SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2000
------------------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from____________________ to __________________________
Commission File Number: 0-27977
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Lumenon Innovative Lightwave Technology, Inc.
---------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 98-0213257
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
4975 Levy Street, Ville Saint-Laurent (QC) Canada H4R 2N9
- ------------------------------------------------- -------
(Address of Principal Executive Offices) (Zip Code)
(514) 331-2261
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(Registrant's Telephone Number, Including Area Code)
9060 Ryan Avenue, Dorval (QC) Canada H9P 2M8
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(Former Address, if Changed From Last Report)
Indicate by check whether the registrant: (1) has filed all reports to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.(X) Yes ( ) No
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 30,364,521 shares of Common Stock,
$.001 par value, as of May 12, 2000.
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC. and SUBSIDIARIES
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets as of March 31, 2000 (unaudited) 5
and June 30, 1999
Consolidated Statements of Operations (unaudited) for 6
the three months ended March 31, 2000 and 1999 and the
nine months ended March 31, 2000 and 1999 and the period
from inception (March 2, 1998) to March 31, 2000
Consolidated Statements of Cash Flows (unaudited) for 7
the three months ended March 31, 2000 and 1999, the
nine months ended March 31, 2000 and 1999 and the period
from inception (March 2, 1998) to March 31, 2000
Notes to Consolidated Financial Statements (unaudited) 8
Item 2. Management's Discussion and Analysis 13
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION 16
Item 2 Change in Securities and Use of Proceeds 16
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
-2-
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Financial Statements of
(Unaudited)
LUMENON INNOVATIVE
LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Three-month and nine-month periods ended March 31, 2000
and 1999 and period from inception (March 2, 1998) to
March 31, 2000
-3-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Financial Statements
(Unaudited)
Three-month and nine-month periods ended March 31, 2000 and 1999
and period from inception (March 2, 1998) to March 31, 2000
Financial Statements
Consolidated Balance Sheets.............................................6
Consolidated Statements of Operations...................................7
Consolidated Statements of Cash Flows...................................8
Notes to Consolidated Financial Statements..............................9
-4-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
March 31, March 31, June 30,
2000 2000 1999
- --------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$)
(note 8)
Assets
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 1,279,966 $ 1,855,183 $ 1,722,871
Term deposits 4,231,044 6,132,475 -
Interest and sales tax receivable 315,715 457,598 237,539
Research tax credits receivable 109,078 158,097 34,218
Prepaid expenses 34,856 50,520 49,956
- --------------------------------------------------------------------------------------------------------------------------
5,970,659 8,653,873 2,044,584
Deposits 870,743 1,262,055 -
Property and equipment 2,136,000 3,095,918 1,492,495
Other assets 9,051 13,119 10,001
- --------------------------------------------------------------------------------------------------------------------------
$ 8,986,453 $ 13,024,965 $ 3,547,080
- --------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 787,370 $ 1,141,216 $ 523,550
Accrued liabilities 107,965 156,484 180,312
Obligation under capital lease 86,932 125,999 -
Convertible promissory notes - - 298,720
- --------------------------------------------------------------------------------------------------------------------------
982,267 1,423,699 1,002,582
Obligation under capital lease 47,952 69,501 -
Stockholders' equity:
Share capital 33,209 48,133 30,330
Additional paid-in capital 127,894,494 185,370,279 3,404,408
Deposit on subscription of shares - - 146,820
Accumulated deficit (119,971,469) (173,886,647) (1,037,060)
- --------------------------------------------------------------------------------------------------------------------------
7,956,234 11,531,765 2,544,498
- --------------------------------------------------------------------------------------------------------------------------
$ 8,986,453 $ 13,024,965 $ 3,547,080
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</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three months Three months Three months Nine months Nine months From
ended ended ended ended ended inception to
March 31, March 31, March 31, March 31, March 31, March 31,
2000 2000 1999 2000 1999 2000
- ------------------------------------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$) (CAN$) (CAN$) (CAN$)
(note 8)
<S> <C> <C> <C> <C> <C> <C>
Revenues - interest $ 89,968 $ 130,400 $ 1,370 $ 198,276 $ 9,239 $ 207,317
Expenses:
Research and development net of
research tax credits 107,942,080 156,451,251 70,468 170,316,154 82,759 170,490,815
General and administrative expenses 878,139 1,272,774 95,553 2,640,971 385,988 3,500,864
Loss on foreign exchange 23,688 34,334 9,787 56,991 2,439 68,489
Interest expense 12,860 18,639 - 33,747 - 33,796
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108,856,767 157,776,998 175,808 173,047,863 471,186 174,093,964
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss $108,766,799 $157,646,598 $174,438 $172,849,587 $ 461,947 $173,886,647
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss per share $ 4.17 $ 6.04 $ 0.01 $ 7.32 $ 0.03
- ----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of shares outstanding 26,100,742 26,100,742 16,455,000 23,600,294 16,100,255
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Three months Three months Three months
ended ended ended
March 31, March 31, March 31,
2000 2000 1999
- ---------------------------------------------------------------------------------------------------------
(US$) (CAN$) (CAN$)
(note 8)
Cash flows from:
Operating activities:
<S> <C> <C> <C>
Net loss $(108,766,799) $(157,646,598) $(174,438)
Adjustment for items not involving cash:
Compensation cost - - -
Shares issuable for services 107,527,160 155,849,866 -
Depreciation 83,330 120,778 -
Change in operating assets and liabilities:
Interest and sales tax receivable (147,033) (213,110) 18,661
Research tax credits receivable - - (12,343)
Prepaid expenses (21,478) (31,130) (8,123)
Accounts payable and accrued liabilities (64,516) (93,509) (808)
- ---------------------------------------------------------------------------------------------------------
(1,389,336) (2,013,703) (177,051)
Financing activities:
Proceeds from issuance of common shares 3,060,684 4,436,155 -
Cash from the acquisition of a subsidiary - - -
Share issue expenses (40,595) (58,839) (60,258)
Principal repayments of capital lease obligation (6,611) (9,582) -
Proceeds from issuance of convertible
promissory notes - - -
- ---------------------------------------------------------------------------------------------------------
3,013,478 4,367,734 (60,258)
Investing activities:
Additions to property and equipment (300,404) (435,405) (227,095)
Deposits (615,237) (891,725) -
Additions to other assets (344) (499) (9,757)
Purchase of term deposits (6,471,317) (9,379,527) -
Disposal of term deposits 4,152,237 6,018,253 -
- ---------------------------------------------------------------------------------------------------------
(3,235,065) (4,688,903) (236,852)
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,610,923) (2,334,872) (474,161)
Cash and cash equivalents, beginning of period 2,890,889 4,190,055 529,670
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,279,966 $1,855,183 $ 55,509
=========================================================================================================
</TABLE>
7-A
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Nine months Nine months From
ended ended inception to
March 31, March 31, March 31,
2000 1999 2000
- ------------------------------------------------------------------------------------------------------------
(CAN$) (CAN$) (CAN$)
Cash flows from:
Operating activities:
<S> <C> <C> <C>
Net loss $(172,849,587) $ (461,947) $ (173,886,647)
Adjustment for items not involving cash:
Compensation cost - - 241,058
Shares issuable for services 169,311,536 - 169,311,536
Depreciation 311,916 - 311,916
Change in operating assets and liabilities:
Interest and sales tax receivable (220,059) (2,432) (457,598)
Research tax credits receivable (123,879) (14,492) (158,097)
Prepaid expenses (564) (8,123) (50,520)
Accounts payable and accrued liabilities 516,888 118,541 1,220,750
- ------------------------------------------------------------------------------------------------------------
(3,053,749) (368,453) (3,467,602)
Financing activities:
Proceeds from issuance of common shares 12,613,507 372 15,524,996
Cash from the acquisition of a subsidiary - 814,322 814,322
Share issue expenses (386,909) (153,637) (772,220)
Principal repayments of capital lease obligation (9,582) - (9,582)
Proceeds from issuance of convertible
promissory notes - - 298,720
- ------------------------------------------------------------------------------------------------------------
12,217,016 661,057 15,856,236
Investing activities:
Additions to property and equipment (1,633,307) (227,095) (3,125,802)
Deposits (1,262,055) - (1,262,055)
Additions to other assets (3,118) (10,000) (13,119)
Purchase of term deposits (12,933,812) - (12,933,812)
Disposal of term deposits 6,801,337 - 6,801,337
- ------------------------------------------------------------------------------------------------------------
(9,030,955) (237,095) (10,533,451)
- ------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 132,312 55,509 1,855,183
Cash and cash equivalents, beginning of period 1,722,871 - -
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,855,183 $ 55,509 $ 1,855,183
============================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7-B
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Unaudited)
Three-month and nine-month periods ended March 31, 2000 and 1999 and period from
inception (March 2, 1998) to March 31, 2000 (in Canadian dollars)
- --------------------------------------------------------------------------------
In the opinion of management, the accompanying unaudited interim financial
statements, prepared in accordance with US generally accepted accounting
principles, contain all adjustments (consisting of normal recurring
accruals) necessary to present fairly the Corporation's financial position
as at March 31, 2000 and June 30, 1999, the results of its operations and
its cash flows for the three-month and nine-month periods ended March 31,
2000 and 1999 and for the period from inception to March 31, 2000.
While management believes that the disclosures presented are adequate to
make the information not misleading, these consolidated financial
statements and notes should be read in conjunction with the Corporation's
Consolidated Financial Statements at June 30, 1999.
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.
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 optics devices in the form of compact hybrid glass
circuits on silicon chips.
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.
2. Property and equipment:
During the nine-month period ended March 31, 2000, the Corporation
purchased property and equipment totaling $1,915,337 (US$1,321,499), of
which $282,030 (US$194,583) were acquired through capital leases.
-8-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Three-month and nine-month periods ended March 31, 2000 and 1999 and period from
inception (March 2, 1998) to March 31, 2000 (in Canadian dollars)
- --------------------------------------------------------------------------------
3. The Molex agreements:
(a) Under the terms of a Stock Purchase Agreement:
Molex Incorporated (Molex), a Delaware corporation, agreed to
purchase from Lumenon 3,000,000 common shares at $0.72 (US$0.50) per
share in two transactions. The first closing was held in June 1999
for 1,500,000 common shares and the second closing, 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.
Lumenon granted to Molex a Services Common Stock Purchase Warrant to
receive 5,800,000 common shares. The warrant expires in June 2001
and is subject to Molex fulfilling its obligations pursuant to a
Teaming Agreement. Value of the shares issued will be recorded as
Molex fulfills such obligations (see (c) below).
Lumenon granted to Molex a Cash Common Stock Purchase Warrant to
purchase 1,666,667 common shares at a price of $1.30 (US$0.90) per
share. The warrant was exercised in November 1999.
(b) 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 a right of
first refusal and preemptive rights except that Lumenon can issue
6,000,000 units (one common share and a warrant for the purchase of
one common share at a price not less than $1.30 (US$0.90) per share)
at a price not less than $0.72 (US$0.50) per unit to raise capital
within 24 months from the date of the agreement, being June 21,
1999.
Certain rights or restrictions might be terminated upon completion
of a Public Sale, a Public Offering as defined in the agreement.
-9-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Three-month and nine-month periods ended March 31, 2000 and 1999 and period from
inception (March 2, 1998) to March 31, 2000 (in Canadian dollars)
- --------------------------------------------------------------------------------
3. The Molex agreements (continued):
(c) Under the terms of a Teaming Agreement:
Lumenon and Molex agreed to jointly develop certain products related
to the Dense Wavelength Division Multiplexing market and other
photonics markets. Under the terms of the agreement, Molex is
committed to purchase the entire production of Lumenon for the first
twelve months with a maximum number of units per month. After the
twelve-month period, Molex will have the option to purchase all
production of Lumenon at fair market value. Under certain
circumstances, Molex may have the right to manufacture all
components of the devices in return for a royalty as defined in the
agreement. For the nine-month period ended March 31, 2000, an amount
of $169,311,536 (US$116,814,914) was recorded under research and
development expenses.
4. Share capital:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
March 31, June 30,
2000 1999
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
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:
30,481,321 common shares
(June 30, 1999 - 20,215,000) $ 48,133 $ 30,330
- ---------------------------------------------------------------------------------------------
</TABLE>
-10-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Three-month and nine-month periods ended March 31, 2000 and 1999 and period from
inception (March 2, 1998) to March 31, 2000 (in Canadian dollars)
- --------------------------------------------------------------------------------
4. Share capital (continued):
(a) Issue of shares:
During the three-month period ended March 31, 2000, the Corporation
concluded the following share capital transactions:
(i) 1,586,022 common shares were issued for cash consideration of
$4,006,525 (US$2,750,000) with 43,011 warrants to be exercised
at $43.48 (US$30.00) per share before December 7, 2000;
(ii) 295,000 common shares were issued upon exercise of options for
cash consideration of $429,630 (US$295,000);
(iii) stockholders' equity was adjusted to reflect 3,425,280 common
shares issuable for services received from Molex in the amount
of $155,849,866 (US$107,527,160); the transaction was
accounted for by using the average market price of the shares
of the Corporation for the three-month period then ended;
(b) Stock option plan:
Under the Corporation's stock option incentive plan, 100,000 options
were granted for the purchase of 100,000 common shares at a price of
$40.58 (US$28.00) per share.
At March 31, 2000, 700,000 outstanding options are exercisable and
1,657,500 outstanding options vest over a period of two to five years.
(c) Warrants:
The following warrants are outstanding at March 31, 2000:
- --------------------------------------------------------------------------------
Warrants Expiry date Exercise price per share
- --------------------------------------------------------------------------------
1,210,000 August 2000 $ 1.30 (US$0.90)
282,000 September 2000 8.70 (US$6.00)
21,500 September 2000 13.04 (US$9.00)
10,700 September 2000 8.70 (US$6.00)
10,000 October 2000 14.49 (US$10.00)
43,011 December 2000 33.34 (US$23.00)
960,000 June 2001 2.17 (US$1.50)
500,000 August 2001 1.30 (US$0.90)
1,664,851 August 2001 *
400,000 October 2001 1.30 (US$0.90)
30,000 October 2001 1.30 (US$0.90)
- -----------------------------------------------------------------------------
5,132,062
- -----------------------------------------------------------------------------
-11-
<PAGE>
LUMENON INNOVATIVE LIGHTWAVE TECHNOLOGY, INC.
(a Development Stage Enterprise)
Notes to Consolidated Financial Statements, Continued
(Unaudited)
Three-month and nine-month periods ended March 31, 2000 and 1999 and period from
inception (March 2, 1998) to March 31, 2000 (in Canadian dollars)
- --------------------------------------------------------------------------------
4. Share capital (continued):
(c) Warrants (continued):
* As per the Services Common Stock Purchase Warrant granted to
Molex. Exercise price to be fair value of the shares when the
services are received.
5. Commitments:
(a) The Corporation is committed to purchase equipment in the amount of
$1,805,000 (US$1,245,000) for which $512,055 (US$353,287) was
disbursed as of March 31, 2000 and recorded under deposits.
(b) In January 2000, the Corporation signed an offer to lease new
premises, commencing in July 2000 and expiring in June 2012. Minimum
annual rental payments amount to $356,000 (US$246,000) per year for
the first six years and to $422,000 (US$291,000) per year for the
last six years for an aggregate amount of $4,668,000 (US$3,222,000).
Operating costs are estimated to be $137,000 (US$94,000) per year.
The Corporation has provided a deposit of $750,000 (US$517,456) to
secure this agreement, of which $75,000 (US$51,745) is refundable
per year.
6. Subsequent events:
(a) In April 2000, the Corporation accepted an investment proposal
from a third party of $20,291,600 (US$14,000,000) in the form of
convertible debentures. The proposal is subject to certain
conditions being met before closing which is expected to be in May
2000.
(b) In April 2000, the Corporation granted under its stock option
incentive plan 502,500 options to certain employees for the purchase
of 502,500 common shares at prices varying from $29 (US$20) to $36
(US$25).
7. Functional currency and convenience translation:
The functional currency of the Corporation is the Canadian dollar.
US dollar amounts presented on the balance sheet, statements of
operations and cash flows are provided for convenience of reference
only and are based on the closing exchange rate at March 31, 2000,
which was $1.4494 Canadian dollar per US dollar.
-12-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
The Company is a Development Stage Enterprise, which has not, during the three
months ending March 31, 2000, realized any revenues from operations. Interest
income, consisting of interest on cash and term deposits, earned during the
three-month period ending March 31, 2000 amounted to US$89,968 (CDN$130,400)
compared to US$901 (CDN$1,370) for the three-month period ending March 31, 1999,
an increase of US$89,067 (CDN$ 129,030). The increase is due to the fact that
the Company had more cash on hand during this quarter than the same quarter last
year as a result of capital raised through private investments and the exercise
of warrants and options.
Research and development expenses for the three-month period ending March 31,
2000, net of research tax credits, were US$107,942,080 (CDN$156,451,251). Of
these costs, US$107,527,160 (CDN$155,849,866) are non-cash expenses resulting
from the issuance of the Company's common stock in consideration of certain
services rendered by Molex Incorporated ("Molex") under the terms of a Teaming
Agreement dated May 19, 1999 between the Company and Molex for the joint
development of certain products related to the Dense Wavelength Division
Multiplexing ("DWDM") market and other photonics markets. The common stock will
be issued to Molex on partial exercise of a Services Common Stock Purchase
Warrant for 5,800,000 common shares granted to Molex in connection with the
services to be rendered under the Teaming Agreement. The warrants expire in June
2001 and are subject to Molex fulfilling its obligations under the Teaming
Agreement. During the quarter ended March 31, 2000, based on Molex's estimate of
the cost of its work under the Teaming Agreement, 3,425,280 common shares are
issuable to Molex at the average monthly market price of the Company's shares
during which the services were rendered.
The Company's research and development expenditures, other than those recorded
under the Services Common Stock Purchase Warrant, net of research tax credits,
were US$414,920 (CDN$601,385) during the three-month period ending March 31,
2000, compared to US$46,330 (CDN$70,468) for the three-month period ending March
31, 1999, an increase of US$368,590 (CDN$530,917). During the comparable period
in 1999, the Company incurred little research and development expenses because
it was not yet engaged in full operations (almost exclusively financing
activities). At March 31, 2000, the Company had an existing operation consisting
of a research and development staff of 24 employees, a facility, a Teaming
Agreement with Molex and an expansion project underway. During this period,
Lumenon designed new DWDMs products and Wide Wavelength Division Multiplexing
("WWDM") products, developed materials and processes and produced prototype
devices.
General and administrative expenses (including foreign exchange and interest
expenses) were US$914,687 (CDN$1,325,747) during the three-month period ending
March 31, 2000, compared to US$69,257 (CDN$105,340) for the three-month period
ending March 31, 1999, an increase of
-13-
<PAGE>
US$845,430 (CDN$1,220,407). The charges for this period consist mainly of
salaries as a result of the increased number of administrative personnel and
related expenses to manage the increased activities of the Company from its
expansion project and implementing such expansion project. As a result of the
above, the Company's overall loss for the three-month period ending March 31,
2000 amounted to US$108,766,799 (CDN$157,646,598) or US$4.17 (CDN$6.04) per
share, compared to US$114,686 (CDN$174,438), or US$0.0070 (CDN$0.0106) per share
for the comparable period in 1999.
Nine Months Ended March 31, 2000 Compared to Nine Months Ended March 31, 1999
The Company is a Development Stage Enterprise, which has not, during the nine
months ending March 31, 2000, realized any revenues from operations. Interest
income, consisting of interest on cash and term deposits, during the nine month
period ended March 31, 2000, amounted to US$136,799 (CDN$198,276) compared to
US$6,374 (CDN$9,239) in the same period last year, an increase of US$130,425
(CDN$189,037). The increase is due to the fact that the Company had more cash on
hand during this period than the equivalent period the year before as a result
of capital raised through private investments and the exercise of warrants and
options.
Research and development expenses for the nine month period ended March 31,
2000, net of research tax credits, were US$117,508,041 (CDN$170,316,154). Of
these costs, US$116,814,914 (CDN$169,311,536) are non-cash expenses resulting
from the issuance of the Company's common stock in consideration of certain
services rendered by Molex under the terms of a Teaming Agreement dated May 19,
1999 between the Company and Molex for the joint development of certain products
related to the DWDM market and other photonics markets. The common stock will be
issued to Molex on partial exercise of a Services Common Stock Purchase Warrant
for 5,800,000 common shares granted to Molex in connection with the services to
be rendered under the Teaming Agreement. The warrants expire in June 2001 and
are subject to Molex fulfilling its obligations under the Teaming Agreement.
During the nine month period ended March 31, 2000, based on Molex's estimate of
the cost of its work under the Teaming Agreement, 709,852 common shares have
been issued and 3,425,280 shares are issuable to Molex at the average monthly
market price of the shares of the Company during which the services were
rendered.
The Company's research and development expenditures, other than those recorded
under the Services Common Stock Purchase Warrant, net of research tax credits,
were US$693,127 (CDN$1,004,618) during the nine month period ended March 31,
2000, compared to US$57,099 (CDN$82,759) for the equivalent period in 1999, an
increase of US$636,028 (CDN$921,859). The low level of research and development
expenses incurred during the nine months ended March 31, 1999 is due to the fact
that, as of March 31, 1999, the Company was barely starting its activities with
a few employees. During the nine month period ended March 31, 2000, the Company
developed a new DWDM design and adapted materials and processes accordingly,
designed DWDMs and WWDMs, developed materials and processes and produced
prototype devices.
-14-
<PAGE>
As of March 31, 2000, the Company's research and development staff consisted of
24 employees, all of whom are located in Dorval, Quebec with most of the
employees holding science, engineering or other advanced technical degrees.
General and administrative expenses (including foreign exchange and interest
expenses) were US$1,884,717 (CDN$2,731,709) during the nine months ended March
31, 2000, compared to US$267,992 (CDN$388,427) for the same period in 1999, an
increase of US$1,616,725 (CDN$2,343,282). The increase is a result of additional
salaries arising from an increased number of administrative personnel and
related expenses to manage the increased activities of the Company from its
expansion project.
As a result of the above, the Company's overall loss for the nine month period
ended March 31, 2000 amounted to US$119,255,959 (CDN$172,849,587) or US$5.05
(CDN$7.32) per share, compared to US$318,716 (CDN$461,947), or US$0.02
(CDN$0.03) per share for the comparable period in 1999.
Financial Condition, Liquidity and Capital Resources
For information in respect of certain risks to which the Company is subject,
reference is made to the material under the caption "Risk Factors" in the
Company's Registration Statement on Form 10. During this period, Lumenon cleared
its Form-10 with the U.S. Securities and Exchange Commission and on or about
April 10, 2000 began trading its common stock on NASDAQ National Market.
At March 31, 2000, the Company had cash and cash equivalents of US$1,279,966
(CDN$1,855,183). In addition, the Company had US$4,231,044 (CDN$6,132,475) in
term deposits with maturity dates no later than April 20, 2000 and with no
restriction in their use. At March 31, 2000, the market value approximated the
carrying value.
Since June 30, 1999, the Company collected US$8,435,627 (CDN$12,226,598) from
the issuance of common shares, net of share issuance expenses of US$266,944
(CDN$386,909). These funds have been partially offset by operating activities
amounting to US$2,106,906 (CDN$3,053,749) and investments in property and
equipment of US$1,321,470 (CDN$1,915,337), consisting of investments in
laboratory equipment (US$1,054,189) (CDN$1,527,943), leasehold improvement
(US$138,121) (CDN$200,192), computer equipment and software (US$90,633)
(CDN$131,363) and office equipment and fixtures (US$38,527) (CDN$55,841).
Depreciation of US$215,204 (CDN$311,916) has been charged to expenses. Finally,
the Company paid deposits on lease agreement and equipment ordered totaling
US$870,743 (CDN$1,262,055).
-15-
<PAGE>
Subsequent Event
In April 2000, the Corporation accepted an investment proposal from a third
party of US$14,000,000 (CDN$20,291,600) in the form of convertible debentures.
The proposal is subject to certain conditions being met before closing which is
expected to be in June 2000. Additionally, in April 2000, the Corporation
granted under its stock option incentive plan 502,500 options to certain
employees for the purchase of 502,500 common shares at price varying from US$20
(CDN$29) to US$25 (CDN$36).
Year 2000
As of May 12, 2000, the Company has not experienced any difficulties or delays
as a result of Year 2000.
Foreign Currency Transactions
Because the Canadian dollar is the primary currency in the economic environment
in which the Company operates, the Canadian dollar is its functional currency.
Accordingly, monetary amounts maintained in currencies other than the Canadian
dollar are provided, in the financial statements of the Company, for convenience
of reference only and are based on the closing exchange rate at March 31, 2000
which was $1.4494 Canadian dollar per US dollar. The rate stated is from the
Bank of Canada.
The effects of foreign currency remeasurement are reported in current operations
and have been immaterial to date.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
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 (CAN$43.48) before December 7,
2000, for cash consideration in the aggregate amount of $2,000,012 or $23.25
(CAN$34.11) 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 $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, 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.
-16-
<PAGE>
of the Securities Act and solely to accredited investors 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. The proceeds were used for...
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
27.1 Financial Data Schedule - March 31, 2000
Reports on Form 8-K:
The Registrant did not file any Current Report on Form 8-K during
the period covered by this report.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LUMENON INNOVATIVE LIGHTWAVE
TECHNOLOGY, INC.
By: /s/ Iraj Najafi
----------------------------------------
Iraj Najafi
President and Chief Executive Officer
By: /s/ Vincent Belanger
----------------------------------------
Vincent Belanger
Chief Financial Officer (Principal
Financial Officer and Chief Accounting
Officer)
Dated: May 12, 2000
-18-
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTH PERIOD ENDED MARCH 31, 2000
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1.4494
<CASH> 1,279,966
<SECURITIES> 4,231,044
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,970,659
<PP&E> 2,136,000
<DEPRECIATION> 215,204
<TOTAL-ASSETS> 8,986,453
<CURRENT-LIABILITIES> 982,267
<BONDS> 0
<COMMON> 33,209
0
0
<OTHER-SE> 7,923,025
<TOTAL-LIABILITY-AND-EQUITY> 8,986,453
<SALES> 0
<TOTAL-REVENUES> 136,799
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 119,392,758
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (119,255,959)
<INCOME-TAX> 0
<INCOME-CONTINUING> (119,255,959)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119,255,959)
<EPS-BASIC> (5.050)
<EPS-DILUTED> (3.183)
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