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Cosine Spreads the Wealth

Light Reading
News Analysis
Light Reading
6/14/2000

Cosine Communications http://www.cosinecom.com, preparing to sell 10 million shares of stock to the public in the next month or so, claims as many as six customers in an amended S-1 filed last week with the Securities and Exchange Commission (SEC).

The claims of such contracts, however, might be viewed skeptically given the details of the relationships and the revenue numbers presented in the S-1--and once the investor realizes that every single one of those customers holds a direct interest in Cosine's public offering.

"We have entered into contracts with Qwest Communications International Inc. http://www.qwest.com (NYSE:Q), AduroNet http://www.aduronet.com, BroadBand Office, Inc. http://www.broadbandoffice.net, Nissho Electronics Corporation http://www.nc.nissho-ele.co.jp/SYNTAX/, Internet Initiative Japan Inc. and American MetroComm Corp," says the S-1. "American MetroComm has informed us that they have yet to obtain financing for the products ordered."

But despite listing six customers, the company reported only $3.5 million in revenue in the first quarter of 2000. Such a number indicates the company has sold a handful of products, as each Cosine box--a multi-processor switch designed to deliver IP services for telecom carriers--costs between $250,000 and $1.5 million, according to the company.

According to the S-1, Cosine received revenue from two of the customers listed, and the company has signed purchase agreements with the other four.

Interviewed by this reporter earlier this year, Cosine CEO Dean Hamilton said the company had received $40 million in purchase orders for 2000. These orders came from AduroNet and Qwest. He said that all of these orders would be realized as revenue during 2000.

Qwest, AduroNet and Broadband Office have received warrants to purchase Cosine stock, Nissho Electronics and Internet Initiative Japan are investors in Cosine, and American MetroComm will receive a warrant to purchase Cosine stock when it receives financing, according to the S-1.

In other words, all of of Cosine's actual and prospective customers are investors or have been given stock options in the company. --R. Scott Raynovich, Executive Editor, Light Reading

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