Mr. Cannon: The company was founded in May 1998. We have a platform laser technology, which was patented and trademarked, called a NECSELTM. This acronym stands for a Novalux Extended Cavity Surface-Emitting Laser. This is an advanced version of a technology that has been out on the market for a number of years in lower power lasers called a VCSEL. The founder of the company, Dr. Aram Mooradian, who is our Chief Scientist here at the company, patented this technology as a platform that could solve a variety of laser applications. The first product that the company was embarking on during the 1998-2001 time frame was a 980-nanometer laser used for telecommunications. The reason that this product and market was first chosen was the high pent-up demand for a very low cost, high power, widely scalable technology in a manufacturing environment that could meet the very high quantity demand for optical telecommunications. The company started its efforts developing a product family to meet these requirements and, over that period of time, took in three rounds of venture capital funding in order to develop the NECSEL technology. During the first quarter of CY 2001, the telecom industry demand for optical devices started to deteriorate due to weak demand for optical network switching systems, and a subsequent reduction in telecom capital expenditures. The market had become saturated with capital investment in network infrastructure that far exceeded the demand for increased communications bandwidth enabled by such equipment. As a result, network systems suppliers had very high levels of optical components in their finished goods inventory (FGI), and the optical component suppliers had very high levels of FGI and work- in-process (WIP) inventory levels in their manufacturing pipeline. At this point the market was literally saturated with optical components within two levels of the technology distribution channel ' optical component manufacturers and network systems providers. That was when Novalux was getting ready to deploy its technology and prepare for final production readiness. As a result, the company in the late 2001-to- early-2002 timeframe decided to cease its efforts in manufacturing the telecom product due to weak demand and high inventory levels and went back to the original NECSEL platform concept. We decided to frequency double the 980 nanometer (nm) infrared telecom laser to create a blue laser within the visible wavelength region. We began the development of a 488-nanometer laser first because we could easily leverage our previous telecom product at 980nm. If you take 980nm and frequency double it, using non-linear optics techniques, a 980nm becomes a 490nm laser. Because we can control the epitaxial growth of our semiconductor very well, we were able to shift the NECSEL wavelength from 980nm to 976nm so the visible wavelength became 488nm. This wavelength of light is currently served by the 30- year-old argon-ion gas laser technology and customers have been eagerly waiting for a compact, efficient solid-state laser replacement. So with a relatively simple change to the epitaxial growth, and well-known frequency doubling techniques, we achieved a laser at a particular wavelength that has a very large market size and we're highly disruptive because we're displacing an incumbent technology which is very inefficient. The markets that we have been pursuing for the last year utilize visible laser technologies for a variety of applications. The trade name for the first family of products that we have been developing and manufacturing is the ProteraTM. We developed this products in a nine month time period, and started revenue production in December 2002. From December 2002 to the present, our main product for the first target market, bio-analytical instruments, are visible lasers operating at 488nm. We are also developing other wavelengths of laser light, including a second blue wavelength at 460nm and a green wavelength of laser light at 530nm. These three wavelengths, the 488nm, the 460nm and the 532nm will not only serve the bio-analytical instruments market, but also serve the reprographics industry, which includes applications such as direct computer-to-film imaging, digital photo refinishing and digital film editing. These lasers with planned increases in optical power can also be used for applications including semiconductor inspection and basic scientific research, where laser induced fluorescence is used for a variety of materials interactions and characterizations.
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