I dont normally say bad things about a person's past but the...

I dont normally say bad things about a person's past but the previous glowing post about the company encourages me to post this from Pierpont. Its from 2 years ago but the people in charge are the same folks...

Luminus was formerly a US company named Digital Now Inc, which sought bankruptcy protection in Chapter 11. A couple of chaps named Sal Catalano and Ian Pattison brought it out of Chapter 11 and transformed Digital Now into the Australian listed company Luminus Systems.

Luminus has a system that scans old-fashioned photos and turns them into digital images. The most luminous aspect of the company was its information memorandum issued in May last year, which positively glowed with optimism.

The document said Luminus was "a leading developer of digital imaging technology and application service solutions for the photofinishing industry". The memorandum said Luminus offered a comprehensive breadth of solutions and was a clear leader in the design and development of high-performance software and high-speed, high-resolution scanners.

It had European operating subsidiaries, a large, diversified customer base, an established distribution network and an experienced management team.

Subscribers who bought shares after reading all that may have been somewhat jarred, therefore, when Luminus reported a loss of $3.6 million for calendar 2004. Revenues of $2 million had been easily outstripped by costs. The balance sheet looked even worse, showing a deficiency on assets of $6.3 million. The shares, which had looked tragic enough in October 2004 at 2c, were down to 1c by early this year.

The Luminus board resolved to overcome these problems by a $10 million equity raising. Innocent readers may wonder how a company can raise $10 million when its shares are only 1c. The answer is easy: just issue more shares.

Luminus had some 350 million shares on issue at the time. To raise the $10 million, it issued a further 2 billion at half a cent each.

This brilliant manoeuvre has been something less than a resounding success. In calendar 2004, Luminus lost $3.6 million and in the half-year to June 2005 it lost a further $1.8 million.

Revenue has been shrinking. In the half-year to June 2005 it was $850,000 barely half the level of the previous corresponding period. The subscribers who pumped $10 million into Luminus a year ago are now looking at a company with net assets of less than $1.8 million.

The shares they bought at half a cent are now down to one-fifth of a cent, so they've taken a 60 per cent loss. And if Luminus keeps losing money at its present rate, it will hit the wall somewhere around Christmas.

The directors, including Sal and Ian, say it's not possible to provide a reliable sales forecast from here, so they haven't.

Harking back to the start of today's column, poor puzzled readers must be wondering what the misfortunes of Luminus have to do with Sydney Gas. The answer is that they're both being financed by Chimaera.

Sal and Ian are directors of Chimaera Capital Ltd, which is providing the CUBs for Sydney Gas and which will be responsible for raising the money for their redemption. What recourse Sydney Gas shareholders will have if Chimaera fails to deliver is an open question, because according to the Australian Securities and Investments Commission's database, Chimaera Capital has a paid capital of only $73,000.

Chimaera must have access to more capital than that because it appears to have stumped up some three-quarters of the $10 million raised by Luminus. But Luminus proves that Chimaera's backing is no guarantee of success for either a company or its shares.

What Pierpont doesn't know and what is by no means evident from such documents as have been made public is where Chimaera gets its funding from. Chimaera made a quick million dollars recently from Harvey World Travel, but it looks to be down the hole for $7 million in Luminus so far and has the job of recycling maybe $50 million or more of Sydney Gas shares in the next year or two. Pierpont rang Chimaera this week to ask, but they couldn't talk to him, so Pierpont will just have to die wondering.

Following last week's column on Knights Insolvency Administration, Pierpont received an email from the company's founder, Des Knight. In part, it read: "Thank you for a well-researched article. I sold the practice to [John] Schmierer on 5 March 1994 and have absolutely no connection with him or it.

"As you point out, the work in progress figures were not correct and could not be turned into collectible billings. The punters never had a chance."