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Corvis Keeps Gratings in the Family

Two companies with which Corvis Corp. (Nasdaq: CORV) has ties -- ACME Grating Ventures LLC and ACME Gratings Inc. -- sound like the famous mail order company where Wile E. Coyote bought anvils, defective catapults, and bombs that never quite went off at the right time.

Alas, they're not the same. But figuring out exactly what each ACME company does is as elusive a task as catching Mr. Coyote's nemesis, the Roadrunner.

Neither ACME Grating Ventures nor ACME Gratings has a listed phone number. The only third-party mention of ACME Gratings Light Reading could find, other than in SEC filings, was a small listing in a business directory published by Gale, The Thomson Corp. division. The address given is the same as Corvis' corporate headquarters.

Corvis' SEC filings shed some light on these mysterious firms. As it turns out, both companies appear to be controlled by Corvis founder and chairman David Huber. They have been primarily in the business of selling Huber's intellectual property to Corvis, a company he also controls.

In 2000 and 2001, Corvis did about $11 million worth of business with ACME Grating Ventures, a company in which Corvis has a 99 percent economic interest, the filings say.

Huber, who owns about 25.5 percent of Corvis, owns the remaining 1 percent of ACME Grating Ventures through the other entity, ACME Gratings. Huber owns 100 percent of ACME Gratings. Even though Corvis gets 99 percent of ACME Grating Ventures' net profits, it has only a 49 percent voting interest in the company. The majority voting interest is held by ACME Gratings (which Huber owns -- remember?), so Huber ultimately gives the final word for both ACME-named entities.

Got all that? Good. Let's move on...

The SEC filings say ACME Grating Ventures uses Corvis' "facilities, personnel, equipment, and certain intellectual property." The Huber-owned ACME Gratings also contributed some intellectual property to ACME Grating Ventures. But before Corvis sees a dime from its interest in ACME Gratings Ventures, it must reimburse ACME Gratings for some $325,000 in "startup costs," the filings state.

This ACME situation is giving Corvis critics more grist for their metaphorical mills. One common complaint about the company is that it is involved in too much insider dealing. Some also say the ownership structure does not allow for enough independent oversight, for a company that has public ownership.

One major institutional investor in the company, asking to speak on condition of not being named, said he's been so angered by the self-dealing at the company that his firm has considered filing lawsuits against the company.

In May, Corvis completed its all-stock acquisition of Dorsal Networks, a privately held vendor of undersea optical networking gear. Huber owned 31 percent of Dorsal.

The Dorsal deal was valued at $90 million at the time, which is now almost half of Corvis' market capitalization. Corvis says Dorsal's technology is crucial for it to pursue transoceanic network upgrades and new builds. Corvis already owned 3 percent of Dorsal at the time the deal took place. Corvis' SEC filings described Dorsal as "a majority owned subsidiary of Optical Capital Group," a venture firm in which Huber has a 34 percent stake.

Corvis has many links to other optical networking companies via Huber, who founded Ciena Corp. (Nasdaq: CIEN) and has been granted some 41 patents for his optical networking innovations. Corvis also does business with several companies that were funded by Optical Capital Group, Huber's VC firm.

Corvis declined to elaborate on the information it disclosed in its SEC filings.

Some analysts are getting impatient with the company, which doesn't appear to have cut back its spending in the telecom downturn as fast as others have. "R&D spending has got to be tapered back. Corvis has done a lot to curb their [cash] burn, but they're still burning about $25 million a quarter on revenues that are in the single-digit millions," says Rick Schafer, an analyst at CIBC World Markets.

In other Corvis news, the company announced Tuesday that its stock listing had been transferred to the Nasdaq SmallCap Market, a market for smaller securities that don't qualify for listing on the Nasdaq National Market (see Corvis Moves to SmallCap). Corvis may be eligible to transfer back to the Nasdaq National Market if its bid price maintains the $1 per share requirement for 30 consecutive trading days, the company says.

Corvis, which traded at $1.45 a year ago today, traded at $0.55 late Tuesday afternoon.

— Phil Harvey, Senior Editor, Light Reading
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lilgatsby 12/4/2012 | 9:39:23 PM
re: Corvis Keeps Gratings in the Family What a flake this guy is! All Corvis fans who will proclaim this is a great method to cut costs and put revenue back into the company will need to take some time and carefully craft your tale.

Did Huber, Ebbers and Lay all go the same school of deceitful business practice? If this grand scheme and is for the good of the company, then why is it hidden under weasel words in 8Ks?

CORV is one of several underperforming, poorly managed, me-to companies that needs to melt away before this industry will heal.

cfaller 12/4/2012 | 9:39:22 PM
re: Corvis Keeps Gratings in the Family Dave77777777777777, did you notice that the analysts are upset about the fact that CORV hasn't cut back on their spending, specifically R&D?

Didn't we have this debate awhile ago and you said that cutting back on staffing wouldn't make a difference to Wall Street? Are you, like Rush Limbaugh, just full of hot gas?
dave77777 12/4/2012 | 9:39:22 PM
re: Corvis Keeps Gratings in the Family Let's not go overboard, they're not using these ACME companies to hide debt a la Enron, or loaning hundreds of millions to their CEO to cover stock market losses like WCOM. The accounting has all been aboveboard by all accounts.

That said, it is a bit disturbing. Is this just Huber being secretive like he was with the liquid-crystal OOO switch technology, or is there actually some funny business going on?

I agree, once poorly performing mismanaged companies like LU, NT, Corvis, Ciena, Sycamore, and Alcatel melt away, this sector will do much better.
lilgatsby 12/4/2012 | 9:39:21 PM
re: Corvis Keeps Gratings in the Family I'll conceed that the accounting has left a trail albeit a thin one, I don't know if I'd call it "aboveboard", however. On the surface it looks like Huber guaranteed HIMSELF a way to make profits, even if CORV was not. Pretty slick and quite unethical, but heck we're talking about a guy who purchased drowning Dorsal to better himself...this fits the MO. Any other companies Huber owns majority in that CORV can either acquire or buy product from??? Again, what a flake.

All telecom companies are poorly performing at this time, but not all are poorly managed.

gea 12/4/2012 | 9:39:21 PM
re: Corvis Keeps Gratings in the Family "I agree, once poorly performing mismanaged companies like LU, NT, Corvis, Ciena, Sycamore, and Alcatel melt away, this sector will do much better."

Dave7777777...is that really YOU saying this? Don't you consider this a deep betrayal of your beloved Corvis?!!

Of course it's bizarre...Huber is involved. But a pattern is emerging tha, I think, isn't exactly deceit: this guy likes to have all his pieces close to the vest. Gratings are of course an essential piece of Raman amplification, so they will always need this.

I'm tempted to think Huber is trying o push away those forces that would try to move Corvis off of ULH and Raman...here's yet more "baggage" to keep them right there (Dorsal is probably another, but I don't know enough about it). I think it may boil down to him having a gigantic ego: he wants His idea, his baby to win and win big (ie, totally dominate ULH if/when it gets going).

And don't get me wrong: your leader having a gigantic ego is not necessarily an impediment to success. So Corvis will either reign supreme in ULH or die trying. Long live Corvis!
lilgatsby 12/4/2012 | 9:39:20 PM
re: Corvis Keeps Gratings in the Family CORV did $3m in revenue last quarter and has a market cap of $234m. They have about 5 customers they pin their survival on...none of which are putting in substantail orders. They hardly register as a player in the market they proclaim to have the technology cornered. Nothing wrong with having a big ego, unless of course you're running a sinking ship like this. If this is your so-called future leader of LH/ULH then your recipe for success is certainly odd...lose-money, lose-contracts, never gain market share, deceive shareholders...wow, are they hiring?

dave77777 12/4/2012 | 9:39:19 PM
re: Corvis Keeps Gratings in the Family The problem with your arguments is that you can make similar arguments about all the companies in the sector. How many didn't lose money and contracts and allegedly deceive shareholders?

I've never called Corvis a future leader of anything. I've always said that they are merely relatively well-positioned for a recovery in ULH spending compared to their competition, because of their tech and balance sheet. I think that viewpoint is being vindicated as other companies get out of LH/ULH.

If you're right and there won't be any more big contracts, then Corv will go BK in a few years. But most forecasts for 2005-2010 predict a lot more spending in the sector.
gina 12/4/2012 | 9:39:17 PM
re: Corvis Keeps Gratings in the Family http://messages.yahoo.com/bbs?...
gadfly 12/4/2012 | 9:39:16 PM
re: Corvis Keeps Gratings in the Family Huber could have been a blazing genius had the bubble not poped. His coverage was well planned to be comprehensive and secure steady supply in the boom for his mainship, the Corvis (crow ?).
Anybody remember when two years ago we couldn't get a good supply of many different components ?
But alas, we are in a telcom recession from which these well laid plans will not recover in time.
Us armchair generals now see it very clearly with hindsight.
At least we should give him credit for a good try.
But the losses from our investments do sting, don't they ?
geof hollingsworth 12/4/2012 | 9:39:15 PM
re: Corvis Keeps Gratings in the Family Or a Director's credit, or maybe an "as told to..."


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