of such effectiveness for more than 30 days, our failure to
remove restrictive legends from the certificates for the common stock, our
indication to any holder of the notes that we do not intend to issue shares of
common stock upon conversion of the notes, our breach of any material term of
the notes or the other agreements entered into in connection with the notes, the
institution of bankruptcy proceedings, and the failure to have the stock
purchase agreement approved by stockholders by December 31, 2000. The holders of
the notes may also require their repayment, together with an additional
redemption amount (calculated as described above for an event of default), upon
certain extraordinary events, such as the sale or disposition of all or
substantially all of our assets, a merger or consolidation where we are not the
surviving entity and the acquisition of at least 50% of the voting power of
common stock owned by one person, entity or group (other than our current
majority holders).
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.
In connection with the financing, we issued to the purchasers five year
warrants to purchase an aggregate of 5,000,800 shares of common stock, vesting
18 months after issuance, based upon the volume weighted average price of the
common stock during the five consecutive trading days preceding vesting. If the
volume weighted average price is equal to or less than US$30.00, then the
exercise price will be US$10.00. If the volume weighted average price is greater
than US$30.00, but less than US$70.00, then the exercise price will be the sum
of US$10.00, plus one-half of the excess over US$30.00. If the volume weighted
average price is more than US$70.00, then the exercise price will be US$30.00.
The number of shares of common stock issuable upon exercise of the warrants and
the exercise price of the warrants are subject to adjustment upon the occurrence
of certain dilutive issuances of our securities, including the issuance of
convertible securities at a conversion/exercise price that is less than the then
current market price, stock splits, stock dividends and other recapitalizations.
In addition, upon a consolidation, merger or sale in which we are not the
surviving entity, we must require that our successor will assume our obligations
under the warrants. If we declare or make any distribution of assets or rights
to acquire shares to our stockholders, the holders of the warrants, upon
exercise thereof, will be entitled to receive the amount of such assets or
rights as if such holder had been a holder of common stock on the date of such
distribution. In the event of a default under the notes or in certain other of
our obligations to the purchasers, vesting of the warrants may be accelerated.
We agreed with the purchasers of the notes that for a period of 180
days after the issuance of the notes, we would not, without the prior consent of
the purchasers, obtain additional equity or equity-linked financing and that for
a further period of 180 days, should we propose to engage in any equity or
equity-linked financing, we would offer the purchasers the opportunity to
provide such financing upon the terms and conditions proposed. Such agreement is
not applicable to business combinations or firm commitment public offerings. We
also agreed to submit for the approval of our stockholders prior to November 30,
2000 the agreements under which the notes and warrants were issued.
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We also agreed with the purchasers to register for resale under the
Securities Act of 1933, as amended, 8,800,000 shares of common stock issuable
upon conversion of the notes and exercise of the warrants. The registration of
such shares is covered by the registration statement of which this prospectus
forms a part.
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.
Competition
There are several competitors producing DWDM products in the market. We
believe that we will distinguish ourselves from the competition by producing
DWDMs in high volume, while retaining high performance standards. Manufacturers
of DWDM systems that may use AWG devices include Lucent Technologies, Ciena,
Alcatel, Cisco, Nortel, NEC and Fujitsu. Several of these systems manufacturers
(Lucent, Ciena, Alcatel, and NEC) also manufacture DWDM products. Other DWDM
component suppliers include, but are not limited to, JDS-Uniphase, Gould,
Instruments SA, Corning OCA, Ditech, DiCon, Sumitomo, Bosch Kymata Ltd.,
Lightwave Microsystems Corp. (LMC) and Bookham Technology Limited. We believe
that we can compete effectively because we will be capable of manufacturing our
products in high volumes and in a cost effective manner. We have developed
materials and processes that use volume coating and optical circuit fabrication
processes that we believe are simpler than those of our competitors. The
photonic chip approach we adopted offers the advantage of compactness at the
larger channel counts since there is no need to cascade. Our compact devices
will allow manufacturers of DWDM systems more flexibility with the design of
more compact products. Moreover, we believe that our platform technology will
allow us to produce a broader range of products in the photonic components
markets related to optical networking than that of other competitors. This
broader range of products may include photonic chips that can be used for
interconnection, power division and combination in personal computers, where
price sensitivity is an issue. We believe that we are in a strong position to
become a technological leader in the industry by introducing our new processes
and by defining industry standards for volume photonic chip manufacturing
through our low-temperature, low cost processing of compact chips and our
customization of products.
We expect competition to increase in the future from existing
competitors and from companies that may enter our existing or future markets,
with similar or substitute solutions that may be less costly or provide better
performance or features than our products. To be successful in the future, we
must continue to respond promptly and effectively to changing customer
performance, feature and pricing requirements, technological change and
competitors' innovations. We are reliant upon our licensed sol-gel manufacturing
process under the terms of our license agreement Polyvalor and McGill
University.
The photonics industry has been marked by the emergence of start-up
companies offering products at the component, sub-system and systems levels.
Larger companies have been aggressive in acquiring start-ups for preferred
competitive technological edge, to circumvent issues of increasing technological
complexity and to accelerate time-to-market product introduction, avoiding the
cost and delay that would otherwise be inherent in in-house development. To
date, no acquisition offers have been made to us nor do we anticipate any to be
made in the foreseeable future. Our success will depend on our customers'
acceptance of outsourcing as an alternative to in-house development by larger
companies. Many of our potential customers have substantial technological
capabilities and financial resources. These customers may currently be
developing, or may in the future decide to develop or acquire, products or
technologies that are similar to or may be substituted for our products, which
may diminish purchases of our products.
A number of our current and potential competitors have longer operating
histories, greater name recognition, access to larger customer bases and
significantly greater financial, technical, marketing and other resources than
us. As a result, they may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements or to devote greater resources
to the promotion and sale of their products. In addition, current and potential
competitors may determine, for strategic reasons, to consolidate, to lower the
price of their products substantially or to bundle their products with other
products. Current and potential competitors have established or may establish
financial or strategic relationships among themselves or with existing or
potential
33
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customers, resellers or other third parties. Accordingly, it is possible that
new competitors or alliances among competitors could emerge and rapidly acquire
significant market share. Increased competition may result in price reductions,
reduced gross margins and loss of market share.
We believe that our ability to compete successfully depends on a number
of factors, both within and outside of our control. Such factors include the
price, performance and quality of our and our competitors' products, the timing
and success of new product and feature introductions by us, our customers and
our competitors, the emergence of new standards in the optical communications
industry, the development of technical innovations, the availability of raw
materials, the efficiency of production, the rate at which our customers design
our products into their products, the number and nature of our competitors in a
given market, the assertion of intellectual property rights and general market
and economic conditions.
Sales, Marketing and Technical Support
We are party to an agreement with Molex that reserves most of our first
year of production for Molex and also provides us with access to Molex's global
distribution network. This reliance on Molex poses an operating risk to us. In
the event that this relationship changes and Molex is not able to provide us
access to Molex's distribution network, we will be selling our products directly
through our in house selling and marketing. We plan to develop an international
network that would include offices in North America, Europe and Asia-Pacific.
We presently promote our developing product line in trade journals to
generate advance interest. Over the next 12 months, we will hire additional
internal marketing and sales personnel to assist with our efforts.
We believe that providing our clients with comprehensive product
service and support is critical to maintaining a competitive position in the
optical communications market. Our practice will be to work closely with our
customers to monitor the performance of our product designs and to provide
application design support and assistance. We will also provide a valuable
technical resource for consulting on photonic component trends and
implementations. Technical data will be provided to customers through our
applications engineers, technical marketing and factory applications engineers
and, if necessary, product designers and architects or system designers. Local
field support will be provided in person or by telephone.
We intend to provide support at crucial stages of product development.
During the design phase, we may sell software simulation models of each photonic
component or device, to allow customers to simulate the performance of the
product in their entire system before committing to it. In the future, we may
also offer a line of evaluation modules, which are subsystems that are
representative of a typical customer design. These modules would enable
customers to evaluate the device, as well as hardware design and software
development functions, without significant development effort on their part,
thereby facilitating rapid time-to-market. We believe that close contact with
these customers will allow us to tailor our products to the market and technical
needs defined by key OEMs. Understanding our customers' particular problem will
enable us to design and develop solutions in our next generation of products.
History of the Company
Our principal place of business is located in the Montreal suburb of
Ville Saint Laurent. We were incorporated in the state of Delaware in February
1996 under the name of WWV Development, Inc. In July 1998, under an acquisition
plan, we acquired all of the issued and outstanding shares of LILT Canada, Inc.,
a Canadian corporation ("LILT") founded in March 1998 by Professor S. Iraj
Najafi of the Ecole Polytechnique, Montreal (an engineering school), and
Professor Mark P. Andrews of McGill University, Montreal. Upon consummation of
the acquisition plan, we changed our name from WWV Development, Inc. to Lumenon
Innovative Lightwave Technology, Inc. As consideration for such acquisition, we
issued 12,200,000 shares of common stock to the shareholders of LILT, which
resulted in a change in control. Under applicable accounting rules and policies,
LILT is deemed the acquiring corporation and the financial information contained
in this prospectus is that of LILT, as consolidated with Lumenon.
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Properties
Our corporate and technical headquarters are located in Ville
Saint-Laurent, near Montreal, Canada in a facility of approximately 53,000
square feet. Approximately 64% of the space will be occupied by our cleanroom
and manufacturing areas and the remainder by our offices.
The lease for our Ville St. Laurent facility is for a period of twelve
years ending in July 31 2012, with annual rent in the amount of US$7.10
(CDN$10.50) net per square foot, or US$379,483 (CDN$561,103) in the aggregate
for each of the first six years. After the first six years, the annual rent will
increase to US$426,612 (US$630,789). Operating expenses for the facility, which
include all expenses incurred by the landlord in connection with the operation,
maintenance, repair and replacement of the exterior of the facility, all
insurance with respect to the facility, the land and auxiliary structures and
improvements on the land, are estimated to be US$2.84 (CDN$4.20) per square foot
for the first year and US$151,762 (CDN$224,396) in the aggregate. We have the
option to renew the lease for an additional period of five years at a rate equal
to the then current market price for comparable space. The construction of the
building was completed in July 2000. We are currently completing the internal
construction of the production facility, including the clean rooms and
associated laboratories and installing manufacturing equipment. We anticipate
that the production facility should be operational at the rate of 500 units per
day in 2001. We expect to add additional equipment and staff to this facility to
bring this facility to its full capacity of 1,000 units per day by 2002.
Our Dorval facility has an existing capacity of 20 units per day and
will be used to manufacture products until the Ville Saint-Laurent facility is
operational. Once the Ville Saint-Laurent facility is operational, we intend to
reconfigure the Dorval facility as an R&D facility with an ancillary production
capability. The lease for the Dorval facility is for a period of five years
ending in January 2004, with annual rent in the amount of US$3.10 (CDN$4.59) net
per square foot, or US$22,193 (CDN$32,814) in the aggregate. We estimate taxes
and expenses to be US$1.26 (CDN$1.87) per square foot per year and US$9,042 (CDN
$13,369) in the aggregate. We have the option to renew the lease for an
additional period of five years at a rate equal to the then current market price
for comparable space in the same building. As of June 30, 2000, we had spent
US$287,788 (CDN$425,523) on leasehold improvements to construct and equip the
Dorval facility.
We believe that the Ville Saint-Laurent and Dorval facilities will be
adequate for our business as is proposed to be conducted until at least the
Spring of 2002.
Legal Proceedings
We are not currently involved in any material legal proceedings. From
time to time, however, we may be subject to claims and lawsuits arising in the
normal course of business.
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MANAGEMENT
Our directors and executive officers and their positions with us are as
follows:
Name Age Position
---- --- --------
Dr. S. Iraj Najafi 46 Director, Chief Executive Officer and
President
Dr. Mark P. Andrews 48 Director, Vice President, Chief Technical
Officer and Secretary
Dr. Anthony L. Moretti 48 Director
Denis N. Beaudry 56 Director
Pierre-Paul Allard 40 Director
Guy Brunet 48 Director
Gilles Marcotte 61 Director
Pierre-Andre Roy 59 Director
Dr. Chia-Yen Li 38 Chief Operating Officer
Vincent Belanger 33 Vice President Finance and Chief Financial
Officer
Reginald J.N. Ross 39 Vice President of Corporate Development
Dr. Iraj Najafi joined us in July 1998 as Director, President and Chief
Executive Officer. He was a co-founder of LILT Canada Inc., a wholly-owned
subsidiary of Lumenon in 1998, with Dr. Mark Andrews. Dr. Najafi received B.Sc
and M.Sc. Degrees in physics from Shiraz University and a Ph.D. in Physics from
the Ecole Centrale in Paris. After two years of postdoctoral research at the
University of Florida, Gainesville, Dr. Najafi joined the Department of
Electrical Engineering at the Ecole Polytechnique in Montreal in 1986, as a
researcher and subsequently as professor, where he developed an international
reputation as a pioneer in glass integrated optics. He also founded the
Photonics Research Group at the Ecole Polytechnique. Dr. Najafi has co-authored
more than 300 articles, patents, book chapters and books and taken a leadership
role in over 25 international conferences. He has been a guest editor for
Applied Optics and associate editor of Optical Engineering. Dr. Najafi is a
member of the International Society for Optical Engineering (SPIE) and has been
elected a Fellow of the SPIE. Dr. Najafi is on leave from Ecole Polytechnique
until January 2001. He may extend his leave for an additional two years.
Dr. Mark P. Andrews joined us in July 1998 as Director, Vice President,
Chief Technical Officer and Secretary. He was a co-founder of LILT Canada Inc.
Dr. Andrews received his Ph.D. in physical inorganic chemistry from the
University of Toronto. In 1984, Dr. Andrews joined the staff of AT&T Bell
Laboratories (now Lucent Technologies) as a Principal Investigator in the
Materials Research Division where his research focused on the study of
non-linear optical properties of polymer composites. In 1990, he joined the
Department of Chemistry at McGill University, where he developed new photonic
glasses and polymers. Dr. Andrews has been an Assistant Professor and currently
is an Associate Professor at McGill University, from which he took a leave of
absence from commencing February 1, 2000 in order to devote all of his time to
the growth of the Company. He is a member of the Materials Research Society and
the International Society for Optical Engineers (SPIE).
Dr. Anthony L. Moretti became a Director in December 1999. Dr. Moretti
has been employed in various executive capacities with Molex Fiber Optics Inc.,
Chicago, Illinois, since 1997. He is currently Director-Optoelectronic
Development, Molex Fiber Optics Inc, a subsidiary of Molex. Prior to working at
Molex,
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Dr. Moretti worked as an independent consultant for high tech companies from
1994 to 1997 and prior thereto was the Technical Director of Amoco Corporation's
research laboratory, which designed and developed optical AWG devices.
Mr. Denis N. Beaudry became a Director in June 1999. Mr. Beaudry is
President of Polyvalor, Montreal, Quebec, Canada, a limited partnership formed
by the Ecole Polytechnique for the purpose of commercializing its intellectual
property. Since 1984, he has occupied the position of Director of the Centre de
Developpement Technologique of the Ecole Polytechnique whose sphere of
activities includes technology transfer, licensing of technology and software,
joint creation with private industry of laboratories and research centers,
strategic alliances, research partnerships, industrial chairs and the emergence
of high technology enterprises. In 1998, he joined Polyvalor as President and
General Manager. His role consists of enhancing the value of research results
for commercial use by means of start-up of high-tech companies in which
Polyvalor holds a participation or interest. Mr. Beaudry was President of the
Quebec Association of University Research Directors in 1992, and is at present a
member of the Board of Directors of the Centre des Technologies Textiles, the
College Rosemont, the Corporation de Financement de l'Institut de Cardiologie de
Montreal, the Centre de Technologies du Gaz Naturel, the Corporation Commerciale
de Materiaux Composites, the Centre de Developpement Rapide de Produits et de
Procedes, and the firms Sinlab Inc., BioSyntech Inc., a biopharmaceutical
company, Phytobiotech Inc., Polyplan Inc., Odotech Inc. and COESI Inc.
Mr. Pierre-Paul Allard became a Director in December 1999. Mr. Allard
is General Manager of Cisco Systems, Canada, a subsidiary of Cisco Systems Inc.,
an Internet infrastructure firm. Mr. Allard has been employed in various
executive capacities with Cisco since 1993.
Dr. Chia-Yen Li joined us in August 1999 as Chief Operating Officer.
Dr. Li received his Ph.D. in Materials Science and Engineering from the
University of California in Los Angeles (UCLA). Dr. Li has 10 years of
experience in the development of sol-gel materials for photonics. From August
1994 to August 1995, Dr. Li was a Visiting Scholar at the Optical Services
Center of the University of Arizona where he conducted research on integrated
optical devices and materials on a short-term basis. From August 1995 to July
1997, Dr. Li was a Staff Scientist at NZ Applied Technologies, researching
federally funded projects relating to photonics materials and devices. From July
1997 until joining us, Dr. Li was a Senior Scientist at MicroTouch Systems
Incorporated, which is a supplier of touch and pen sensitive input systems,
including touchscreens and electronic whiteboards. Dr. Li was in charge of
designing and implementing manufacturing processes on behalf of MicroTouch.
Mr. Vincent Belanger joined us in June 1999 as Chief Financial Officer
and Treasurer. He was elected to the additional office of Vice President Finance
in August 2000. Mr. Belanger is a chartered accountant. From 1989 until
September 1998, Mr. Belanger was employed in the corporate finance department of
KPMG LLP, one of the world's leading professional advisory firms, in Montreal.
From September 1998 until joining the Company, Mr. Belanger was employed as Vice
President Finances and Corporate Controller of Viper International Holdings
Ltd., a holding company established for the purpose of making acquisitions.
Mr. Reginald Ross joined us in November 1999 as the Vice President of
Corporate Development and Chief of Strategic Operations. Mr. Ross has a B.Eng
(Electrical) from Royal Military College of Canada and is both a Professional
Engineer (Ontario) and a Certified Project Management Professional. Mr. Ross has
a history of over 20 years in information technology project and program
management both within the industry and the Department of National Defense of
Canada. From September 1999 through December 1999, Mr. Ross was an independent
consultant assisting companies in the information technology industry, focusing
on optics and photonics. From June 1999 to September 1999, he was Chief
Executive Officer and President of Fiberview Technologies Limited, a company
producing optical systems devices; from August 1998 to May 1999, Mr. Ross was
Program Manager for SpaceBridge Networks Corporation, a company providing
broadband satellite communications systems; and prior to August 1998, Mr. Ross
was a communications officer in the Department of National Defense retiring at
the rank of Major. Through his recent experience as a consultant and executive,
Mr. Ross also brings considerable expertise in strategic analysis, planning and
executive management within the high-tech start-up environment.
Mr. Pierre-Andre Roy became a Director in May 2000. Mr. Roy studied
Administration and Accounting at Laval University (Quebec City) and at Ecole des
Hautes Etudes Commerciales (Montreal). Mr. Roy joined Bombardier Inc. in 1980 as
Vice President of Finance and Administration in its Mass Transit Division. In
1987, he
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became Controller for Bombardier's Transportation Equipment Group and then
became Controller for Bombardier Inc. In 1989, Mr. Roy joined Bombardier's
Aerospace Group as Vice President of Finance where he was also responsible for
Information Technologies and Sales Financing activities. In 1992, he was
promoted to President and General Manager of the Aerospace Group's Amphibious
Aircraft Division. In 1993, Mr. Roy assumed the role of President and COO for
Bombardier Capital. From 1995 to 1996, he served in a dual role as President of
Bombardier Capital and Treasurer of the holding corporation, Bombardier Inc. Mr.
Roy relinquished his position as Treasurer in May 1996 to focus on developing
Bombardier Capital business interests. He retired in February 2000.
Mr. Guy Brunet became a Director in March 2000. Mr. Brunet has been an
Investment Advisor for RBC Dominion Securities Wood Gundy and Richardson
Greenshields, investment banking firms, for over twenty years.
Mr. Gilles Marcotte became a Director in March 2000. He has a MSc.
degree in Commerce at the University of Sherbrooke and is a Fellow Chartered
Accountant. He was a partner at KPMG and its predecessor firms since 1979 and
retired in 1998 at the age of 58. Prior to retirement, he was Partner-in-charge
of KPMG's Quebec City office and has been on the Board of Directors of KPMG
Canada. Mr. Marcotte sits on the Board of Directors of a number of companies and
is President of the Quebec Symphony Orchestra and Caisse Populaire Desjardins of
Charlesbourg. Mr. Marcotte also chairs Lumenon's Audit Committee.
Dr. Moretti is the nominee of Molex which, under the Molex agreements,
has the right to appoint one nominee to the board of directors. Mr. Beaudry is
the nominee of Polyvalor and McGill University, which jointly have the right to
appoint one nominee to the Board of Directors.
Commencing with the 1999 annual meeting of stockholders (held on
December 7, 1999), directors were divided into three classes, with the initial
term of office of (i) Class I to expire at the 2000 annual meeting of
stockholders, (ii) Class II to expire at the 2001 annual meeting of
stockholders, and (iii) Class III to expire at the 2002 annual meeting of
stockholders. Commencing with the 2000 annual meeting of stockholders, directors
elected to succeed those directors whose terms then expire will be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election. At the 1999 annual meeting of stockholders, Dr. Najafi and
Mr. Allard were elected as Class I directors, Mr. Beaudry was elected as a Class
II director and Dr. Andrews and Dr. Moretti were elected as Class III directors.
Messrs. Roy, Brunet and Marcotte, each of whom was elected by the Board of
Directors subsequent to the 1999 Annual Meeting of stockholders, were designated
as a Class I director, a Class II director and a Class III director,
respectively.
SUMMARY COMPENSATION TABLE
The following table sets forth, for the periods indicated, all
compensation awarded to, earned by or paid to our chief executive officer. None
of the other executive officers received compensation in excess of US$100,000 in
2000.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Name and Principal Position Year(1) Salary(2) Bonus # of Options
--------------------------- ------- --------- ----- ------------
<S> <C> <C> <C> <C>
S. Iraj Najafi 2000 US$121,736 -- --
Chief Executive Officer and 1999(3) US$36,798 -- 200,000
President 1998 US$31,311 -- --
</TABLE>
---------------------
(1) We commenced operations in 1998.
(2) Certain of our executive officers routinely receive other benefits, the
amounts of which are customary in our industry. We have concluded,
after reasonable inquiry, that the aggregate amounts of such benefits
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<PAGE>
during each of the periods reflected in the table above did not exceed
the lesser of US$50,000 (CDN$73,600) or 10% of the compensation set
forth above in respect of any such period.
(3) Represents solely the six-month period ended June 30, 1999.
Compensation of Directors
No remuneration or directors fees were paid to our directors during the
year ended June 30, 2000, with the exception of reimbursement of expenses.
During the fiscal year ended June 30, 2000, non-employee directors were granted
the following options to purchase common stock:
Guy Brunet was granted an option to acquire 50,000 shares at a price of
US$28.00 per share vesting over two years in equal tranches of 25,000,
exercisable for a period of two years after their vesting dates of
March 28, 2001 and March 28, 2002, respectively.
Gilles Marcotte was granted an option to acquire 50,000 shares at a
price of US$28.00 per share vesting over two years in equal tranches of
25,000, exercisable for a period of two years after their vesting dates
of March 28, 2001 and March 28, 2002, respectively.
The board of directors will determine the remuneration of the directors
and officers during the current and subsequent fiscal years.
Employment Agreements
Dr. Chia-Yen Li is employed by us as Chief Operating Officer pursuant
to an employment agreement effective August 1, 1999 for a term of five years.
The agreement provides for a base salary of US$101,447 (CDN$150,000) annually.
We also granted Dr. Li an option to acquire up to 250,000 shares of common
stock. Throughout the employment period and for a period of three years
thereafter, the agreement restricts Dr. Li's ability to engage in activities
competitive with those of ours. In addition, throughout the employment period
and for a period of two years thereafter, Dr. Li has agreed that he will not
solicit any person employed by us to leave our employ, or employ or solicit for
employment any person who is employed by us. The agreement may be terminated by
us (i) in the event of the bankruptcy, liquidation, or dissolution of Lumenon,
(ii) if Dr. Li commits certain acts constituting cause or (iii) if he is in
material breach of the agreement. Dr. Li may terminate the employment agreement
upon three months' prior written notice to us.
Vincent Belanger is employed by us as Chief Financial Officer pursuant
to an employment agreement effective June 14, 1999 for a term of five years. The
agreement provides for a base salary of US$101,447 (CDN$150,000) annually. We
also granted Mr. Belanger an option to acquire up to 300,000 shares of common
stock. Throughout the employment period and for a period of three years
thereafter, the agreement restricts Mr. Belanger's ability to engage in
activities competitive with those of ours. In addition, throughout the
employment period and for a period of two years thereafter, Mr. Belanger has
agreed that he will not solicit any person employed by us to leave our employ,
or employ or solicit for employment any person who is employed by us. The
agreement may be terminated by us (i) in the event of the bankruptcy,
liquidation, or dissolution of Lumenon, (ii) if Mr. Belanger commits certain
acts constituting cause or (iii) if he is in material breach of the agreement.
Mr. Belanger may terminate the employment agreement upon one month's prior
written notice to us.
Reginald J.N. Ross is employed by us as the Vice President of Corporate
Development and Chief of Strategic Operations pursuant to an employment
agreement effective December 1, 1999 for a term of five years. The agreement
provides for an initial base salary of US$84,539 (CDN$125,000) annually. We also
granted Mr. Ross an option to acquire up to 300,000 shares of common stock.
Throughout the employment period and for a period of three years thereafter, the
agreement restricts Mr. Ross' ability to engage in activities competitive with
those of ours. In addition, throughout the employment period and for a period of
two years thereafter, Mr. Ross has agreed that he will not solicit any person
employed by us to leave our employ, or employ or solicit for employment any
person who is employed by us. The agreement may be terminated by us (i) in the
event of the bankruptcy,
39
<PAGE>
liquidation, or dissolution of Lumenon, (ii) if he commits certain acts
constituting cause or (iii) if he is in material breach of the agreement. Mr.
Ross may terminate the employment agreement upon one month's prior written
notice to us.
Stock Options
We have created a stock option plan for our key employees, directors
and officers and certain consultants. The plan is administered by our board of
directors. The board may from time to time designate individuals to whom options
to purchase shares of common stock may be granted and the number of shares to be
optioned to each. The total number of shares of common stock to be optioned to
any one individual may not exceed 5% of the total of the issued and outstanding
shares. The option price per share for common stock that is the subject of any
option is fixed by the board when such option is granted and cannot involve a
discount to the market price at the time the option is granted. The period
during which an option is exercisable may not exceed 10 years from the date the
option is granted. Options may not be assigned or transferred and expire within
a fixed period from the termination of employment or death of the beneficiary.
In the event of certain basic changes in Lumenon, including a reorganization,
merger or consolidation, or the purchase of shares pursuant to a tender offer
for shares of common stock, in the discretion of the board, each option may
become fully and immediately exercisable. Options enabling their beneficiaries
to acquire a total of 3,312,650 shares of common stock were outstanding under
the plan as of August 31, 2000. The number of shares of common stock as to which
options may be granted under the plan has been increased from 2,500,000 to
6,000,000, subject to approval by stockholders at the 2000 annual meeting of
stockholders.
We have never granted any stock appreciation rights. No stock options
were granted to our chief executive officer during the fiscal year ended June
30, 2000.
Option Exercised and Option Values
The following table provides information related to options exercised
by our chief executive officer and the number of and value of options held by
him on June 30, 2000.
<TABLE>
<CAPTION>
Securities
Acquired
On Aggregate Value of Unexercised in the
-- Value Realized Unexercised Options as at money options as at
Name Exercise ($) June 30, 2000 (#) June 30, 2000 ($)
---- -------- --- ----------------- -----------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Iraj Najafi 200,000 US$5,100,000 _ _ _ _
(CDN$7,540,860)
</TABLE>
Other Compensation Plans
We have no pension plan or other compensation plans for our executive
officers or directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Our voting securities outstanding as of June 30, 2000 consisted of
32,970,039 shares of common stock. The following table sets forth information
concerning ownership of common stock as of June 30, 2000 by (i) each director,
(ii) each executive officer, (iii) all directors and executive officers as a
group, and (iv) each person who, to our the knowledge, owned beneficially more
than 5% of the common stock. Unless otherwise indicated, the address of each
such holder is in care of the Company, 8851 Transcanada Highway, Ville
Saint-Laurent, Quebec, Canada H4S 1Z6. Except as otherwise indicated, and
subject to applicable community property laws, each person has sole investment
and voting power with respect to the shares shown. Ownership information is
based upon information furnished by the respective holders and contained in our
records.
40
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Directors, Nominees, Executive of common stock Beneficially
Officers and 5% Stockholders Owned (1) Percentage
------------------------------ ---------- ----------
<S> <C> <C>
Dr. S. Iraj Najafi ................................. 5,037,500(2) 15.3%
Najafi Holding Inc.(2) ............................. 5,037,500(2) 15.3%
Dr. Mark P. Andrews ................................ 4,812,500(3) 14.6%
Andrewma Holding Inc. .............................. 4,687,500 14.2%
Anthony L. Moretti(4) .............................. 10,314,667(5) 31.3%
Molex Incorporated(4) .............................. 10,314,667 31.3%
Denis N. Beaudry(6) ................................ 50,000(6) (7)
Dr. Chia-Yen Li .................................... 55,650(8) (7)
Vincent Belanger ................................... 44,150(9) (7)
Reginald J.N. Ross ................................. 50,000(10) (7)
Guy Brunet ......................................... --(11) --
Gilles Marcotte .................................... 1,000(11) --
Pierre-Paul Allard ................................. --(11) --
Pierre-Andre Roy ................................... -- --
All directors and executive officers as a group .... 20,584,617(12) 62.0%
</TABLE>
------------------------------------
(1) A person is deemed to be the beneficial owner of voting
securities that can be acquired by such person within 60 days
after June 30, 2000 upon the exercise or conversion of
options, warrants or convertible securities. Each beneficial
owner's percentage ownership is determined by assuming that
options, warrants and convertible securities that are held by
such person (but not those held by any other person) and that
are exercisable or convertible within 60 days after June 30,
2000 have been exercised or converted.
(2) Dr. Najafi is the sole stockholder of Najafi Holding Inc.
(3) Includes (i) 75,000 shares of common stock issuable upon
exercise of options held by Dr. Andrews and (ii) 4,687,500
shares owned by Andrewma Holdings Inc., of which Dr. Andrews
is the sole shareholder.
(4) The address of Molex and Dr. Moretti is 2222 Wellington Court,
Lisle, Illinois 60532.
(5) Dr. Anthony L. Moretti is the representative of Molex on our
board of directors. The shares reflected in the table above
represent the shares beneficially owned by Molex. They do not
include 50,000 shares of common stock issuable upon exercise
of an option held by Dr. Moretti.
(6) Denis N. Beaudry is the representative of Polyvalor, a
Canadian limited partnership, and McGill University, on our
board of directors. The shares reflected in the table above do
not include the shares beneficially owned by Polyvalor and
McGill as to which Mr. Beaudry disclaims beneficial ownership.
They do include 50,000 shares of common stock issuable upon
exercise of options held by Mr. Beaudry.
(7) Less than 1%.
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<PAGE>
(8) Includes 50,000 shares of common stock issuable upon exercise
of options held by Dr. Li. Does not include 200,000 shares
issuable upon exercise of additional options.
(9) Represents 44,150 shares of common stock issuable upon
exercise of options held by Mr. Belanger. Does not include
240,000 shares issuable upon exercise of additional options.
(10) Represents 50,000 shares of common stock issuable upon
exercise of options held by Mr. Ross. Does not include 250,000
shares issuable upon exercise of additional options.
(11) Does not include 50,000 shares of common stock issuable upon
exercise of options held by each of Mr. Brunet, Mr. Marcotte
and Mr. Allard.
(12) Includes (i) an aggregate of 269,150 shares of common stock
issuable upon exercise of options and (ii) 10,314,667 shares
beneficially owned by Molex.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 7, 1998, we entered into agreements with the shareholders of
LILT, including Najafi Holdings Inc., a company controlled by Dr. S. Iraj
Najafi, who has since become our chief executive officer and a director, and
Andrewma Holdings Inc., a company controlled by Dr. Mark Andrews, who has since
become a vice president and a director of Lumenon, pursuant to which we acquired
all of the issued and outstanding shares of the capital stock of LILT in
exchange for a total of 12,200,000 shares of common stock.
On May 19 and June 21, 1999, we entered into several agreements with
Molex. The Molex agreements include a teaming agreement, a stock purchase
agreement, a stock restriction agreement and a registration rights agreement.
The teaming agreement was amended in March 2000. Under the teaming agreement, as
amended, we agreed with Molex to jointly develop certain DWDM products related
to the DWDM market and other photonics markets. Under the stock purchase
agreement, Molex purchased 3,000,000 shares of common stock at a price of
US$0.50 per share in two stages. We also issued to Molex a warrant to purchase
1,666,667 additional shares of common stock at a price of US$0.90 per share,
which was exercised in November 1999. In addition, we issued the services
warrant, which was exercised in full during the past fiscal year to Molex. Under
the stock restriction agreement, (i) the consent of Molex is required for
certain extraordinary actions relating to our governance and our operations and
(ii) certain of our stockholders Company have agreed not to sell their
respective shares of common stock to a competitor of Molex without Molex's prior
consent. Dr. Moretti, an officer of Molex Fiber Optics Inc., is a director of
Lumenon.
We have has entered into a license agreement with Polyvalor, a limited
partnership, as represented by its General Partner, Polyvalor Inc. and McGill
University (together, Polyvalor and McGill University referred to as the
licensor) pursuant to which we acquired the right through October 2017 to
produce, sell, distribute and promote products derived from using the patents
and know-how, as such terms are defined in the license agreement, of the
licensor. Using a licensed sol-gel process of the licensor, we will design and
develop integrated optical devices for DWDM and plastic optical fiber devices
for the telecommunications and data communications markets. We will pay a
royalty of 5% on gross sales, up to a maximum of US$2,367,104 (CDN$3,500,000)
over the term of the license agreement. Additionally, we issued 750,000 shares
of common stock to each of Polyvalor and McGill University. Mr. Beaudry, an
officer of Polyvalor, is a director of Lumenon.
SELLING STOCKHOLDERS
The following table sets forth the names of the selling stockholders,
the number of shares of common stock beneficially owned by each selling
stockholder as of the date of this prospectus, the number of shares of common
stock to be sold by each of them pursuant to this prospectus and the percentage
of the outstanding common stock to be held by each of them after this offering.
Pursuant to a registration rights agreement between us and Capital Ventures
International ("CVI") and Castle Creek Technology Partners LLC ("Castle Creek"),
we have agreed initially to register 8,800,000 shares of common stock issuable
upon conversion of the outstanding notes and exercise of the outstanding
warrants we issed to them in July 2000. Accordingly, the 8,800,000 number
reflects the aggregate number of shares being offered by CVI and Castle Creek
pursuant to this prospectus. Because the number of shares issuable upon
conversion of the notes will depend upon the price of the common stock in the
future, the actual number of shares issued may be more or less than 8,800,000.
In addition, the number of shares owned by CVI and Castle Creek is based upon a
determination of beneficial ownership under section 13(d) of the Securities
Exchange Act, which results in a number of shares lower than the total number we
have agreed to register. Beneficial ownership includes shares of outstanding
common stock and shares of common stock that a person has a right to acquire
within 60 days after the date of this prospectus. The percentage of common stock
outstanding after this offering is based on 34,752,039 shares of common stock
issued and outstanding as of August 31, 2000. None of the selling stockholders
is obligated to sell all or any portion of the shares covered by this
prospectus, or to sell any of the shares immediately under this prospectus.
Because the selling stockholders may sell all or part of their shares, no
estimate can be given as to the number of shares that will be held by any
selling stockholder upon termination of any offering made hereby.
42
<PAGE>
<TABLE>
<CAPTION>
Prior to Offering After Offering
------------------------------------ ----------------------------
Number of
Number of Shares Shares
Beneficially Number of Shares Beneficially Percentage
Name of Selling Stockholder Owned Offerred Hereby Owned(1) of Class
---------------------------- ------------------ ----------------- ------------- ----------
<S> <C> <C> <C> <C>
Molex Incorporated(2) 10,314,667 2,000,000 8,314,667 23.92%
Capital Ventures International(3) 1,188,119(4) 5,858,286(5) 0 *
Castle Creek Technology Partners 596,609(4) 2,941,714(5) 0 *
LLC(3)
</TABLE>
---------
* Less than 1%
(1) Assumes the sale of all shares owned by the selling stockholders
covered by this prospectus. Based upon the current market price of the
common stock and the number of shares that CVI and Castle Creek
beneficially own, Castle Creek and CVI would not own any shares after
completion of this offering. However, the actual number of shares
issuable upon conversion of their notes will increase if the price of
the common stock declines and therefore the actual number cannot be
determined at this time. Consequently, it is possible that CVI and
Castle Creek could beneficially own additional shares after this
offering.
(2) Under the Molex agreements, Molex has the right to designate one member
to our board of directors.
(3) Neither CVI nor Castle Creek has, or within the past three years has
had, any position, office or other material relationship with the
Company.
(4) Consists of shares of common stock issuable upon conversion of
outstanding convertible notes. The actual number of shares of common
stock issuable upon conversion of the notes is indeterminate and will
equal (i) the aggregate principal amount of the notes being converted,
plus accrued interest thereon through the conversion date, divided by
(ii) the lower of $25.00 (subject to adjustment in certain
circumstances) and the average closing bid prices of the common stock
on The Nasdaq National Market (or such other principal U.S. securities
exchange or trading market where the common stock is then listed or
traded) for the five consecutive trading days preceding conversion, but
not less than $7.00 except in limited circumstances. The amounts listed
in the table assume a conversion price of $19.762 for purposes of
beneficial ownership, which is the average of the closing bid prices of
the common stock for the five consecutive trading days preceding August
31, 2000. Does not include shares of common stock issuable upon
exercise of outstanding warrants. Because the warrants will not become
exercisable until January 2002, the shares issuable upon exercise
thereof are not beneficially owned by the selling stockholders as of
the date of this prospectus. For a complete description of terms of the
notes and the warrants, see the form of note and the form of warrant
included as Exhibits 4.4 and 4.5, respectively, to the registration
statement of which this prospectus forms a part.
Except under limited circumstances, no holder of the notes or the
warrants is entitled to convert any portion of the notes into, or
exercise any portion of the warrants for, shares of common stock or to
dispose of any portion of the notes or the warrants to the extent that
the right to effect such conversion, exercise or disposition would
result in the holder or any or its affiliates beneficially owning more
than 4.99% of the outstanding shares of common stock. Therefore, the
number of shares set forth herein and which CVI or Castle Creek may
sell pursuant to this prospectus may exceed the number of shares of
common stock either of them would otherwise beneficially own as
determined pursuant to Section 13(d) of the Securities Exchange Act.
Moreover, pursuant to the regulations of the National Association of
Securities Dealers, Inc., in the absence of shareholder approval, the
aggregate number of shares of common stock issuable to CVI and Castle
Creek at a discount from market price upon conversion of the notes and
exercise of the warrants that have been or may be issued to them
pursuant to the Securities Purchase Agreement may not exceed 19.99% of
the outstanding common stock on July 25, 2000 ( i.e., 6,855,978).
Unless stockholder approval is obtained to issue common stock to CVI
and Castle Creek in excess of the maximum amount set forth above,
neither of them will be entitled to acquire more than a proportionate
share of such maximum amount.
43
<PAGE>
(5) Represents the pro rata allocation between CVI and Castle Creek of
8,800,000 shares of common stock, which we are registering pursuant to
the registration rights agreement included as Exhibit 10.7 to the
registration statement of which this prospectus forms a part. Because
the shares offered by this prospectus include the shares issuable upon
exercise of the warrants, as well as additional shares that may be
issued upon conversion of the notes, the number of offered shares
exceeds the number of shares beneficially owned, which, as noted above,
consists of outstanding shares and shares that may be acquired within
60 days.
Pursuant to Rule 416 of the Securities Act, CVI and Castle Creek may
also offer and sell common stock issued with respect to their notes and
warrants as a result of stock splits, stocks dividends and
anti-dilution provisions (including by reason of changes in the
conversion price of the notes in accordance with the terms thereof).
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of provisions of our capital stock is subject to,
and qualified in its entirety by, the provisions of our certificate of
incorporation, as amended, and the amended and restated bylaws that are
referenced as exhibits to this registration statement and by provisions of
applicable law.
Authorized and Outstanding Capital Stock
We have authorized capital stock consisting of 100,000,000 shares of
common stock, US$.001 par value, of which 34,752,039 were issued and outstanding
as of August 31, 2000, and 5,000,000 shares of preferred stock, US$.001 par
value, of which no shares have been issued.
Common Stock
Holders of our common stock are entitled to one vote per share on all
matters to be voted upon by stockholders. The shares of common stock have no
preemptive or conversion rights, no redemption or sinking fund provisions and
are not liable for further call or assessment. The outstanding shares of common
stock are fully paid and non-assessable. Subject to the rights of the holders of
preferred stock from time to time outstanding, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by our board of directors out of funds legally available for payment.
Such dividends may be paid in cash, property, or shares of common stock. We have
never declared or paid any cash dividends on our common stock and presently
anticipates that all future earnings, if any, will be retained for the
development of our business. The payment of future dividends will be at the
discretion of our board of directors and will depend upon, among other things,
our future earnings, capital requirements, the financial condition, and general
business conditions.
Preferred Stock
Our board of directors is expressly authorized to provide for the
issuance of all or any shares of the preferred stock, in one or more series, and
to fix for each such series such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and such qualifications, limitations or restrictions
thereof as shall be stated and expressed in the resolution or resolutions
adopted by our board of directors providing for the issue of each such series
and as may be permitted by General Corporation Law of the State of Delaware. The
number of authorized shares of preferred stock may be increased (but not above
the number of authorized shares of the class) or decreased (but not below the
number of shares thereof then outstanding). Without limiting the generality of
the foregoing, the resolutions providing for issuance of any series of preferred
stock may provide that such series shall be superior or rank equally or junior
to any other series of preferred stock, to the extent permitted by law. Except
as provided in the Molex agreements, no vote of the holders of the preferred
stock or common stock will be required in connection with the designation or the
issuance of any shares of any series of any preferred stock authorized by and
complying with the conditions herein.
Warrants and Options
As of August 31, 2000, there were warrants outstanding to purchase
6,086,011 shares of our common stock. Of these warrants, 700,000 can be
exercised at a price of US$1.50, 296,700 can be exercised at a price of US$6.00,
21,500 can be exercised at a price of US$9.00, 10,000 can be exercised at a
price of US$15.50, 43,011 can be exercised at a price of US$30.00, 14,000 can be
exercised at a price of US$25.00 and 5,000,800 will become exercisable in
January 2002 at a price to be determined at that time.
A total of 6,000,000 shares of common stock are currently authorized
for grant under our stock option plan. As of August 31, 2000, there were options
outstanding pursuant to the stock option plan to purchase an aggregate of
3,312,650 shares of common stock at exercise prices ranging from US$1.00 to
US$28.00 per share. A total of 2,687,350 shares of common stock remained
available for future grant.
45
<PAGE>
Contractual Rights
We have entered into the Molex agreements pursuant to which Molex has
preemptive rights with respect to any sale of additional shares of our capital
stock which together with certain other rights could prevent a third party from
effecting a change in control. We have also entered into an agreement with
investors pursuant to which these investors have preemptive rights with respect
to any sale of additional shares of our capital stock.
Transfer Agent And Registrar
The Transfer Agent and Registrar for our common stock is Alpha Tech
Stock Transfer of Utah.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by the Delaware General Corporation Law, our certificate
of incorporation, as amended, limits the personal liability of a director to the
us for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of loyalty
to us or our stockholders, (ii) acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, (iii) unlawful
payment of dividends or stock purchases or redemptions pursuant to Section 174
of the DGCL, or (iv) any transaction from which the director derived an improper
personal benefit.
Our certificate of incorporation and by-laws provide that we shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or an agent of Lumenon
or is or was serving at our request as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
the defense or settlement of such action, suit or proceeding, to the fullest
extent and in the manner set forth in and permitted by the DGCL, as from time to
time in effect, and any other applicable law, as from time to time in effect.
Such right of indemnification is not be deemed exclusive of any other rights to
which such director, officer, employee or agent and shall inure to the benefit
of the heirs, executors and administrators of each such person.
We propose to enter into indemnity agreements with our directors and
executive officers. The indemnity agreements will provide that we shall
indemnify such directors and executive officers from and against any and all
liabilities, costs and expenses, amounts of judgments, fines, penalties and
amounts paid in settlement of or incurred in defense of any settlement in
connection with any threatened, pending or completed claim, action, suit or
proceeding in which such persons are a party (other than a proceeding or action
by or in the right of Lumenon to procure a judgment in its favor), or which may
be asserted against them by reason of their being or having been an officer or
director of Lumenon, unless it is determined that such directors and executive
officers did not act in good faith and for a purpose which they reasonably
believed to be in, or in the case of service to an entity related to us, not
opposed to, the best interests of Lumenon and, in the case of a criminal
proceeding or action, that they had reasonable cause to believe that their
conduct was unlawful. The indemnity agreements will also provide that we shall
indemnify such directors and executive officers from and against any and all
losses that they may incur if they are a party to or threatened to be made a
party to any proceeding or action by or in the right of Lumenon to procure a
judgment in its favor, unless it is determined that they did not act in good
faith and for a purpose that they reasonably believed to be in, or, in the case
of service to an entity related to Lumenon, not opposed to, the best interests
of Lumenon, except that no indemnification for losses shall be made in respect
of (i) any claim, issue or matter as to which they shall have been adjudged to
be liable to us or (ii) any threatened or pending action to which they are a
party or are threatened to be made a party that is settled or otherwise disposed
of, unless and only to the extent that any court in which such action or
proceeding was brought determines upon application that, in view of all the
circumstances of the matter, they are fairly and reasonably entitled to
indemnity for such expenses as such court shall deem proper. Such
indemnification will be in addition to any other rights to which such officers
or directors may be entitled under any law, charter provision, by-law,
agreement, vote of shareholders or otherwise.
We maintain a $5,000,000 directors and officers liability insurance
policy.
46
<PAGE>
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the SEC such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person of us in
the successful defense of an action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, we will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the SEC. You may read and copy any document we file at
the SEC's public reference room at the following locations:
- Main Public Reference Room
450 Fifth Street, N.W.
Washington, D.C. 20549
- Regional Public Reference Room 75 Park Place, 14th
Floor New York, New York 10007
- Regional Public Reference Room Northwestern Atrium
Center 500 West Madison Street, Suite 1400 Chicago,
Illinois 60661-2511
You may obtain information on the operation of the SEC's public
reference rooms by calling the SEC at (800) SEC-0330.
We are required to file these documents with the SEC electronically.
You can access the electronic versions of these filings on the Internet at the
SEC's web site, located at http://www.sec.gov.
We have included this prospectus in our registration statement that we
filed with the SEC. The registration statement provides additional information
that we are not required to include in the prospectus. You can receive a copy of
the entire registration statement as described above. Although this prospectus
describes the material terms of certain contracts, agreements and other
documents filed as exhibits to the registration statement, you should read the
exhibits for a more complete description of the document or matter involved.
47
<PAGE>
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to immaterial levels of market risks with respect to
changes in foreign currency exchange rates and interest rates. Market risk is
the potential loss arising from adverse changes in market rates and prices, such
as foreign currency exchange and interest rates. To the extent that we
consummate financings outside of Canada, we receive proceed in currency other
than the Canadian dollar. Most of our operating expenses are incurred in
Canadian dollars. Thus, our results of operations will tend to be adversely
affected if there is a strong Canadian dollar. We do not enter into derivatives
or other financial instruments for trading or speculative purposes, nor do we
enter into financial instruments to manage and reduce the impact of changes in
foreign currency exchange rates.
PLAN OF DISTRIBUTION
This prospectus covers 10,800,000 shares of our common stock. All of
the shares offered hereby are being sold by the selling stockholders. We will
not realize any proceeds from the sale of the shares by the selling
stockholders.
The shares may be sold or distributed from time to time by the selling
stockholders, or by pledgees, donees or transferees of, or other successors in
interest to, the selling stockholders, directly to one or more purchasers
(including pledgees) or through brokers, dealers or underwriters who may act
solely as agents or may acquire shares as principals, at the market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at negotiated prices or at fixed prices, which may be changed. The
shares may be sold in one or more of the following methods: (i) ordinary
brokers' transactions, which may include long sales or short sales effected
after the effective date of the registration statement of which this prospectus
is a part; (ii) transactions involving cross or block trades or otherwise on The
Nasdaq National Market; (iii) purchases by brokers, dealers or underwriters as
principal and resale by such purchasers for their own accounts pursuant to this
prospectus; (iv) "at the market" to or through market makers or into an existing
market for the shares; (v) in other ways not involving market makers or
established trading markets, including direct sales to purchasers or sales
effected through agents; (vi) through transactions in options, swaps or other
derivatives (whether exchange-listed or otherwise); or (vii) any combination of
the foregoing, or by any other legally available means. The selling stockholders
or their successors in interest may also enter into option or other transactions
with broker-dealers that require the delivery by such broker-dealers of the
shares, which shares may be resold thereafter pursuant to this prospectus. In
addition, from time to time, a selling stockholder may pledge its shares to
broker-dealers or other financial institutions. Upon a default by a selling
stockholder, the broker-dealer or financial institution may offer and sell the
pledged shares from time to time.
Brokers, dealers, underwriters or agents participating in the
distribution of the shares as agents may receive compensation in the form of
discounts, commissions or concessions from the selling stockholders and/or
purchasers of the shares for whom they may act as agent, or to whom they may
sell as principal, or both. The selling stockholders and any broker-dealers who
act in connection with the sale of shares of our common stock offered by this
prospectus may be deemed to be "underwriters" within the meaning of the
Securities Act, and any discounts, commissions or concessions they receive and
proceeds of any sale of shares may be deemed to be underwriting discounts and
commissions under the Securities Act. Neither we nor any selling stockholders
can presently estimate the amount of such compensation. We know of no existing
arrangements between any selling stockholder, any other stockholder, broker,
dealer, underwriter or agent relating to the sale or distribution of the shares.
Moreover, a selling stockholder may agree to indemnify any agent, dealer or
broker-dealer that participates in transactions involving sales of the shares
against some liabilities, including liabilities arising under the Securities Act
of 1933.
Furthermore, in the event of a "distribution" of shares by a selling
stockholder, the selling stockholder, any selling broker or dealer and any
"affiliated purchasers" may be subject to Regulation M under the Securities
Exchange Act of 1934, which would generally prohibit these persons from bidding
for or purchasing any security that is the subject of the distribution until his
or her participation in that distribution is completed. In addition, Regulation
M generally prohibits any "stabilizing bid" or "stabilizing purchase" for the
purpose of pegging, fixing or stabilizing the price of common stock in
connection with this offering.
48
<PAGE>
We will pay substantially all of the expenses incident to the
registration, offering and sale of the shares to the public other than the
commissions or discounts of brokers, dealers, underwriters or agents. We have
also agreed to indemnify certain of the selling stockholders and certain related
persons against certain liabilities, including liabilities under the Securities
Act.
In order to comply with the securities laws of certain states, if
applicable, the shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by us and the selling
stockholders.
The selling stockholders are not restricted as to the price or prices
at which they may sell their shares. Sales of such shares may have an adverse
effect on the market price of the common stock. Moreover, the selling
stockholders are not restricted as to the number of shares that may be sold at
any time and it is possible that a significant number of shares could be sold at
the same time which may also have an adverse effect on the market price of the
common stock.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered
hereby will be passed upon for us by Olshan Grundman Frome Rosenzweig & Wolosky
LLP, New York, New York.
EXPERTS
Our consolidated financial statements as of June 30, 2000 and June 30,
1999, and for the year ended December 31, 1998, appearing in this prospectus
have been audited by KMPG LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
the reports given on the authority of said firm as experts in accounting and
auditing.
49
<PAGE>
kpmg
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Financial Statements
Year ended June 30, 2000, six-month period ended June 30, 1999 and periods from
inception (March 2, 1998) to December 31, 1998 and to June 30, 2000
Financial Statements
Consolidated Balance Sheets......................................... F-3
Consolidated Statements of Operations............................... F-4
Consolidated Statements of Cash Flows............................... F-5
Consolidated Statements of Stockholders' Equity..................... F-6
Notes to Consolidated Financial Statements.......................... F-7
F-1
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Lumenon Innovative Lightwave
Technology, Inc. (the "Corporation") as at June 30, 2000 and June 30, 1999 and
the consolidated statements of operations, cash flows and stockholders' equity
for the year ended June 30, 2000, the six-month period ended June 30, 1999 and
for the periods from inception (March 2, 1998) to December 31, 1998 and to June
30, 2000. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the consolidated financial position of the Corporation as at
June 30, 2000 and June 30, 1999 and the consolidated results of its operations
and cash flows for the year ended June 30, 2000 and for the six-month period
ended June 30, 1999 and for the periods from inception (March 2, 1998) to
December 31, 1998 and to June 30, 2000, in accordance with accounting principles
generally accepted in the United States of America.
/S/ KPMG LLP
Chartered Accountants
Montreal, Canada
July 21, 2000, except as to note 11 (b)
which is as of July 25, 2000
F-2
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Balance Sheets
<TABLE>
<CAPTION>
==========================================================================================================================
June 30, June 30, June 30,
2000 2000 1999
--------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$)
(note 2 (a))
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 761,113 $ 1,125,382 $ 1,722,871
Term deposits 2,907,891 4,299,608 --
Interest and sales tax receivable 247,487 365,934 237,539
Research tax credits receivable 128,990 190,724 34,218
Prepaid expenses 52,264 77,281 49,956
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
4,097,745 6,058,929 2,044,584
Deposits (note 7) 1,031,495 1,525,168 --
Property and equipment (note 4) 3,112,865 4,602,682 1,492,495
Other assets 8,873 13,119 10,001
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
$ 8,250,978 $ 12,199,898 $ 3,547,080
==========================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 708,157 $ 1,047,082 $ 523,550
Accrued liabilities 150,615 222,700 172,812
Accrued vacation 68,918 101,902 7,500
Obligations under capital leases (note 5) 158,955 235,031 --
Convertible promissory notes -- -- 298,720
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
1,086,645 1,606,715 1,002,582
Obligations under capital leases (note 5) 188,480 278,686 --
Stockholders' equity:
Share capital (note 6) 33,239 49,147 30,330
Additional paid-in capital (notes 3 and 6 (a)) 158,842,502 234,864,524 3,404,408
Deposit on subscription of shares -- -- 146,820
Accumulated deficit during the development
stage (151,899,888) (224,599,174) (1,037,060)
--------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------
6,975,853 10,314,497 2,544,498
Commitments (note 7)
Subsequent events (note 11)
--------------------------------------------------------------------------------------------------------------------------
$ 8,250,978 $ 12,199,898 $ 3,547,080
==========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
______________________ Director
______________________ Director
F-3
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
====================================================================================================================================
Year Year Six-month From From
ended ended period ended inception to inception to
June 30, June 30, June 30, December 31, June 30,
2000 2000 1999 1998 2000
------------------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$) (CAN$)
(note 2 (a))
<S> <C> <C> <C> <C> <C>
Expenses:
Research and development:
External research
(note 3) $ 147,019,020 $ 217,382,323 $ 25,000 $ -- $ 217,407,323
Internal research 1,270,292 1,878,253 169,439 14,440 2,062,132
Tax credits and grants (197,631) (292,218) (32,069) (2,149) (326,436)
-----------------------------------------------------------------------------------------------------------------------------
148,091,681 218,968,358 162,370 12,291 219,143,019
General and administrative 2,718,761 4,019,959 569,507 290,435 4,879,901
Depreciation 604,369 893,620 -- -- 893,620
-----------------------------------------------------------------------------------------------------------------------------
3,323,130 4,913,579 569,507 290,435 5,773,521
Other income (expenses):
Interest, net 160,257 236,956 1,172 7,869 245,997
Gain (loss) on foreign exchange 56,044 82,867 (18,846) 7,348 71,369
-----------------------------------------------------------------------------------------------------------------------------
216,301 319,823 (17,674) 15,217 317,366
------------------------------------------------------------------------------------------------------------------------------------
Net loss $ 151,198,510 $ 223,562,114 $ 749,551 $ 287,509 $ 224,599,174
====================================================================================================================================
Net loss per share:
Basic and diluted $ 5.95 $ 8.80 $ 0.04 $ 0.02
====================================================================================================================================
Weighted average number
of shares outstanding 25,415,601 25,415,601 17,480,967 14,972,188
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
===================================================================================================================================
Year Year Six-month From From
ended ended period ended inception to inception to
June 30, June 30, June 30, December 31, June 30,
2000 2000 1999 1998 2000
-----------------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$) (CAN$)
(note 2 (a))
<S> <C> <C> <C> <C> <C>
Cash flows from:
Operations:
Net loss $(151,198,510) $(223,562,114) $ (749,551) $ (287,509) $(224,599,174)
Adjustment for item not
involving cash:
Compensation cost
(note 6 (b) (ii)) 34,709 51,321 241,058 -- 292,379
Common shares issued
for services (note 3) 147,003,070 217,358,739 -- -- 217,358,739
Depreciation 604,369 893,620 -- -- 893,620
Change in operating assets and liabilities:
Interest and sales tax
receivable (86,836) (128,395) (216,446) (21,093) (365,934)
Research tax credits
receivable (105,847) (156,506) (32,069) (2,149) (190,724)
Prepaid expenses (18,480) (27,325) (49,956) -- (77,281)
Accounts payable and
accrued liabilities (note 9) 126,104 186,456 584,513 119,349 890,318
---------------------------------------------------------------------------------------------------------------------------
(3,641,421) (5,384,204) (222,451) (191,402) (5,798,057)
Financing:
Proceeds from issuance of
common shares 9,695,938 14,336,414 2,764,297 372 17,101,083
Cash from the acquisition of a
subsidiary -- -- -- 814,322 814,322
Share issue expenses (482,268) (713,081) (291,932) (93,379) (1,098,392)
Principal repayments of capital
lease obligations (60,736) (89,805) -- -- (89,805)
Deposit on subscription of shares -- -- 146,820 -- 146,820
Proceeds from issuance of
convertible promissory notes -- -- 298,720 -- 298,720
---------------------------------------------------------------------------------------------------------------------------
9,152,934 13,533,528 2,917,905 721,315 17,172,748
Investments:
Additions to property
and equipment (note 9) (1,974,110) (2,918,919) (1,492,495) -- (4,411,414)
Additions to other assets (2,109) (3,118) (9,758) (243) (13,119)
Deposits (1,031,495) (1,525,168) -- -- (1,525,168)
Purchase of term deposits (13,399,870) (19,813,048) -- -- (19,813,048)
Disposal of term deposits 10,491,980 15,513,440 -- -- 15,513,440
---------------------------------------------------------------------------------------------------------------------------
(5,915,604) (8,746,813) (1,502,253) (243) (10,249,309)
---------------------------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash (404,091) (597,489) 1,193,201 529,670 1,125,382
Cash, beginning of period 1,165,204 1,722,871 529,670 -- --
---------------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 761,113 $ 1,125,382 $ 1,722,871 $ 529,670 $ 1,125,382
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Stockholders' Equity
Periods from inception (March 2, 1998) to June 30, 2000
(in Canadian dollars)
<TABLE>
<CAPTION>
====================================================================================================================================
Additional Deposit on
paid-in Accumulated subscription
Shares Par value capital deficit of shares Total
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issue of common shares
at inception 255,000 $ 372 $ -- $ -- $ -- $ 372
Issue of common shares 16,200,000 24,430 789,892 -- -- 814,322
Share issue expenses -- -- (93,379) -- -- (93,379)
Net loss for the period -- -- -- (287,509) -- (287,509)
------------------------------------------------------------------------------------------------------------------------------------
Balance as at December 31,
1998 16,455,000 24,802 696,513 (287,509) -- 433,806
Issue of common shares 3,760,000 5,528 2,758,769 -- -- 2,764,297
Share issue expenses -- -- (291,932) -- -- (291,932)
Compensation cost related to
stock options granted -- -- 241,058 -- -- 241,058
Net loss for the period -- -- -- (749,551) -- (749,551)
Deposit on subscription
of shares -- -- -- -- 146,820 146,820
------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 1999 20,215,000 30,330 3,404,408 (1,037,060) 146,820 2,544,498
Issue of common shares 12,755,039 18,817 232,121,876 -- (146,820) 231,993,873
Share issue expenses -- -- (713,081) -- -- (713,081)
Compensation cost related
to stock options granted -- -- 51,321 -- -- 51,321
Net loss for the period -- -- -- (223,562,114) -- (223,562,114)
------------------------------------------------------------------------------------------------------------------------------------
Balance as at June 30, 2000 32,970,039 $49,147 $ 234,864,524 $(224,599,174) $ -- $ 10,314,497
====================================================================================================================================
Balance as at June 30, 2000
in US dollars (note 2 (a)) 32,970,039 $33,239 $ 158,842,502 $(151,899,888) $ -- $ 6,975,853
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
1. Organization and business activities:
Lumenon Innovative Lightwave Technology, Inc. ("Lumenon") was incorporated
in the State of Delaware in February 1996 under the name of WWV
Development Inc. as a shell company.
In July 1998, under an acquisition plan, Lumenon acquired LILT Canada Inc.
("LILT"), a Canadian corporation, by issuing 12,200,000 common shares to
the shareholders of LILT which resulted in the change in control of
Lumenon. Accordingly, LILT has been determined the acquiring corporation
and these consolidated financial statements present the results of
operations and cash flows of LILT since its inception, March 2, 1998.
Under the plan mentioned above, Lumenon issued 4,000,000 common shares to
acquire Dequet Capital, Inc., a Nevada corporation. Dequet Capital, Inc.'s
only asset was cash in the amount of $814,322 (US$540,000). This company
was subsequently dissolved.
The Corporation'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 activities are performed through LILT,
in Canada. In 1999, its year-end has been changed from December 31, to
June 30.
The Corporation is subject to a number of risks, including successful
development and marketing of its technology and attracting and retaining
key personnel. In order to achieve its business plan, the Corporation
anticipates the need to raise additional capital (see notes 3 and 11).
2. Significant accounting policies:
These financial statements have been prepared by management in accordance
with accounting principles generally accepted in the United States. The
significant accounting principles are as follows:
(a) Consolidated financial statements and basis of presentation:
The consolidated financial statements include the accounts of
Lumenon and the accounts of LILT. All intercompany transactions and
balances have been eliminated.
US dollar amounts presented on the consolidated balance sheets,
consolidated statements of operations and cash flows are provided
for convenience of reference only and are based on the closing
exchange rate at June 30, 2000, which was $1.4786 Canadian dollar
per US dollar.
The functional currency of the Corporation is the Canadian dollar.
F-7
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
2. Significant accounting policies (continued):
(b) Cash and cash equivalents:
The Corporation considers all investments that are highly liquid
with an original maturity of three months or less and readily
convertible into cash to be cash equivalents. As at June 30, 2000
and 1999, there were no cash equivalents.
(c) Property and equipment:
Equipment and leasehold improvements are recorded at cost.
Depreciation and amortization are provided using the straight-line
method and the following periods:
====================================================================
Asset Period
--------------------------------------------------------------------
Computer equipment and software 3 years
Office equipment and fixtures 5 years
Leasehold improvements Term of lease
Laboratory and pilot plant equipment 3 years
====================================================================
(d) Other assets:
Other assets, consisting of license and patent costs, are recorded
at cost when acquired and are being amortized on a straight-line
basis over their economic useful lives or their legal terms of
existence, ranging between 10 and 20 years. The capitalized amount
with respect to those assets does not necessarily reflect their
present or future value and the amount ultimately recoverable is
dependent upon the successful commercialization of the related
products.
(e) Research and development costs:
Research and development costs and the cost of intangibles, that are
purchased from others for use in research and development activities
and that have no alternative future uses, are expensed as incurred.
Research tax credits on eligible research expenses incurred in
Canada are accounted for as a reduction of research and development
expenses.
F-8
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
2. Significant accounting policies (continued):
(f) Foreign exchange:
The Canadian dollar is the functional currency of the Corporation.
Foreign denominated monetary assets and liabilities are translated
at the rate of exchange prevailing at the balance sheet date.
Non-monetary assets and liabilities are translated at the rate of
exchange prevailing at the date of the transaction. Revenues and
expenses are translated at the monthly average exchange rate
prevailing during the period. Foreign exchange gains and losses are
included in the determination of net earnings.
(g) Income taxes:
The Corporation uses the asset and liability method of accounting
for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. This method also requires the recognition of future tax
benefits such as net operating loss carryforwards, to the extent
that realization of such benefits is more likely than not. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the statement of operations in the period
that includes the enactment date.
(h) Comprehensive income:
Since its inception on March 2, 1998, the Corporation adopted
Statement of Financial Accounting Standards No. 130, REPORTING
COMPREHENSIVE INCOME, which establishes new rules for the reporting
and display of comprehensive income and its components. The adoption
of this statement had no impact on the Corporation's net income or
stockholders' equity.
(i) Stock option plan:
The Corporation applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion
no. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations for stock options granted to employees. As such,
compensation expense would be recorded on the date of grant only if
the then current market price of the underlying stock exceeded the
exercise price.
F-9
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
2. Significant accounting policies (continued):
(i) Stock option plan (continued):
The Corporation applies FASB Statement 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION ("SFAS 123") for stock options granted to
non-employees. As such, compensation expense is recorded at the date
of grant, based on the fair value as at that date using the
Black-Scholes option - pricing model.
(j) Impairment of long-lived assets and long-lived assets to be disposed
of:
The Corporation accounts for long-lived assets in accordance with
the provisions of SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. This
statement requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair
value less costs to sell.
(k) Net loss per share:
Net loss per share is computed using the weighted average number of
shares outstanding during the period. Under the accounting for the
LILT transaction described in note 1, the 12,200,000 shares have
been considered to be outstanding on a retroactive basis for all
periods presented.
(l) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ
from those estimates.
F-10
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
3. The Molex agreement:
Under the terms of a Teaming Agreement, Lumenon and Molex Incorporated
("Molex") agreed to jointly develop certain products related to the Dense
Wavelength Division Multiplexing market and other photonic devices. Under
the terms of the agreement, Molex is committed to provide services towards
the development of the products. In connection therewith, Lumenon granted
to Molex a warrant to receive 5,800,000 common shares issuable as Molex
fulfills its obligations pursuant to the Teaming Agreement. For the year
ended June 30, 2000, an amount of $217,358,739 (US$147,003,070) was
recorded under research and development expenses and shares pursuant to
the warrant were issued (see note 6 (a) (vi)). Under the terms of this
agreement amended during 2000, Molex is committed to purchase a certain
number of photonic devices of Lumenon for the first twelve months. After
the twelve-month period, Molex will have the option to purchase up to 50%
of the excess capacity of Lumenon and both Lumenon and Molex will share
Molex's profit upon resale of those devices. Under certain circumstances,
Molex may have the right to manufacture all components of the devices in
return of a royalty as defined in the agreement.
4. Property and equipment:
==========================================================================
June 30, 2000
------------------------------------
Accumulated Net book
Cost depreciation value
--------------------------------------------------------------------------
Computer equipment and software $ 407,294 $ 45,756 $ 361,538
Office equipment and fixtures 198,002 13,506 184,496
Leasehold improvements 1,051,538 78,582 972,956
Laboratory and pilot plant equipment 3,839,468 755,776 3,083,692
--------------------------------------------------------------------------
$5,496,302 $ 893,620 $4,602,682
==========================================================================
Equipment held under capital leases for which the cost and net book value
amount to $603,522 (US$408,171) and $542,557 (US$366,940), respectively,
are included in laboratory and pilot plant equipment.
F-11
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
4. Property and equipment (continued):
==========================================================================
June 30, 1999
---------------------------------
Accumulated Net book
Cost depreciation value
--------------------------------------------------------------------------
Computer equipment and software $ 40,250 $ -- $ 40,250
Office equipment and fixtures 17,618 -- 17,618
Leasehold improvements 191,807 -- 191,807
Laboratory and pilot plant equipment 1,242,820 -- 1,242,820
--------------------------------------------------------------------------
$1,492,495 $ -- $1,492,495
==========================================================================
All property and equipment were purchased during the six-month period
ended June 30, 1999. No depreciation was recorded for the same period as
the installation was completed in July 1999.
5. Obligations under capital leases:
Future minimum lease payments under capital leases are as follows:
--------------------------------------------------------------------------
2001 $ 284,823
2002 175,726
2003 135,832
--------------------------------------------------------------------------
Total minimum lease payments 596,381
Less amount representing interest (at rates varying
from 11.75% to 18.85%) 82,664
--------------------------------------------------------------------------
Present value of net minimum capital lease payments 513,717
Current portion of obligations under capital leases 235,031
--------------------------------------------------------------------------
Long-term portion of obligations under capital leases $ 278,686
==========================================================================
F-12
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
6. Share capital:
==========================================================================
June 30, June 30,
2000 1999
--------------------------------------------------------------------------
Authorized:
1,000,000 preferred shares, par value of
US$0.001 per share
100,000,000 common shares, par value
of US$0.001 per share
Issued and outstanding:
32,970,039 common shares (1999 - 20,215,000) $ 49,147 $ 30,330
--------------------------------------------------------------------------
(a) Issue of shares:
As mentioned in note 1, Lumenon acquired LILT in 1998 under a
reorganization and acquisition plan by issuing 12,200,000 common
shares to the shareholders of that corporation. At the date of
acquisition, there were 255,000 outstanding common shares of Lumenon
at an amount of $372 (US$255). In addition, Lumenon issued 4,000,000
common shares to the shareholders of Dequet Capital, Inc. Assets of
the latter consisted of cash in the amount of $814,322 (US$540,000).
1999
----
During the six-month period ended June 30, 1999, the Corporation
entered into a Stock Purchase Agreement with Molex who agreed to
purchase from Lumenon 3,000,000 common shares at $0.74 (US$0.50) per
share in two transactions. The first closing was held in June 1999
for 1,500,000 common shares. In total, the Corporation issued
3,760,000 common shares during the period for a cash consideration
of $2,764,297 (US$1,880,000) along with warrants for the purchase of
3,926,667 common shares at a price of $1.32 (US$0.90) per share.
F-13
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
6. Share capital (continued):
(a) Issue of shares (continued):
2000
----
During the year ended June 30, 2000, the Corporation concluded the
following share capital transactions:
(i) 1,484,522 common shares were issued for a cash consideration
of $7,099,319 (US$4,843,500), of which $146,820 (US$99,297)
was received prior to June 30, 1999;
(ii) promissory notes were converted into 400,000 common shares
with a value of $298,720 (US$200,000);
(iii) in connection with the issuance of common shares referred to
in (i) and (ii), 1,912,211 warrants were issued to be
exercised at prices varying from $1.33 (US$0.90) to $44.36
(US$30.00) per share;
(iv) the second closing of the Stock Purchase Agreement with Molex,
which was subject to Lumenon proving out its technology and
its ability to manufacture and deliver certain devices, took
place in March 2000 for an additional 1,500,000 common shares
and related cash consideration of $1,093,125 (US$750,000);
(v) 3,570,517 common shares were issued upon exercise of warrants
and options for cash consideration of $6,103,916
(US$4,171,350);
(vi) 5,800,000 common shares were issued for services received from
Molex in the amount of $217,358,739 (US$147,003,070). Value of
the shares issued has been recorded as Molex fulfilled its
obligations pursuant to the Teaming Agreement (see note 3).
The transaction was accounted for by using the average market
price of the shares of the Corporation during the periods the
services were rendered by Molex.
Under the terms of a Stock Restriction Agreement, no primary
stockholders can sell any share to competitors of Molex without
Molex's prior consent. The agreement includes certain rights of
first refusal and preemptive rights except that Lumenon can issue
6,000,000 units to raise capital within 24 months from the date of
the agreement, being June 21, 1999. One unit is comprised of one
common share and a warrant for the purchase of one common share. The
common share can be sold at a price not less than $0.74 (US$0.50)
and the warrant can be exercised at a price not less than $1.33
(US$0.90) per share.
Certain rights or restrictions terminate upon completion of a Public
Sale or a Public Offering as defined in the agreement.
F-14
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
6. Share capital (continued):
(b) Stock option plan:
Under a stock option incentive plan established in May 1999, the
Corporation may grant options to purchase common shares to key
employees, directors, officers and service-providers. The terms,
number of common shares covered by each option as well as the
permitted frequency of the exercise of such options is determined by
the Board of Directors. The plan contemplates that a maximum of
4,000,000 common shares may be optioned under the stock option plan.
No optionee can hold options to purchase more than 5% of the number
of shares issued and outstanding at any time. The subscription price
for each share covered by an option is established by the Board of
Directors but such price shall not be lower than the market value at
the date of grant.
Options for the purchase of 3,190,000 common shares at a price
ranging from $1.47 (US$1.00) to $41.40 (US$28.00) per share have
been granted to June 30, 2000.
Options granted have to be exercised over a period not exceeding
seven years. At June 30, 2000, 1,031,650 outstanding options are
exercisable and 1,245,500 outstanding options vest over a period of
one to five years.
(i) Changes in outstanding options for the period were as follows:
<TABLE>
<CAPTION>
================================================================================
Weighted average
Number exercise price per share
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, January 1, 1999 - $ -
Granted 1,940,000 1.44 (US$0.98)
--------------------------------------------------------------------------------
Options outstanding, June 30, 1999 1,940,000
Granted 1,250,000 $ 25.41 (US$17.18)
Exercised (822,850) 1.40 (US$0.95)
Cancelled (90,000) 2.29 (US$1.56)
--------------------------------------------------------------------------------
Options outstanding, June 30, 2000 2,277,150
================================================================================
</TABLE>
F-15
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
6. Share capital (continued):
(b) Stock option plan (continued):
(ii) The following table summarizes significant ranges of
outstanding options as at June 30, 2000:
<TABLE>
<CAPTION>
================================================================================
Options outstanding Options exercisable
------------------------------------ ----------------------
Weighted Weighted Weighted
Range of average average average
exercise remaining exercise exercise
prices Options life price Options price
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$1.47 - $11.83 1,212,150 2.7 years $ 2.01 1,031,650 $ 1.47
$16.28 - $29.57 680,000 5.0 years 24.63 -- --
$32.53 - $41.40 385,000 3.6 years 36.41 -- --
================================================================================
</TABLE>
(iii) Stock-based compensation:
The Corporation applies APB Opinion 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES, in accounting for its stock option plan.
The exercise price of all stock options is equal to the market
price of the stock at the date of grant and, accordingly, no
compensation cost has been recognized for stock options
granted to employees in the financial statements. Had
compensation cost for the Corporation's stock option plan been
determined based on the fair value at the grant dates for
awards under the plan consistent with the method of FASB
Statement 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS
123"), the Corporation's net loss would have been adjusted to
the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
==========================================================================================================
Year Six-month From From
ended ended inception to inception to
June 30, June 30, December 31, June 30,
2000 1999 1998 2000
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net loss As reported $ 223,562,114 $ 749,551 $ 287,509 $ 224,599,174
Pro-forma 225,874,543 1,120,362 287,509 227,282,414
----------------------------------------------------------------------------------------------------------
Pro-forma
compensation $ 2,312,429 $ 370,811 $ - $ 2,683,240
==========================================================================================================
</TABLE>
US dollars
(note 2 (a)) As reported $ 151,198,510
Pro-forma 152,762,439
------------------------------------------------
$ 1,563,929
================================================
F-16
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
6. Share capital (continued):
(b) Stock option plan (continued):
(iii) Stock-based compensation (continued):
<TABLE>
<CAPTION>
=============================================================================
Year Six-month From
ended ended inception to
June 30, June 30, December 31,
2000 1999 1998
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Pro-forma net loss per share:
Basic and diluted $ 8.89 $ 0.06 $ 0.02
U.S dollars 6.01
=============================================================================
</TABLE>
The fair value of each option grant was estimated on the date
of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions: risk-free interest of
approximately 5.8%, dividend yield of 0%, expected volatility
of 200% and expected life of 2 to 5 years (1999 - risk-free
interest rate of approximately 5.5%, dividend yield of 0%,
expected volatility of 90%, and expected life of 3 years). The
per share weighted average fair value of stock options granted
during 2000 and 1999 was $27.07 (US$18.31) and $0.87
(US$0.59), respectively.
Compensation costs of $51,321 (1999 - $241,058) for stock
options granted to non-employees have been recognized in the
financial statements.
(c) Warrants:
The following warrants are outstanding at June 30, 2000:
====================================================================
Warrants Expiry date Exercise price per share*
--------------------------------------------------------------------------------
1,060,000 August 2000 $ 1.33 (US$0.90)
296,700 September 2000 8.87 (US$6.00)
21,500 September 2000 13.12 (US$9.00)
10,000 October 2000 22.92 (US$15.50)
43,011 December 2000 34.00 (US$30.00)
760,000 June 2001 2.22 (US$1.50)
500,000 August 2001 1.33 (US$0.90)
400,000 October 2001 1.33 (US$0.90)
--------------------------------------------------------------------------------
3,091,211
--------------------------------------------------------------------------------
* The warrants are exercisable in US$.
F-17
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
7. Commitments:
(a) Under the terms of a license agreement entered into in July 1998,
Lumenon has the rights to produce, sell, distribute and promote
products derived from the know-how relating to integrated optical
components for Dense Wavelength Division Multiplexing and Plastic
Optical Fibre devices for telecommunications, data communications
and sensor applications. Lumenon is committed to pay a royalty of 5%
on gross sales up to a maximum amount of $3,500,000 (US$2,367,104)
until October 2017.
(b) The Corporation leases premises under operating lease agreements
that expire in January 2004 and July 2012. The first lease contains
a renewal option for a period of five years at the end of the
initial term. Those leases require the Corporation to pay all
executory costs such as maintenance and insurance. Rental payments
under the terms of these leases are secured by a deposit of $750,000
(US$507,000), of which $75,000 (US$50,700) is refundable per year.
In addition, the Corporation leases certain equipment under
operating leases. Minimum lease payments under operating lease
agreements for premises and equipment for the next five years and
thereafter are as follows:
====================================================================
2001 $ 978,497
2002 902,828
2003 866,462
2004 839,728
2005 802,300
Thereafter 6,211,447
--------------------------------------------------------------------
$ 10,601,262
====================================================================
F-18
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
7. Commitments (continued):
(c) The Corporation is committed to purchase equipment in the amount of
$4,377,917 (US$2,960,853), for which $775,168 (US$524,258) was
disbursed as at June 30, 2000 and recorded under deposits.
In addition, the Corporation is committed to acquire equipment
through capital leases in the amount of $1,133,485 (US$766,593).
Estimated future repayments including interest are as follows:
====================================================================
2001 $ 375,376
2002 462,780
2003 398,238
2004 55,133
--------------------------------------------------------------------
$ 1,291,527
====================================================================
(d) The following schedule shows the composition of total rental expense
for all operating leases:
====================================================================
Six-month
Year ended period ended
June 30, June 30,
2000 1999
-------------------------------------------------------------------
Minimum rental payments $ 78,168 $ 26,735
====================================================================
There was no rental agreement before the six-month period ended June
30, 1999.
F-19
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
8. Income taxes:
Details of the components of income taxes are as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Six-month From inception
Year ended period ended to
June 30, June 30, December 31,
2000 1999 1998
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net loss:
US operations $ 217,736,986 $ 241,058 $ -
Canadian operations 5,825,128 508,493 287,509
------------------------------------------------------------------------------------------------------
223,562,114 749,551 287,509
Less:
Compensation cost not deductible
for tax purposes 51,321 241,058 -
Expense related to the Teaming
Agreement no deductible for tax
purposes 210,510,490 - -
======================================================================================================
8,000,303 508,493 287,509
------------------------------------------------------------------------------------------------------
Basic income tax rate 38% 38% 38%
------------------------------------------------------------------------------------------------------
3,040,115 193,227 109,253
Adjustment in income taxes resulting from:
Loss carryforwards and unclaimed
deductions not recognized 3,040,115 193,227 109,253
------------------------------------------------------------------------------------------------------
$ - $ - $ -
======================================================================================================
</TABLE>
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable
income and tax planning strategies. Since the Corporation is a development
stage corporation, the generation of future taxable income is dependent on
the successful commercialization of its products and technologies.
At June 30, 2000, Lumenon and its subsidiary, LILT, the Canadian
Corporation, had accumulated scientific research and experimental
development expenditures and other unclaimed deductions which are
available to reduce future years' taxable income.
F-20
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
8. Income taxes (continued):
Details of the available deductions are as follows:
==========================================================================
<TABLE>
<CAPTION>
Lumenon LILT
---------------------------------
Federal Provincial
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Research and development expenditures,
without time limitation $ - $ 7,963,000 $ 8,394,000
Excess of net book value of property and
equipment over the undepreciated
capital cost - (2,944,569) (3,154,954)
Losses carried forward:
Expiring - 2006 - 315,000 358,000
- 2007 - 1,494,000 1,725,000
- 2020 2,175,000 - -
==========================================================================================================
</TABLE>
In addition, research tax credits, not recorded in the accounts and
available to reduce future Federal income taxes payable, amount to
$258,000 and $654,000 and expire in 2009 and 2010, respectively.
In accordance with Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES, the income tax effect of temporary
differences that give rise to the net deferred tax assets is presented
below:
<TABLE>
<CAPTION>
=================================================================================================
June 30, June 30,
2000 1999
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Scientific research and experimental development $ 3,064,730 $ 79,420
Non-capital losses 1,415,000 228,000
Excess of net book value of equipment over
the undepreciated capital cost (1,137,866) -
Investment tax credits 912,000 280,000
Less valuation allowance (4,253,864) (587,420)
-------------------------------------------------------------------------------------------------
$ - $ -
=================================================================================================
</TABLE>
F-21
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
9. Supplemental cash flow disclosure:
Non-cash investing and financing activities:
Acquisition of property and equipment through capital leases amounts to
$603,522 (US$408,171) at June 30, 2000 (1999 - nil).
Capital expenditures of $481,366 (US$325,555) are included in accounts
payable at June 30, 2000 (1999 - nil).
10. Financial instruments:
(a) Foreign currency risk management:
Options and warrants are exercisable in US dollars and payable in
such currency. Ultimate proceeds upon exercise of options and
warrants may vary due to fluctuations in the value of the Canadian
dollar relative to the US currency.
(b) Credit risk:
Financial instruments that potentially subject the Corporation to
significant concentrations of credit risk consist principally of
short-term investments and accounts receivable.
The Corporation has investment policies that require placement of
short-term investments in financial institutions evaluated as highly
creditworthy.
In the normal course of business, the Corporation evaluates the
financial condition of the parties with which it contracts on a
continuing basis and reviews the creditworthiness of all new
parties. The Corporation determines an allowance for doubtful
accounts to reflect specific risks.
F-22
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
10. Financial instruments (continued):
(c) Fair values:
The following table presents the carrying amounts and estimated fair
values of the Corporation's financial instruments at June 30, 2000
and 1999. The fair value of a financial instrument is the amount at
which the instrument could be exchanged in a current transaction
between willing parties. Fair value estimates are made as of a
specific point in time using available information about the
financial instrument. These estimates are subjective in nature and
often cannot be determined with precision.
<TABLE>
<CAPTION>
==========================================================================================================
June 30, June 30,
2000 1999
----------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
amount value amount value
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash $ 1,125,382 $ 1,125,382 $ 1,722,871 $ 1,722,871
Term deposits 4,299,608 4,299,608 - -
Interest and sales tax receivable 365,934 365,934 237,539 237,539
Financial liabilities:
Accounts payable 1,047,082 1,047,082 523,550 523,550
Accrued liabilities 324,602 324,602 180,312 180,312
Convertible promissory note - - 298,720 298,720
==========================================================================================================
</TABLE>
The carrying amounts shown in the table are included in the
consolidated balance sheet under the indicated captions.
The following method and assumption were used to estimate the fair
value of each class of financial instruments:
The carrying amounts approximate fair value because of the short
maturity of these instruments.
F-23
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
Year ended June 30, 2000 and six-month period ended June 30, 1999 and periods
from inception (March 2, 1998) to December 31, 1998 and to June 30, 2000 (in
Canadian dollars)
================================================================================
11. Subsequent events:
(a) On July 21, 2000, the Corporation entered into a non-exclusive
license agreement with a third party. The Corporation is committed
to pay an initial license fee of $584,047 (US$395,000) and royalties
on sales of products as defined in the agreement.
(b) On July 25, 2000, the Corporation closed a financing involving the
issuance of $51,751,000 (US$35 million) five-year convertible notes
bearing interest at 7.5% per annum. Interest is payable upon the
earlier to occur of the repayment or conversion of the notes. The
notes are convertible into the Corporation's common stock at a
conversion price based on the closing bid price of the common stock
at the time of conversion with a floor as $10.35 (US$7) and a
ceiling of $36.96 (US$25) and a floor of $10.35 (US$7). The
investors also received five-year common stock purchase warrants
entitling them to acquire a total of 5,000,800 shares at a price to
be established in 18 months; the investors will have the right to
purchase shares of Lumenon at a maximum price of $44.36 (US$30) per
share if Lumenon's shares are then traded at a value exceeding
$103.50 (US$70). If the stock price is between $44.36 (US$30) and
$103.50 (US$70), the price will be the then traded value of the
shares minus $44.36 (US$30), divided by two, plus $14.78 (US$10). If
the stock price is under $44.36 (US$30), the price will be $14.78
(US$10).
F-24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Securities and Exchange Commission Filing Fee....................$61,657.20
Accountants' fees and expenses...........................................$*
Legal fees and expenses..................................................$*
Miscellaneous............................................................$*
--
Total..................................................$*
---------------------------
* To be filed by amendment.
The foregoing costs and expenses will be paid by the Company. Other
than the Securities and Exchange Commission filing fee, all fees and expenses
are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Company's Certificate of Incorporation, as amended, limits the personal
liability of a director to the Company for monetary damages for breach of
fiduciary duty of care as a director. Liability is not eliminated for (i) any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) unlawful payment of dividends or stock
purchases or redemptions pursuant to Section 174 of the DGCL, or (iv) any
transaction from which the director derived an improper personal benefit.
The Company's Certificate of Incorporation and By-Laws provide that the
Company shall indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
by reason of the fact that he is or was a director, officer, employee or an
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with the defense or settlement of such action,
suit or proceeding, to the fullest extent and in the manner set forth in and
permitted by the DGCL, as from time to time in effect, and any other applicable
law, as from time to time in effect. Such right of indemnification is not be
deemed exclusive of any other rights to which such director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators of each such person.
The Company proposes to enter into indemnity agreements with its
directors and executive officers. The indemnity agreements will provide that the
Company shall indemnify such directors and executive officers from and against
any and all liabilities, costs and expenses, amounts of judgments, fines,
penalties and amounts paid in settlement of or incurred in defense of any
settlement in connection with any threatened, pending or completed claim,
action, suit or proceeding in which such persons are a party (other than a
proceeding or action by or in the right of the Company to procure a judgment in
its favor), or which may be asserted against them by reason of their being or
having been an officer or director of the Company (the "Losses"), unless it is
determined that such directors and executive officers did not act in good faith
and for a purpose which they reasonably believed to be in, or in the case of
service to an entity related to the Company, not opposed to, the best interests
of the Company and, in the case of a criminal proceeding or action, that they
had reasonable cause to believe that their conduct was unlawful. The indemnity
agreements will also provide that the Company shall indemnify such directors and
executive officers from and against any and all Losses that they may incur if
they are a party to or threatened to be made a party to any proceeding or action
by or in the right of the Company to procure a judgment in its favor, unless it
is determined that they did not act in good
II-1
<PAGE>
faith and for a purpose that they reasonably believed to be in, or, in the case
of service to an entity related to the Company, not opposed to, the best
interests of the Company, except that no indemnification for Losses shall be
made in respect of (i) any claim, issue or matter as to which they shall have
been adjudged to be liable to the Company or (ii) any threatened or pending
action to which they are a party or are threatened to be made a party that is
settled or otherwise disposed of, unless and only to the extent that any court
in which such action or proceeding was brought determines upon application that,
in view of all the circumstances of the matter, they are fairly and reasonably
entitled to indemnity for such expenses as such court shall deem proper. Such
indemnification will be in addition to any other rights to which such officers
or directors may be entitled under any law, charter provision, by-law,
agreement, vote of shareholders or otherwise.
The Company maintains a $5,000,000 directors and officers liability
insurance policy.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of an action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In July 1998, under a reorganization and acquisition plan, (i) Lumenon
acquired the outstanding stock of LILT in consideration of the issuance of
12,200,000 shares of common stock to the former shareholders of LILT and (ii)
Lumenon acquired the outstanding stock of Dequet Capital, Inc. in consideration
of the issuance of 4,000,000 shares of common stock to the former stockholders
of Dequet. The shares issued in connection with the acquisition of Lumenon were
issued to the six former shareholders of LILT, Najafi Holding, Inc., Andrewma
Holding, Inc., Touam Holding, Inc., SurfaceTech, Polyvalor and McGill University
in reliance upon the exemption provided in Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), were deemed by the Company to be
"restricted securities" within the meaning of Rule 144 under the Securities Act
of 1933 and were appropriately legended and restricted as to subsequent
transfer. The shares issued in connection with the acquisition of Dequet were
issued to the former stockholders of Dequet under the exemption provided in Rule
504 of Regulation D under the Securities Act of 1933 for a total consideration
of US$540,000. No underwriter was involved in either such transaction.
During the six-month period ended June 30, 1999, Lumenon issued an
aggregate of 2,260,000 Units at a price of US$0.50 per unit to investors
(excluding Molex). Each Unit comprised one share of common stock and one warrant
for the purchase of one additional share of common stock at a price of US$1.00
per share, of which warrants to purchase 1,050,000 shares expire on August 23,
2001 (550,000 of these 1,050,000 warrants have been exercised) and warrants to
purchase 1,210,000 shares expire on August 23, 2000. The securities were offered
and sold to the following entities and individuals under the exemption provided
in Section 4(2) of the Securities Act of 1933: Manitex Capital Inc., a Canadian
venture capital company, Pinetree Capital Corp., a Canadian venture capital
company, a group of Canadian investors investing through a confidential trust,
and a group of Canadian investors investing through Groome Capital.com, Inc., an
investment banking firm. Each such individual or entity was an accredited
investor (as such term is defined in Rule 501 of Regulation D under the
Securities Act of 1933) or otherwise a sophisticated investor or employed a
purchaser's representative having knowledge and experience in financial and
business matters, each being capable of evaluating the merits and risks of its
investment and each having had the opportunity to ask questions and receive
answers concerning the terms and conditions of the offering and to obtain
additional information from the Company, necessary to make an informed
investment decision. All such securities were deemed by the Company to be
restricted securities and were appropriately legended and restricted as to
subsequent transfer. No underwriter was involved in any such transaction.
II-2
<PAGE>
In March 1999, the Company issued US$200,000 principal amount of its
10% Convertible Notes (the "Notes") to Brant Investments Limited Global
Securities Services, a Canadian entity and an accredited investor within the
meaning of Rule 501 of Regulation D under the Securities Act of 1933. Each
US$1,000 principal amount of the Notes was initially convertible into common
stock at US$0.50 per share. Upon conversion of the Notes, the holder thereof is
entitled to receive for each US$1,000 principal amount thereof warrants to
purchase 1,000 additional shares of common stock at US$0.90 per share with a
term of 30 months. The securities were offered and sold pursuant to the
exemption provided in Section 4(2) of the Securities Act of 1933. All of the
Notes were deemed by the Company to be restricted securities and were
appropriately legended and restricted as to subsequent transfer. Groome
Capital.com, Inc. ("Groome") acted as underwriter in connection with such
placement. The notes were converted in September 1999 in accordance with their
terms.
In June 1999, the Company issued 1,500,000 shares of common stock,
1,666,667 cash common stock purchase warrants and 5,800,000 service common stock
purchase warrants to Molex under the Molex Agreements, for a cash consideration
of US$750,000. Each cash common stock purchase warrant entitles Molex to acquire
one share of common stock at a price of US$0.90 on or before August 1, 2001.
These 1,666,667 cash common stock purchase warrants were exercised in November
1999. Each service common stock purchase warrant entitles Molex to receive one
share of common stock for services rendered under the Molex Agreements. The
securities were offered and sold in reliance on the exemption provided in
Section 4(2) of the Securities Act of 1933 and solely to an accredited investor,
Molex, within the meaning of Rule 501 of Regulation D under the Securities Act
of 1933. No underwriter was involved in such transaction.
In July 1999, the Company issued 960,000 units at a price of US$1.00
per unit. Each unit comprised one share of common stock and one warrant for the
purchase of one additional share of common stock at a price of US$1.50 per share
before June 2001. The securities were offered and sold in reliance on the
exemption provided in Section 4(2) of the Securities Act of 1933 and solely to
accredited investors (as such term is defined in Rule 501 of Regulation D of the
Securities Act of 1933) or otherwise to sophisticated investors or to investors
employing a purchaser representative having knowledge and experience in
financial and business matters, each being capable of evaluating the merits and
risks of its investment and each having had the opportunity to ask questions and
receive answers concerning the terms and conditions of the offering and to
obtain additional information from the Company necessary to make and informed
investment decision. All such securities were deemed by the Company to be
restricted securities and were appropriately legended and restricted as to
subsequent transfer. No underwriter was involved in such transactions.
In September 1999, the Company issued 407,000 additional units at a
price of US$4.00 per unit. Each unit comprised one share of common stock and one
warrant for the purchase of one additional share of common stock at a price of
US$6.00 per share before September 2000. The securities were offered and sold in
reliance on the exemption provided in Section 4(2) of the Securities Act of 1933
and solely to accredited investors (as such term is defined in Rule 501 of
Regulation D of the Securities Act of 1933), or otherwise to sophisticated
investors or to investors employing a purchaser representative having knowledge
and experience in financial and business matters, each being capable of
evaluating the merits and risks of its investment and each having had the
opportunity to ask questions and receive answers concerning the terms and
conditions of the offering and to obtain additional information from the Company
necessary to make and informed investment decision. All such securities were
deemed by the Company to be restricted securities and were appropriately
legended and restricted as to subsequent transfer. Groome acted as underwriter
in connection with such placement. 125,000 of the warrants were exercised in
October 1999.
In September 1999, the Company issued 400,000 additional units to
holders of the Notes, Brant Investments Limited Global Securities Services upon
the full conversion of its Notes. Each unit comprised one share of common stock
and one warrant for the purchase of one additional share of common stock at a
price of US$0.90 per share before September 30, 2001. The securities were
offered and sold solely to in reliance on the exemption provided in Section 4(2)
of the Securities Act of 1933 and solely to accredited investors (as such term
is defined in Rule 501 of Regulation D of the Securities Act of 1933) or
otherwise to sophisticated investors or to investors employing a purchaser
representative having knowledge and experience in financial and business
matters, each being capable of evaluating the merits and risks of its investment
and each having had the opportunity to ask questions and receive answers
concerning the terms and conditions of the offering and to obtain additional
II-3
<PAGE>
information from the Company necessary to make an informed investment decision.
All such securities were deemed by the Company to be restricted securities and
were appropriately legended and restricted as to subsequent transfer. Groome
acted as underwriter in connection with the placement of the Notes and their
conversion, and upon conversion of such notes, Groome exercised its option to
purchase an additional 30,000 units for US$15,000 and exercised the 30,000
warrants included in the Units for US$27,000 in December 1999.
In November 1999, Lumenon issued 21,500 units at a price of US$7.00 per
unit. Each unit comprised one share of common stock and one warrant for the
purchase of one additional share at a price of US$9.00 per share before
September 30, 2000. The securities were offered and sold solely in reliance on
the exemption provided in Section 4(2) of the Securities Act of 1933 and solely
to Ghaemi Holdings, a Canadian holding company, and an accredited investor
within the meaning of Rule 501 of Regulation D under the Securities Act of 1933.
All such securities were deemed by the Company to be restricted securities and
were appropriately legended and restricted as to subsequent transfer. No
underwriter was involved in such transaction.
In November 1999, Lumenon issued 10,000 additional units at a price of
US$10.50 per unit. Each unit comprised one share of common stock and one warrant
for the purchase of one additional share at a price of US$15.50 per share before
October 31, 2000. The securities were offered and sold in reliance on the
exemption provided in Section 4(2) of the Securities Act of 1933 and solely to
Groupe Huot Inc., a Canadian holding company, and an accredited investor within
the meaning of Rule 501 of Regulation D under the Securities Act of 1933. All
such securities were deemed by the Company to be restricted securities and were
appropriately legended and restricted as to subsequent transfer. No underwriter
was involved in such transaction.
In November 1999, Molex exercised its warrants to acquire 1,666,667
shares at a price of US$0.90 per share for total proceeds of US$1,500,000. Molex
is an accredited investor within the meaning of Rule 501 of Regulation D under
the Securities Act of 1933 and the Company relied upon the exemption provided in
Section 4(2) of the Securities Act of 1933. All such securities were deemed by
the Company to be restricted securities and were appropriately legended and
restricted as to subsequent transfer. No underwriter was involved in such
transaction.
Additionally, warrants to acquire a total of 755,000 shares were
exercised in the three-month period ended December 31, 1999 for total proceeds
of US$1,295,000. These warrants were issued in prior transactions described
above. All such securities were deemed by the Company to be restricted
securities and were appropriately legended and restricted as to subsequent
transfer. No underwriter was involved in such transaction.
In December 1999, Lumenon entered into an agreement to issue 86,022
additional units at a price of US$23.25 per unit. Each unit comprised one share
of common stock and a warrant for the purchase of one half of an additional
share at a price of US$30.00 per share before December 7, 2000. The shares were
issued on January 12, 2000. The securities were offered and sold solely in
reliance on the exemption provided in Section 4(2) of the Securities Act of 1933
and solely to Terima a.v.v., a British Virgin Islands holding company, and an
accredited investor within the meaning of Rule 501 of Regulation D under the
Securities Act of 1933. All such securities were deemed by the Company to be
restricted securities and were appropriately legended and restricted as to
subsequent transfer. No underwriter was involved in such transaction.
In January 2000, the Company issued 86,022 units, consisting of one
share of Common Stock and a warrant for the purchase of one half of an
additional share (43,011 shares) at a price per share of $30.00 before December
7, 2000, for cash consideration in the aggregate amount of $2,000,012 or $23.25
per unit. The securities were offered and sold in reliance on the exemption
provided in Section 4(2) of the Securities Act and solely to an accredited
investor within the meaning of Rule 501 of Regulation D under the Securities
Act. All such securities are deemed to be restricted securities and are
appropriately legended and restricted as to subsequent transfer. No underwriter
was involved in such transaction. The proceeds hereof were used to fund current
activities and expenses associated with the expansion project.
In March 2000, the Company issued 1,500,000 shares of Common Stock to
Molex for cash consideration in the amount of US$750,000 as part of the
scheduled second closing under the terms of the Stock Purchase Agreement by and
between the Company and Molex dated June 21, 1999. The securities were offered
and sold in reliance on the exemption provided in Section 4(2) of the Securities
Act and solely to an accredited investor, Molex,
II-4
<PAGE>
within the meaning of Rule 501 of Regulation D under the Securities Act. No
underwriter was involved in such transaction. The proceeds hereof are being used
to fund current activities and expenses associated with the expansion project.
The following unregistered securities were issued by the Company from
April 1, 2000 to September 8, 2000:
<TABLE>
<CAPTION>
Number of Shares Offering/
Date of Description of Issued/Subject to Exercise
Sale/Issuance Securities Issued Options, Warrants or Notes Price Per Share
------------- ----------------- -------------------------- ---------------
<S> <C> <C> <C> <C>
April 14, 2000 Common stock issued to 26,000 US$6.00
Groome Capital Corp., Inc., an
accredited investor, upon
exercise of warrants.
May 8, 2000 Common stock issued to 150,000 US$0.90
Lavery, de Billy as nominee
for accredited investors, upon
exercise of warrants
May 19, 2000 Common stock issued to Lavery, 200,000 US$0.90
de Billy as nominee
for accredited investors
upon exercise of warrants
Various Common Stock issued to Molex, an 5,800,000 US$26.38
accredited investor, upon the
exercise of the services warrant
July 25, 2000 Warrants to purchase shares of 10,000,800 to be
common stock and convertible determined
notes convertible into shares of
common stock issued to
Capital Ventures International
and Castle Creek Technology
Partners LLC
July 2000 Common stock issued to Brant 400,000 US$0.90
Investments Limited Global
Securities Services, an accredited
investor, upon exercise of warrants
July 2000 Common stock issued to Pintree Capital 500,000 US$0.90
Corp., an accredited investor, upon
exercise of warrants
July 2000 Common stock issued to Lavery, de Billy 60,000 US$1.50
as nominee for accredited investors,
upon exercise of warrants
August 2000 Common stock issued to Lavery, de Billy 1,269,750 US$0.90
as nominee for accredited investors,
upon exercise of warrants
September 2000 Common stock issued to accredited 256,000 US$6.00
investors upon exercise of warrants
</TABLE>
The issuance of these securities was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933, as amended, as transactions by
the Company not involving a public offering. All such securities were deemed by
the Company to be restricted securities and were appropriately legended and
restricted as to subsequent transfer. No underwriter was involved in such
transactions.
II-5
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
2.1 Amended Plan of Reorganization, Merger and Acquisition by
which WWV Development, Inc. (a Delaware corporation) acquired
and merged into itself Lumenon Innovative Lightwave
Technology, Inc. (a Canadian federal corporation), and
acquired Dequet Capital, Inc. (a Nevada corporation) as
wholly-owned subsidiaries, dated July 7, 1998 (incorporated by
reference to Exhibit 2.1 to the Company's Registration
Statement on Form 10).
3.1 Amended and Restated Certificate of Incorporation of Lumenon
Innovative Lightwave Technology, Inc. (incorporated by
reference to Exhibit 3.1 to the Company's Registration
Statement on Form 10).
3.2 Amended and Restated By-Laws (incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement on Form
10).
4.1 Specimen Certificate for Shares of Common Stock (incorporated
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 10).
4.2 Lumenon Innovative Lightwave Technology, Inc. Stock Option
Incentive Plan (incorporated by reference to Exhibit 4.2 to
the Company's Registration Statement on Form 10).
4.3 Form of Lumenon Innovative Lightwave Technology, Inc. Warrant
to Acquire Shares of Common Voting Stock (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form 10).
4.4 Form of Convertible Note dated, July 25, 2000 (incorporated by
reference to Exhibit 4.1 to the Company's Current Report on
Form 8-K, filed July 28, 2000).
4.5 Form of Stock Purchase Warrant, dated July 25, 2000
(incorporated by reference to Exhibit 4.2 to the Company's
Current Report on Form 8-K, filed July 28, 2000).
*5 Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.
10.1 License Agreement by and between Polyvalor and McGill
University and Lumenon Innovative Lightwave Technology, Inc.
(incorporated by reference to the Company's Registration
Statement on Form 10, Exhibit 10.1).
10.2 Teaming Agreement between Molex Incorporated and its
subsidiary Molex Fiber Optics, Inc., and Lumenon Innovative
Lightwave Technology, Inc. and its wholly owned subsidiary
LILT Canada Inc., dated May 19, 1999 (incorporated by
reference to Exhibit 10.2 to the Company's Registration
Statement on Form 10).
10.3 Stock Purchase Agreement between Molex Incorporated, Lumenon
Innovative Lightwave Technology, Inc., and LILT Canada, Inc.,
dated May 19, 1999 (incorporated by reference to Exhibit 10.3
to the Company's Registration Statement on Form 10).
10.4 Stock Restriction Agreement between Molex Incorporated,
Lumenon Innovative Lightwave Technology, Inc., and LILT
Canada, Inc., Andrewma Holding, Inc., and Najafi Holding Inc.,
dated June 21, 1999 (incorporated by reference to Exhibit 10.4
to the Company's Registration Statement on Form 10).
10.5 Registration Rights Agreement between Lumenon Innovative
Lightwave Technology, Inc. and Molex Incorporated dated June
21, 1999 (incorporated by reference to Exhibit 10.5 to the
Company's Registration Statement on Form 10).
II-6
<PAGE>
10.6 Securities Purchase Agreement by and among Lumenon Innovative
Lightwave Technology, Inc., Capital Ventures International and
Castle Creek Partners LLC, dated July 25, 2000 (incorporated
by reference to Exhibit 10.1 to the Company's Current Report
on Form 8-K, filed July 28, 2000).
10.7 Registration Rights Agreement by and among Lumenon Innovative
Lightwave Technology, Inc., Capital Ventures International and
Castle Creek Partners LLC, dated July 25, 2000 (incorporated
by reference Exhibit 10.2 to the Company's Current Report on
Form 8-K filed on July 28, 2000).
10.8 Agreement of Lease between Liberty Sites Ltd. and LILT Canada,
Inc., dated May 19, 2000 (incorporated by reference to Exhibit
10.8 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000).
10.9 License Agreement between Polaroid Corporation and LILT
Canada, Inc., a subsidiary of Lumenon Innovative Lightwave
Technology, Inc., dated July 21, 2000 (incorporated by
reference to Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 2000).
21 Subsidiaries of the Registrant (incorporated by reference to
Exhibit 21 to the Company's Registration Statement on Form
10).
23.1 Consent of KPMG, LLP.
23.2 Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP
(included on Exhibit 5 to this Registration Statement).
24 Power of Attorney (included on signature page to this
Registration Statement).
27 Financial Data Schedule (incorporated by reference to Exhibit
27 to the Company's Annual Report on From 10-K for the fiscal
year ended June 30, 2000).
-------------------
* To be filed by amendment.
II-7
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by
Section 10(a)(3) of the Securities Act of
1933;
(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;
(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration
Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(h) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Montreal, Canada, on the day of September, 2000.
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
By: /s/ S. Iraj Najafi
---------------------------------
S. Iraj Najafi,
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints S. Iraj Najafi, Mark P. Andrews
and Vincent Belanger his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
Registration Statement, including post-effective amendments to this Registration
Statement, and any related registration statement filed pursuant to Rule 462(b)
of the Act and to file the same, with exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or either of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ S. Iraj Najafi September 7, 2000
------------------------------------------------------ -------------------
S. Iraj Najafi Date
President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ Mark P. Andrews September 7, 2000
------------------------------------------------------ -------------------
Mark P. Andrews Date
Vice President, Chief Technical Officer,
Secretary and Director
/s/ Anthony Moretti September 7, 2000
------------------------------------------------------ -------------------
Anthony Moretti Date
Director
/s/ Denis N. Beaudry September 7, 2000
------------------------------------------------------ -------------------
Denis N. Beaudry Date
Director
------------------------------------------------------ -------------------
Pierre-Paul Allard Date
Director
II-9
<PAGE>
/s/ Vincent Belanger September 7, 2000
----------------------------------------------------- ------------------
Vincent Belanger Date
Vice President Finance and Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Guy Brunet September 7, 2000
----------------------------------------------------- -------------------
Guy Brunet Date
Director
/s/ Gilles Marcotte September 7, 2000
----------------------------------------------------- -------------------
Gilles Marcotte Date
Director
/s/ Pierre-Andre Roy September 7, 2000
----------------------------------------------------- -------------------
Pierre-Andre Roy Date
Director
II-10
