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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT
December 9, 1999
DATE OF REPORT
(DATE OF EARLIEST EVENT REPORTED)
MILINX BUSINESS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Suite 3226
1001 Fourth Avenue Plaza
Seattle, WA 98154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
206-621-7032
604 647-7600
REGISTRANT'S TELEPHONE NUMBER
Delaware 000-26421 (New) 91-1954074
(STATE OF INCORPORATION) (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER ID #)
FORESTAY CORP.
1504 R Street, N.W.
Washington, D.C. 20009
FORMER REGISTRANT NAME AND FORMER ADDRESS
Delaware 000-26421 52-2175692
(STATE OR OTHER (COMMISSION (OLD) (I.R.S. EMPLOYER
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT
(a) Pursuant to a share exchange agreement (the "Exchange Agreement") between
Forestay Corporation ("Forestay"), a Delaware corporation, and Milinx Business
Group, Inc., a Delaware corporation, at Closing all the outstanding shares of
common stock of Forestay Corporation were exchanged for 250,000 shares of common
stock and 250,000 Warrants of Milinx Business Group, Inc. ("Milinx" or the
"Company") in a transaction in which Forestay became a wholly owned subsidiary
of Milinx at the Closing date, December 9, 1999. Milinx has elected successor
issuer status under Exchange Act Rule 12g-3 as of December 9, 1999.
The Exchange Agreement was approved by the Directors of Forestay on December 9,
1999. The Exchange Agreement was adopted by the unanimous consent of the Board
of Directors of Milinx and by the consent of a majority of the shareholders of
Milinx on December 8, 1999. This transaction is intended to be a reorganization
under IRC Section 368(a)(1)(B).
Milinx will continue to retain Grant Thornton & Co. LLP as the auditor for the
new company. Grant Thornton has been the auditor for Milinx and has performed
the Milinx annual audit for the previous fiscal year, thus the Company, as
successor registrant of Forestay, is not treating this as a change in
registrant's certifying accountant for reporting purposes.
Prior to the exchange, Forestay had 5,000,000 shares of common stock outstanding
which shares were exchanged for 250,000 shares of common stock and 250,000 five
year Warrants of Milinx at $4.00 exercise price per common share. By virtue of
the exchange, Milinx acquired 100% of the issued and outstanding common stock of
Forestay.
At October 31, 1999, prior to the effectiveness of the Exchange Agreement,
Milinx had an aggregate of 210,000,000 common stock $.001 par value authorized,
8,970,000 shares of common stock issued and outstanding, 100,000,000 Preferred
Shares authorized, $.001 par value, 15,000,000 Series A preferred stock $.001
par value authorized, 3,675,000 shares of Series A preferred stock outstanding,
10,000,000 Series B preferred stock authorized, $.001 par value authorized, no
shares of Series B preferred stock outstanding, $.001 par value, and 10,000,000
shares of Series C preferred stock $.001 par value authorized, no shares of
Series C preferred stock outstanding.
Each share of Series A preferred stock is entitled to 2 times voting rights of
the common shares to which they may be converted on all matters on which
shareholders are entitled to vote and can be converted into shares of common
stock at a ratio of 3 shares of common stock for each share of Series A
preferred stock. Series A preferred stock has a preference on dividends,
liquidation and merger at $ .32 per share.
Each share of Series B preferred stock is entitled to the voting rights of the
common shares to which they may be converted on all matters on which
shareholders are entitled to vote and can be converted into shares of common
stock at a ratio of 1 share of common stock for each share of
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Series B preferred. Series B preferred stock has a preference on liquidation and
merger at $2.00 per share.
Each share of Series C preferred stock is entitled to the voting rights of the
common shares to which they may be converted on all matters on which
shareholders are entitled to vote and can be converted into shares of common
stock at a ratio of one share of common stock for each share of Series C
preferred. Series C preferred stock has a preference on dividends, liquidation
and merger at $1.00 per share.
Series A, Series B and Series C preferred stock have adjustment provisions for
sales of common stock by Milinx below $1.00 per share. Holders of Series A
preferred stock have a right to convert to shares of common stock one year after
issuance. Holders of Series B and Series C preferred stock have a right to
convert after December 31, 1999.
The Company may require conversion on various events, including: the election of
51% of the preferred shares outstanding to convert; an acquisition, merger or
other action by the Company; after the closing of a public underwriting of
$10,000,000; after the Company shall have a net worth of $10,000,000; or after
the common stock has been listed on the NASDAQ Stock Market for at least three
months. In the event of a mandatory conversion at the election of the Company,
any enhanced voting rights or increased conversion rights will be fixed at the
time of conversion.
In addition to shares issued and outstanding, there were various options, Units
and Warrants outstanding in Milinx at October 31, 1999. These included 1,069,750
1999 Class A Units, 900,000 1999 Internal A Warrants, 650,000 1999 Internal B
Warrants, and 2,050,000 Employee Options. Class A Units were sold for
$2,139,500, and convert to 1,069,750 common shares and 534,875 International A
Warrants for an additional 534,875 Common Shares. Subsequent to October 31, 1999
(see below) an additional 609,000 International A Units were placed @
$1,218,000, which convert to 609,000 common shares, and 304,500 Warrants which
convert to 304,500 Common Shares. 1999 Internal A Warrants may be exercised in
May, 2000, and are exercisable @ $7.50/common share, with a cashless exercise
feature. 1999 Internal B Warrants are exercisable for Preferred Series A Shares
@ $6.00/share in June, 2000 with a cashless exercise feature. 700,000 Employee
Options are exercisable over time at $2.00 common share, and 1,350,000 Employee
Options are exercisable over time and based on certain performance vesting
provisions at a range from $.10 to current common market value when exercised.
The Officers and Directors and employees of Milinx will continue as officers and
directors and employees of the successor issuer. See "Management" below. The
Articles and by-laws of Milinx will continue without change as the Articles and
by-laws of the successor issuer.
A copy of the Exchange Agreement is filed as Exhibit 1 to this Form 8-K/A and is
incorporated in its entirety herein. The foregoing description is modified by
such reference.
(b) The following table contains information as of December 30, 1999
regarding the shareholdings of Milinx's current directors and executive officers
and those persons or entities who beneficially own more than 5% of its common
stock (giving effect to the exercise of the units,
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options or warrants or convertible preferred shares held by each such person or
entity), reflecting adjustments made since October 31, 1999:
<TABLE>
<CAPTION>
Amount of Common Percent of
Stock Beneficially Voting Common Stock
Name Owned (1) Rights(2) Beneficially Owned(3)
<S> <C> <C> <C>
Maynard Dokken (4) 8,250,000 16,200,000 47%
President, Director
Mikiko Fujisawa (5) 2,850,000 5,400,000 24%
Vice President, Director
Barry Phillips, (6) 720,000 720,000 7%
Director
Max Tomaszewski (7) 350,000 350,000 4%
James R. Medley, Director (8) 90,000 90,000 2%
Credit Assure International (9) 2,300,000 4,550,000 20%
Milinx International (9) 375,000 375,000 4%
Global Factoring Services, Ltd (10) 1,800,000 1,800,000 16%
North American Funding, Ltd. (11) 920,625 920,625 9%
Trans Research International Ltd (11) 442,500 442,500 5%
Millennium 3 Holdings Ltd.(11) 1,158,750 1,158,750 11%
Dr. Bruce A. Butcher (12) 775,000 1,000,000 8%
TPG Capital Corp. (13) 500,000 500,000 5%
All directors and
executive officers and 5% or more
beneficial holders as
a group: (14) 20,531,875 33,506,875 80%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes Warrants, Options, Preferred as converted to Common.
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(2) Preferred Shares Series A vote two times the Common Shares into which
they may be converted on all matters.
(3) Beneficial ownership reflects equity ownership, and does not reflect
enhanced voting rights of Series A Preferred. Percentages reflect only
as converted for the particular person or entity and do not assume any
other options, warrants, units or preferred shares are as converted for
any other person or entity except in the summation, where all person
listed as treated as if converted to common shares.
(4) Maynard Dokken owns 2,250,000 Series A Preferred and 300,000 Common
Shares and is married to Mikiko Fujisawa; and he controls Credit Assure
International, which owns 750,000 Series A Preferred Shares and 50,000
Common Shares; and he controls Milinx International which owns 375,000
Common Shares. He also has 400,000 1999 Internal B Warrants ,
exchangeable @ $6/share for 400,000 Series A Preferred Shares.
(5) Mikiko Fujisawa owns 600,000 Series A Preferred Shares and 300,000
Common Shares and is married to Maynard Dokken; she has a minority
interest in Credit Assure International and Milinx International. She
also has 250,000 1999 Internal B Warrants , exchangeable @ $6/share for
250,000 Series A Preferred Shares.
(6) Barry Phillips has 70,000 Common Shares, 250,000 Employee Options at
$2.00/share, and 400,000 1999 Internal A Warrants exchangeable @
$7.50/share. He also has a minority interest in Credit Assure
International Ltd.
(7) Max Tomaszewski does not include any Employee Options.
(8) James R. Medley vests in warrants @ $7.50 common share on a quarterly
basis @ 90,000 warrants per two years of service.
(9) Controlled by Maynard Dokken.
(10) Controlled by Global Factoring Services Ltd.
(11) Organized by an affiliate of Global Factoring who disclaims any
beneficial interest.
(12) Dr. Butcher owns 75,000 Series A preferred Shares, 50,000 Common
Shares and 500,000 1999 Internal Warrants. He also has a minority
position in Credit Assure International Inc. and Milinx International
Inc.
(13) TPG Capital Corporation received 250,000 common shares of Milinx in the
Exchange Agreement, and also received, pursuant to a related services
agreement $100,000 cash and 250,000 Warrants for five years,
transferable and with registration rights, at a strike of $4.00 common
Share.
(14) Percentages calculated on basis of equity interest assuming all
Warrants, options and conversions are converted and added to current
common shares. As converted does not reflect weighted voting attributes
of Series A Preferred Shares.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) The registrant was acquired from its sole Shareholder, TPG Capital
Corporation, for consideration consisting of 250,000 restricted common shares of
Milinx, and 250,000 Warrants of Milinx. The Warrants are for a period of five
years, and are exchangeable for common shares at $4.00 share. Warrants are
assignable, subject to an exemption from registration under the Securities Act
of 1933 being available, and have registration provisions in the event of a
registered offering by Milinx. Common Shares of the registrant are registered
pursuant to ss.12g of the Exchange Act. TPG Capital Corporation held 5,000,000
common shares of the registrant, and all of said shares were transferred to
Milinx pursuant to the Exchange Agreement. Pursuant to Exchange Act Rule 12g-3,
Milinx elected successor issuer status of the registrant as of the date of the
exchange, December 9,
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1999. The consideration for the transaction was based on prior sales by the
seller of the shares, TPG Capital Corporation of similar businesses, and was
arms-length. Milinx paid $100,000.00 in professional fees to complete the
exchange.
(b) Milinx intends to continue developing its business applications
products marketed under the "Business Builder Toolbox" label and other business
applications, telecommunications, and financial products
ITEM 3. BUSINESS
Milinx is a development stage company that is developing its business
applications products marketed under the "Business Builder Toolbox" label and
other business applications, telecommunications, and financial products. Test
marketing is underway, and a full marketing program is planned for early 2000.
Milinx is a Delaware corporation and began active operations in February, 1999.
It is headquartered in Seattle Washington at 1001 Fourth Avenue Plaza. Principal
business operations for product development are being conducted in Vancouver,
B.C. through a wholly owned subsidiary, Milinx Business Services, Inc., a B.C.
company. Staff of the subsidiary current also support operations of Milinx,
although United States operations are planned after development is completed.
Milinx Business Services is intended to continue to support development work and
staff will be utilized for other Milinx support as appropriate.
Although there is intense interest in business applications services being
provided over the Internet, Milinx believes it has a unique package that will
enable it to compete against other larger and better-capitalized companies.
THE FOLLOWING CONTAINS FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS MIGHT
DIFFER MATERIALLY FROM THOSE STATED. THE READER SHOULD TAKE PARTICULAR
NOTE OF POTENTIAL INHIBITING FACTORS ON PAGE 14 OF THIS REPORT, THE
COMPANY'S COMPETITORS SOME OF WHICH ARE LISTED ON PAGES 20, 21 AND 22,
AND THE CRITICAL RISK EVALUATION SECTION ON PAGE 31 OF THIS REPORT.
CURRENT OPERATIONS
Current operations consist of product development and test marketing of the
Business Builder Toolkit "BBT". Product development activities and applications
are described as follows:
BBT is our acronym for our core service, the Business Builder Toolbox. The BBT
is the vehicle for a comprehensive group of applications that are to be made
available to Small and Medium Enterprises SMEs throughout North America on a pay
for use or rental basis.
The BBT is designed to provide unified messaging and virtual office
functionality. It is designed to automatically receive and digitize messages
(digitizing when necessary), organize, store, relate, display and transmit
digital information. The tables below show the broad characteristics
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of the as designed service and system information, and consequent user benefits
are commented on subsequently. Design is subject to change in the user-test
period and thus is outlined as an illustration of proposed functionality only.
FIGURE 1: DESIGNED FUNCTIONALITY OF THE BBT
<TABLE>
--------------------- -------------------------------------------------
<S> <C>
All incoming messages are stored in digital form.
All messages can be accessed by either phone or
Internet. Messages can include multiple media,
e.g. email with voice mail attachment. Message
management by consult, delete, archive, forward,
change priority, change visibility. Preview,
rewind, fast-forward and skip to end capability.
Forward messages to one or many recipients.
UNIFIED MESSAGING Faxes can be forwarded to phone numbers.
Customizable user greetings.
Notification if messages have attachments.
Voice on demand responses.
Fax on demand responses.
Email on demand responses.
Available in 6 languages.
--------------------- -------------------------------------------------
Follow-me call forwarding.
Text to speech conversion of fax and email
messages when accessed by phone. User created,
editable address book allowing multiple
classifications of addresses.
Phone access to address book.
Personal calendar, available to others at
different levels of access.
VIRTUAL OFFICE Event feed delivers
important information to personal calendars.
Split screen viewing of multiple calendars by
multiple users. Calendar event integration with
Personal Digital Assistants and smart phones. One
button publishing from Netscape composer.
Drag and drop document management.
--------------------- -------------------------------------------------
</TABLE>
FIGURE 2: DESIGNED BBT SYSTEM INFORMATION
<TABLE>
----------------------- -----------------------------------------------
<S> <C>
Responds to voice commands.
By phone, fax or Internet.
SYSTEM ACCESS Single message box.
Web or phone selection of password.
User select phone-in password for phone access
to message box.
----------------------- -----------------------------------------------
SYSTEM SPECIFICATION 100% Java, runs on any hardware supported by a
Java Virtual machine.
----------------------- -----------------------------------------------
</TABLE>
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ANTICIPATED SUBSCRIBER BENEFITS Through call-forwarding and text-to-speech
conversion, BBT subscribers could receive their voice messages anywhere, at
anytime, and could have faxes and e-mails read to them over the phone. The BBT
is designed to operate efficiently 24 hours a day, seven days a week. The BBT is
designed to file, store, organize and automatically make information available
to our subscribers' business contacts, clients and customers. Voice, e-mail, fax
and other digital on-demand services will make such information readily
available by phone, fax or over the web. The BBT is designed to automatically
broadcast material to contact lists by phone, e-mail or fax. The BBT should
reduce receptionist and office support costs because it is designed to take
messages, send messages, forward calls, call back, follow the subscriber to
different numbers and log all activities. It is also designed to store the names
and addresses of contacts in an address book, and schedule activities on a
calendar and automatically remind the subscriber of appointments.
The BBT is designed to be user-friendly: it is designed to be able to recognize
voice commands on the telephone and has an elegant and simple interface on the
Internet. Our service is designed for architectural integrity, and hence the
same commands are to work on the web and over the telephone.
We have a call center staffed by sales and service professionals who will
provide support to subscribers online, by fax, e-mail or telephone. (Not only
will they assist with technical operation of the BBT, but they are also intended
to promote innovative and effective applications to increase revenue.)
BBT PROPOSED ENHANCEMENTS Our ability to undertake these activities will
depend on capital and manpower available and management's assessment of market
support.
Early in 2000, it is planned to offer the Sun StarOffice suite of office
productivity software, which emulates and enhances the functionality of
Microsoft's Office suite. This would as implemented offer our clients a fully
functional software suite at a saving of up to 75% per user over the cost of the
Microsoft alternative. File compatibility support is to be provided by our sales
and customer service call center, and is believed will give unique added value
to our offer. Beyond StarOffice, we intend to introduce an ASP version of the
Lotus Notes messaging, productivity and collaboration software, which is to be
specifically developed to operate on our core technology. This leads to what we
believe is an unmatched range of communications capabilities for Milinx clients.
With the proposed financial efficiencies of the ASP delivery model, this should
be within the financial reach of every Small Medium Enterprise ("SME").
Alongside the introduction of Lotus Notes, we are developing a range of
e-commerce functionalities. A major part of our competitive advantage in this
will be the security of financial transactions over the internet that we intend
to provide through our proprietary technology for which a patent application is
on file at the U.S. Patent Office.
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The net result of this is intended to provide substantial business
communications, messaging and e-commerce functionalities over current known
technologies, each area intended to offer a distinct competitive advantage for
Milinx, and the totality offering what we believe are industry-leading scope,
performance, scalability and reliability.
Looking further ahead, it is our intention to consider the introduction of:
A horizontal Enterprise Information Portal, intended as an authoritative source
of business analysis
Online consultancy service
Worldwide Voice Over Internet Service (VOIP) to reduce long distance costs to
near zero in many cases, because communications will take place over the
Internet.
Video conferencing over secure lines in Local Area Networks (LAN) and video
conferencing over wireless networks within Virtual Private Networks (VPN).
Integration of all services with wireless Handheld Personal Computers (HPC) and
cellular phones.
THE BBT WITHIN THE ASP MARKET
The evolution of the Application Service Provider (ASP) delivery model
effectively completes a circular journey in the development of business
computing. In the 1960s, computer hardware and software was so expensive and
complex to operate that businesses used to rent time on a shared use basis. As
prices fell and ease of use increased, computing moved to a desktop PC
environment either standalone or on a client/server basis. Inexorable increases
in both available computing power and businesses' reliance on information
technology "IT" for competitive advantage has led to applications of ever
greater complexity and cost, and a commercial imperative for reduced
implementation time. Mapping these dynamics onto an environment where IT skills
are a scarce and costly resource, and the scene is believed set for widespread
acceptance of the ASP delivery model for software and computing power in the
2000s. Currently the ASP market is polarized into high-end services providing
either multi-disciplinary Enterprise Resource Planning (ERP) functionality or
single discipline ERP functionality such as Human Resources or Supply Chain
Management. These are aimed at bigger businesses, and while cheaper than a
custom installation, still command substantial financial investments from the
user companies. At the other end of the scale are much smaller operations
providing a limited range of Unified Messaging functionalities. These tend to
suffer from reliability and scalability problems, and hence tend to aim an
inexpensive bundle of services at the SOHO (Small Office Home Office) market.
The BBT is believed ideally positioned to exploit the gap in this market, by
providing a much wider and more sophisticated range of functionalities than the
current Unified Messaging companies to the SME sector of businesses. These
services will operate at a lesser level of impact on users than the pure ERP
application services, but will provide a unique range of important value adding
services at, arguably, the larger potential offered by the middle market.
OUR PROPOSED STRATEGIC PARTNERS
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In order to achieve Milinx' goal to be a significant global Application Service
Provider in our chosen market sector, we have sought out alliances with
appropriate businesses which have demonstrated outstanding strengths and
capabilities in the Internet.
PERCEIVED ADVANTAGES OF OUR CORE TECHNOLOGY
The technology that is under development is intended to exploit the strengths
and synergy of our alliance partner's capabilities. The following table
demonstrates our planned system quality:
SYSTEM PLANNED QUALITIES
o Capable of managing millions of registered users.
o To provide universal access to business grade messaging
service for entire communities of employees, partners and
customers.
o High scalability and reliability
o Advanced management tools to manage roles, logs, users and
groups.
o Encrypted communication between all components.
o Supports offline synchronization.
o High performance Java application platform.
o Full text and attribute searching of documents through
built-in verity search engine
o Soft switch implementation.
o Highly detailed and fully tested disaster recovery plans.
o Capability of pro-active technology and business application
integration and offering through the use of industry class
open standards.
o Takes advantage of 2 fiberloops with fiber access
o Uninterruptable Power Supply and independent power generation
capability.
o Fiber channel based Storage Area Network
o Worldwide Internet recognized appliances used throughout the
implementation.
o Full redundancy configuration, with built-in resilience and
workload balancing
o No single point of failure
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o Modular and layered logical design, facilitating market
leading soft switch and VOIP performance
o Installation designed to achieve the highly regarded Cisco
Powered Network designation.
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ASP INDUSTRY ANALYSIS
OUR DEFINITION OF AN ASP
The ITAA (Information Technology Association of America) has defined an ASP
(Application Services Provider) as "Any for-profit company which provides
aggregated information technology resources to subscribers/clients remotely via
the Internet or other networked arrangement".
The key elements of this rather broad definition are that the provision of
resources takes place via the Internet (using a web browser interface, local
access or dedicated networking arrangements) and that revenues are earned
through a "subscription to" or "rental of" the resource.
The ASP model places a new emphasis on the use of the application rather than on
ownership, creating numerous benefits for clients by offering higher levels of
flexibility and access to resources.
EVOLUTION OF THE ASP MODEL
When the power of computing was first introduced for business applications in
the 1960s, it was so expensive and complex that enterprises often had to share
this resource. It was very common to find a firm "renting" a portion of a
mainframe for its use, as owning an entire mainframe computer was extremely
cost-prohibitive for most companies.
Over the decades, as the cost of computing power rapidly declined, it became
more realistic for companies to bring this resource in-house. Companies rushed
to implement their own computer systems, and this action would ultimately cause
a drain on other resources that was not anticipated. The results of ongoing
system maintenance and staffing requirements forced most companies to focus an
increasingly large proportion of their resources on assembling and maintaining a
knowledgeable Information Systems department. This expense became acceptable, as
the IS function grew to be an obligatory component of business, rather than an
advantage.
While this business practice is globally accepted today, it is clearly not
believed an efficient solution, diverting companies' valuable resources away
from their core competencies. Many firms have realized this inefficiency, and
have hoped for alternative solutions. Until recently, however, the technological
obstacles of data transmission were too great for there to be any other option
besides maintaining these resources in-house.
Today, the ASP model brings the outsourcing solution full circle, returning it
to its efficient roots that are reminiscent of the early days of computing. With
the availability of high-bandwidth and other recent advancements in
communications technology, data transmission via the Internet has become faster,
cheaper and more reliable. The fact that the technology and infrastructure to
support the ASP model has just recently been developed, explains why this
industry is only emerging now - the need has been there for decades.
KEY BUSINESS DRIVERS
Since the technological barriers suppressing the ASP model have been
greatly reduced, a number of other business factors have begun to drive the
growth of the ASP industry.
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CLIENT BENEFIT DRIVERS Licensing Costs: Based on the "monthly subscription" or
"rental" pricing model, ASPs offer a vast reduction in the upfront licensing
costs that software vendors require.
TCO: Total Cost of Ownership is greatly reduced by the ASP model, as companies
are no longer burdened with the high costs required to implement and maintain
enterprise systems, purchase and upgrade software, and hire highly-skilled IT
employees.
Reduced Implementation Time: Compared with a customized installation, the ASP
delivery model can reduce lead times from 6 months/1 year to a matter of weeks.
Core Competencies: Outsourcing software and hardware functions to ASPs enables
firms to use their resources to develop what matters most - their own core
competencies and strategic objectives. This allows companies to compete to
maximum effect in the marketplace.
IT Staff Efficiency: Instead of performing routine hardware maintenance and
software upgrades, internal IT staff will be free to develop processes and
systems that will leverage the strategic objectives of the firm.
Ownership Risk: Installing an application today does not ensure that it will
remain the optimum solution for that company in one or two years time,
regardless of upgrades and maintenance. This risk is solidified when the book
value of these assets depreciate rapidly. This ownership risk is transferred
away from the company when the ASP solution is chosen.
Reduced Barriers: As the ASP removes the prohibitive expenses of high-end
applications and solutions; smaller companies now have the opportunity to be
more competitive with larger companies. Representative of this benefit is the
ASP industry trend toward offering best-of-breed applications.
Shortage of IT Skills: Increased demand for skilled IT labor has caused a
shortage, as companies are extremely dependent on their ability to hire and
retain knowledgeable IT staff. ASPs greatly reduce this requirement, as the
online applications require little or no in-house support.
PROVIDER MOMENTUM DRIVERS
Industry Push: Representative of the market potential, many large corporations
are establishing positions in the ASP industry. For example, Microsoft, Lotus
and Novell are developing scalable versions of web-based groupware that will be
introduced to the ASP market in 2000. Furthermore, an ASP Industry Consortium
was established in May 1999 that will introduce standards and foster research.
Members of the Consortium include such influential companies as Sun
Microsystems, AT&T, Cisco, IBM, Compaq and GTE. Beyond demonstrating the
potential for the ASP market, the presence of these large companies in the
industry are believed will reduce Milinx's education costs.
Transparency: Because of the level of technology available today, the
net-centric model offered by ASPs is not expected to appear to be any different
than the client-server model to users. This "transparency" is beneficial for
Milinx, as conversions to the net-centric model will not require behavioral
changes. Users' acceptance of the new model are expected to be rapid and smooth.
Speed to Market: Software developers providing applications through an ASP are
expected to benefit from maximized speed to market. Instead of having to spend
time and resources on product packaging, marketing and distribution, software
companies should rapidly reach markets via the Internet. Furthermore, new
markets will emerge as a result of the reduced up-front software licensing costs
and reduced implementation costs. Through the ASP channel, software developers
should be able to reach larger markets, faster.
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ASP MARKET SIZE AND POTENTIAL
As a newly emerging force in the business model for the 2000s, there is some
debate about the potential size for the ASP market. The following three examples
are believed illustrative but should be consulted in their entirety for context.
Sources are available from Milinx
o An ASP market size of $2 billion in 2003 for complex high end ERP
applications (Source: International Data Corp.)
o An ASP market worth $6 billion by 2001 (Source: Forrester Research)
o An ASP $23 billion market by 2003, but this figure reflects all IT
outsourcing, not just the ASP delivery mode (Source:Dataquest)
There is believed agreement however behind the central notion that the market is
believed will be subject to immense growth.
ASP BUSINESS MODEL
PRICING
Current ASP pricing falls into three general categories, which are often
accompanied by an initial set-up fee: Fixed-term contract.
Monthly subscription.
Per-use basis.
Some ASPs offer a pre-determined service "package" that a company can to
subscribe to. Other ASPs offer a "pay as you grow" buffet-style service
selection, where new services can be added to the client's list of services, as
needed.
Depending on the source of the applications (i.e. whether the ASP is also an
ISV), some ASPs participate in revenue sharing with the software developer, for
each subscriber.
GROSS MARGINS
Gross margins for the ASP industry are currently estimated by our management at
a 30% to 45% range. These margins are believed possible through the ASPs ability
to achieve economies of scale. As such, margins will improve as the scale of the
ASPs operations increase.
POTENTIAL INHIBITING FACTORS
One of the major inhibiting factors behind a faster and more widespread adoption
of the ASP model is concerns over the security of sensitive information that is
held on remote servers. Milinx' proprietary biometric/encryption technology
(discussed later) is believed after full development to be well placed to deal
with this concern.
A further concern relates to reliability (in respect of bandwidth availability
and data redundancy processes) and scalability of the remote host. Milinx has
addressed this concern by building a believed state of the art infrastructure
with high scalability, on a core technology platform from the two influential
players in Internet hardware and software today, the Sun - Netscape alliance.
Criticisms have been leveled at the ASP delivery model in terms of its limited
flexibility for custom applications. This may be misplaced given that even in a
custom enterprise-wide Enterprise Resource Planning installation upwards of 80%
of the installation is standardized.
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<PAGE> 15
Similarly, some concerns have been expressed to the effect that much of the
current software has not been written to allow for web delivery. However, the
major software players are now planning to release web-enabled software to
participate in the forecast major development of the ASP model. These include
Microsoft, Lotus and Novell.
THE ROLE OF ISVS (INDEPENDENT SOFTWARE VENDORS) Logic may suggest that ISVs
would be resistant to contributing their essential raw material - software - to
the ASP model, given that the delivery mode would delay revenue generation from
the current front-end position. However, industry leaders such as Microsoft,
Lotus, Novell, Oracle, SAP, Peoplesoft, J D Edwards and Baan have all adopted
the model. The reasons for this are threefold: In the case of the ERP providers,
the ASP delivery model allows the opportunity to penetrate new markets of
smaller companies - the larger Fortune 500 companies are reaching saturation
now.
The ISVs have observed established players in mature markets such as bookselling
and stock broking see their dominant positions eroded by new entrants offering
Internet delivery models, and are not about to prejudice their futures by
yielding first mover advantages to others. The predictability of a revenue
stream composed of regular monthly payments is greatly advantageous to public
companies who are seeking to declare consistent positive earnings growth on a
quarterly basis. Furthermore, this can greatly assist financial planning.
EVOLUTION OF THE ASP PLAYERS
The ASP industry has emerged as a result of convergent technologies. As such,
the industry is composed of many companies from very diverse backgrounds that
have come forward to participate. This technology convergence has also
encouraged many of these firms to form alliances or partnerships in attempts to
"leapfrog" the competition.
The following outlines the main categories of ASP companies that have originated
from five different backgrounds.
PURE PLAY ASPS
The pure play ASP is established with the sole purpose of being an ASP. They
represent the last link on the ASP software/service value chain, interacting
with the end-users. As such, their core competencies would reside in their
ability to provide superior service, and offer a wide selection of best-of-breed
applications.
ISVS (INDEPENDENT SOFTWARE VENDOR)
As the original software developer and vendor, ISVs already serve the end-user
their products, directly. It would seem logical that many ISVs would want to
maintain this relationship, and simply offer their products online rather than
distributing it in a box.
ISPS (INTERNET SERVICE PROVIDER)
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For an ISP, managing applications online for their subscribers would be an added
value service complementary to their business. Having an established subscriber
base and immediate access to bandwidth will give ISPs their advantage in the ASP
industry.
IT SERVICE PROVIDERS
IT service providers will rely on their established customer relationships and
industry expertise if they decide to move into the ASP market.
CONSULTING FIRMS
Having industry expertise may give consulting firms an advantage in the ASP
industry, as customers seeking to outsource vital components of their business
may find them a credible source. This may however be tempered by a perception of
higher cost solutions linked with the genre of consultancy.
ASP APPLICATION FUNCTIONALITY CURRENTLY OFFERED
There are two levels of ASP service provision, differentiated by the amount of
impact the services have on the client organization.
TIER 1 - MULTI-DISCIPLINE ERP ASPS - HIGH IMPACT
Tier 1 represents ERPs that have a high impact on an organization, affecting
multiple functions of the business operations. These services are usually
accompanied by a high price, and as such are targeted at larger organizations
that are willing to spend more. Furthermore, consulting and system customization
are also offered as a facet of these services.
ERP (Enterprise Resource Planning): This is a highly integrated information
system that supports many components of the operations of a large business.
TIER 2 - SINGLE-DISCIPLINE ERPS -HIGH IMPACT
Tier 2 represents ERPs that also have a significant impact on an organization,
but which focus on a specific function or discipline in the recipient
organization, and not a comprehensive system. These providers compete for large
company-customers similar to the Tier 1 players' customer base.
The following provides examples of some Tier 2 functions that are offered by ASP
companies.
The list is not exhaustive:
CRM (Customer Relationship Management): This integrated information system
facilitates the management of an organization's pre sales and post sales
activities, not including the marketing function.
SCM (Supply Chain Management): This system coordinates the order taking, order
generation and fulfillment (or distribution) of products, services or
information along the supply chain network
E-Commerce
Human Resources
Procurement
Accounting
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TIER 3 - LOW IMPACT ASPS
Tier 3 represents the ASPs that have a low impact on the organization. This
level was restricted to a limited range of Unified Messaging and Virtual Office
functions. Scalability and reliability issues
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tends to restrict the players to small numbers of subscriber drawn from the SOHO
(Small Office Home Office) market. Typically the offer consists of:
Unified Messaging
Virtual Office
ASP TARGET CUSTOMER PROFILES
LARGE CORPORATIONS
Large Fortune 100 corporations are not currently target customers for the ASP
industry. These companies tend to have invested many millions of dollars on a
customized ERP installation, and exhibit the greatest concern over remote
hosting of sensitive data.
This segment's history of investment in IT has made them dependent on the few
providers that dominate this market, and therefore have very high switching
costs, in consideration of the effort required to handle legacy data.
MEDIUM/LARGE SIZED BUSINESSES
These two market segments are predominantly served by Tier 1 and Tier 2 ASPs.
Their clients may not want to afford (or simply do not require) a highly
customized or comprehensive solution. The Tier 2 "building block" approach
particularly suits the profile of some companies in this segment.
SOHO (SMALL OFFICE HOME OFFICE) MARKET
The SOHO market, served by Tier 3, is limited in its potential due to
scalability issues. This market may be served well by Unified Messaging
solutions, as their operational needs are far more limited than that of the
small/medium sized businesses. As such, they will not likely be profitable for
Tier 2 companies to pursue at this time.
CONCLUSION
The ASP market currently polarizes into two groups of players. One group
consists of companies offering ERP (Enterprise Resource Planning) solutions at
the high end of the market, aimed at larger companies. The other group consists
of organizations offering limited Unified Messaging and Virtual Office
functionality to smaller companies in the SOHO (Small Office Home Office)
market. There is a significant gap in that no major competitors are offering
Unified Messaging and Virtual Office functionality to the large SME
(Small/Medium Enterprises) sector.
TARGET MARKET
Our analysis of the emerging Application Service Provider (ASP) market has
indicated a substantial opportunity for Milinx to fill a major gap by offering
business communications and e-commerce applications on a per user rental basis
to SMEs.
Our key target group therefore is SMEs in North America, of whom those operating
in competitive industries are most likely to be highly predisposed to the
advantages that our services provide. We estimate there are between 270,000 and
300,000 US businesses with revenues between $10 million and $500 million. With
the addition of Canada, there is estimated to be a
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large group of target SMEs available to us. It is our strategy to pick off
significant players individually on an industry-by-industry basis, thereby
proving the breadth and power of our offer.
By way of confirming the potential of the offer, the large Baby Bell telcos have
already gone on record as stating they are looking for ASPs to host unified
messaging for their services. This in itself speaks volumes to support our view
that a large market exists which is waking up to its own strong, latent demand
for precisely the services which Milinx is set up to provide.
MARKETING INFORMATION Our central product is the Business Builder Toolbox (BBT),
which is a conceptual expression for a wide range of business functionalities.
It is not a static range of services. Currently the BBT as designed consists of
a customized integration of Unified Messaging and Virtual Office functionality
being developed in co-operation with our business partners. The BBT will be
enhanced with a suite of office productivity software (emulating and enhancing
Microsoft Office functionalities), Lotus Notes, an e-commerce functionality
suite and online consulting capabilities.
The benefits of the BBT that should accrue to our clients relate not just to the
high quality of the individual components, but also reside in the
comprehensiveness of the offer, which provides a wide array of value-added
services for customers from a single source.
More specifically, the benefits of the BBT as it is currently designed are
enhanced communications for busy and mobile business people. Conversion of
voice, fax and email communications to digital form allows ease of access and
response to messages from any phone or web browser on a 24/7 basis. The system
supports voice recognition and text-to-speech translation for intuitive and
ultra-streamlined inbound and outbound communications instructions.
What we believe differentiates us is the depth and scope of the communications
and e-commerce offer we plan to provide. No competitor is known to currently
exist with a comparable service offer. The extension of our offer into an
ultra-low cost suite of StarOffice office productivity software (emulating
Microsoft Office), will further extend our competitive advantage. To sustain a
dominant position within this newly emerging sector of the Application Service
Provider (ASP) market, we plan development into an enhanced version of Lotus
Notes, and a range of e-commerce functionalities
It is our intention to maintain our focus, and to develop our offer in line with
our declared objective of becoming the leading ASP in the communications and
e-commerce market sector. Our current research and development activity, which
is discussed later in this document, focuses very deliberately on developing a
range of added value services to enhance the comprehensiveness and pre-eminence
of our products and services.
MARKETING OBJECTIVES
o To achieve subscriptions at the level of 5,000 by the end of
Q2 in 2000, then 20,000 by the end of Q4 and 100,000 by the
end of Q2 in 2001
o To providing hosting services for at least 2 other ASPs in
2000
o To position Milinx as the pre-eminent brand in our market
sector.
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The subscription targets are expected to be slow to build initially due to the
fact that Milinx will be creating a new market sector, and also reflects the
longer decision making times inherent in larger organizations.
COMPETITIVE ANALYSIS
The Application Service Provider (ASP) market may be categorized into two groups
of players. One group consists of companies offering Enterprise Resource
Planning (ERP) solutions at the high end of the market, aimed at larger
companies. The other group consists of organizations offering limited Unified
Messaging and Virtual Office functionality to smaller companies in the SOHO
(Small Office Home Office) market. There is a significant gap in that no major
competitors are offering Unified Messaging and Virtual Office functionality to
the large SME (Small/Medium Enterprises) sector.
------------------------------------------------------------------------
DEFINITIONS
------------------------------------------------------------------------
ASP - (Application Service Provider) An organization that hosts software
applications on its own servers within its own facilities. Customers
access the application via private lines or the Internet.
------------------------------------------------------------------------
CRM - (Customer Relationship Management) An integrated information
system that is used to plan, schedule and control the pre-sales and
post-sales activities in an organization.
------------------------------------------------------------------------
ERP - (Enterprise Resource Planning) An integrated information system
that serves all departments within an enterprise. Evolving out of the
manufacturing industry, ERP implies the customized use of packaged
software rather than proprietary software written by or for one
customer. ERP companies offer multiple- or single-discipline high-impact
functional productivity software.
------------------------------------------------------------------------
SCM - (Supply Chain Management) The planning, scheduling and control of
the supply chain, which is the sequence of organizations and functions
that assemble materials and products from manufacturer to wholesaler to
retailer to consumer.
------------------------------------------------------------------------
ERP (ENTERPRISE RESOURCE PLANNING) COMPETITORS
<TABLE>
<CAPTION>
--------------------------- ------------------------------ --------------------------------------------------
NAME APPLICATIONS COMMENTS
--------------------------- ------------------------------ --------------------------------------------------
<S> <C> <C>
AEGIS Custom ASPs Specializing in Sybase EAServer.
--------------------------- ------------------------------ --------------------------------------------------
BREAKAWAY ERP and SCM
--------------------------- ------------------------------ --------------------------------------------------
CIBER ENTERPRISE Back office ERP Baan, Peoplesoft, JD Edwards and SAP
OUTSOURCING
--------------------------- ------------------------------ --------------------------------------------------
CORIO ERP Focused exclusively Peoplesoft and Siebel
--------------------------- ------------------------------ --------------------------------------------------
EXODUS Data Center and Server Farm Supplies physical facilities for ASPs
--------------------------- ------------------------------ --------------------------------------------------
FUTURELINK ERP, consulting and Offers a wide range of products for software
IT outsourcing. vendors like Microsoft and Great Plains.
--------------------------- ------------------------------ --------------------------------------------------
GLOBAL RECRUITING HR
SOLUTIONS
--------------------------- ------------------------------ --------------------------------------------------
THE HUNTER GROUP ERP and HR Planning and integration of Peoplesoft
applications.
--------------------------- ------------------------------ --------------------------------------------------
</TABLE>
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<PAGE> 21
<TABLE>
--------------------------- ------------------------------ --------------------------------------------------
<S> <C> <C>
IBM GLOBAL SERVICES Business Application In a partnership with Cisco IBM supplies
Services Host Division. application form JD Edwards, Great Plains
Software, Systems Union, Oracle, SAP and others.
--------------------------- ------------------------------ --------------------------------------------------
INTERLIANT CRM Provides network-based hosting for Internet,
intranet and extranet projects.
--------------------------- ------------------------------ --------------------------------------------------
INTUIT INC. Personal Finance and Operates the portal site Quicken.com with
Accounting Software content and advice for small businesses.
--------------------------- ------------------------------ --------------------------------------------------
METAMOR WORLDWIDE ERP, SCM and CRM Applications from Baan, SAP, Peoplesoft and JD
Edwards.
--------------------------- ------------------------------ --------------------------------------------------
QWEST COMMUNICATIONS ERP A joint venture between QWest and KPMG.
INTERNATIONAL Application from SAP, Oracle, and Siebel.
--------------------------- ------------------------------ --------------------------------------------------
RESOURCE PARTNERING ERP Provides Peoplesoft applications.
--------------------------- ------------------------------ --------------------------------------------------
SERVICENET ERP A recent joint venture between Andersen
Consulting and GTE
--------------------------- ------------------------------ --------------------------------------------------
SPRINT ERP, CRM and SCM An alliance with Deloitte Consulting to supply
COMMUNICATIONS applications on ASP business model.
--------------------------- ------------------------------ --------------------------------------------------
THESUPPLYCHAIN.COM ERP and SCM A start up ASP that provides service to small-
to medium-sized businesses
--------------------------- ------------------------------ --------------------------------------------------
TELECOMPUTING ERP An early pioneer of the ASP model based on Citrix
technology.
--------------------------- ------------------------------ --------------------------------------------------
USINTERNETWORKING ERP
--------------------------- ------------------------------ --------------------------------------------------
UUNET Data Center and Server Farms Supplying facilities for ASPs.
--------------------------- ------------------------------ --------------------------------------------------
X-COLLABORATION ERP
--------------------------- ------------------------------ --------------------------------------------------
</TABLE>
The significant Unified Messaging players are believed identified as follows:
Unified Messaging / Virtual Office Competitors
<TABLE>
<CAPTION>
------------------------------ ---------------------------------- -------------------------------------------
NAMES APPLICATIONS COMMENTS
------------------------------ ---------------------------------- -------------------------------------------
<S> <C> <C>
GENERAL MAGIC INC. o call screening Brand name is Portico. Features
o call forwarding accessible through voice commands or web
o voice mail browser.
o fax
o email.
------------------------------ ---------------------------------- -------------------------------------------
HOTOFFICE o e-mail The system allows document sharing and
TECHNOLOGIES, o document management retrieving.
INC. o online calendar
o contact list manager.
------------------------------ ---------------------------------- -------------------------------------------
PROGRESSIVE o call screening The company offers the OPUS unified
TELECOMMUNICATIONS CORP. o call forwarding messaging service. Service used through
o fax voice activation.
o email
o voice mail
------------------------------ ---------------------------------- -------------------------------------------
</TABLE>
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<PAGE> 22
[CAPTION]
<TABLE>
------------------------------ ---------------------------------- -------------------------------------------
<S> <C> <C>
STARTOUCH INTERNATIONAL, o call screening The company's ESA services can be
LTD. o call forwarding accessed by telephone or a web browser.
o fax
o voice mail
o pager
o e-mail.
------------------------------ ---------------------------------- -------------------------------------------
WEBLEY SYSTEMS, INC. o outbound calling Webley services can be controlled over
o call screening the phone using speech recognition and a
o call forwarding touch-tone keypad, or through the
o voice mail Internet.
o fax
o email.
------------------------------ ---------------------------------- -------------------------------------------
WILDFIRE COMMUNICATIONS, o outbound calling Wildfire callers use spoken commands.
INC. o call screening
o call forwarding
o voice mail
o fax
o email.
------------------------------ ---------------------------------- -------------------------------------------
</TABLE>
CONCLUSION
Our research into the unified messaging and virtual office sector has revealed
competitors offering a limited range of services compared with our perceived
comprehensive nature of Milinx services. In addition, we believe continuing
problems with reliability and scalability restrict these unified messaging
players to small numbers of subscribers in the Small Office Home Office (SOHO)
sector.
RESEARCH AND DEVELOPMENT
OVERVIEW
The research and development function at Milinx focuses on developing
proprietary technology that will enhance and upgrade the quality of the services
we provide as a business communications and e-commerce ASP. Our goal is to
provide additional and unique competitive advantages and to sustain the position
of sector predominance for Milinx.
PATENT PENDING BIOMETRIC ENCRYPTION TECHNOLOGY
OVERVIEW
The background for this research was our desire to mitigate the concerns
consumers and businesses have with respect to the security of financial
transactions over the Internet. The patent pending proprietary technology we
have developed to address this effectively eliminates the
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<PAGE> 23
security issue, and as a by-product also has many other interesting application
possibilities in large markets.
DESCRIPTION OF OUR TECHNOLOGY
The title of the invention is "Method and Apparatus for Secure E-Commerce
Transactions". This invention relates to the encryption of data and the
authentication of the identity of participants in electronic commerce
transactions and communications. In particular, this invention relates to
methods and apparatus for authenticating the identity of participants and for
securely encrypting e-commerce transactions and communications.
The authentication of the identity of participants is a key requirement of most
electronic transactions. The security of the information being transmitted is
also a concern, particularly where such information represents the confidential
data of the participant.
It is an object of this invention to provide a secure means of conducting
electronic commerce transactions and other communications wherein authentication
of participants is highly reliable regardless of the specific communication
device being used. It is a further object of this invention to provide a high
degree of inherent encryption security by incorporating biometric data in the
encryption process in a manner that minimizes the effective use of biometric
forgery. The invention provides a means for securely authenticating the identity
of a user without requiring the use of any particular communication device in
order to do so.
A user's biometric data (voiceprint and fingerprint) is retained in a database
at an authentication center. A number of biometric encryption devices are
enabled for use with the secure system. A registered user may use any biometric
encryption device enabled by the system to establish a secure communication. The
biometric encryption device may be used in association with a variety of
standard communication devices such as computers, cellular telephones, Personal
Data Assistants (PDAs), point of sale devices, Automated Teller Machines (ATMs),
access control devices, etc.
The system according to the invention provides device independence for a user.
Although each device is enabled for use within the system, a registered user may
choose any enabled device to complete a transaction or communication. Such
independence gives the user flexibility in effecting secure transactions, and
allows the system to track activity by a specific user, for example for billing
purposes. Moreover, the encryption method and apparatus may equally be applied
to any communication, whether it is of a financial nature or not.
E-COMMERCE MARKET CONTEXT
The revenue-generating potential for technology that can resolve the central
security problem relating to Internet commerce is vast. It is believed that 75%
of Internet users are not yet shopping online (Source: The Strategic Group). A
major reason for this is a believed reluctance by 65% of Internet users due to
concern over credit card security. Internet users are forecast by us to grow to
around half a billion people by 2003, with Internet trading revenues set to grow
to US$1.3 trillion annually over the same period (Source: International Data
Corporation).
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<PAGE> 24
It is also predicted that by the end of 2000, 40% of banks will be trading
online (Source: IDC), with the figure rising to 70% by 2002. Indeed in December
1999, a consortium of 11 major US banks (called Spectrum) was announced,
launched to encourage electronic bill paying amongst customers. Currently 63
billion bills are estimated issued in the US every year. With the security
issues surrounding Internet-based payment processes solved, the growth of
Internet commerce should be considerably enhanced.
ADDITIONAL APPLICATIONS FOR THIS BELIEVED PROPRIETARY TECHNOLOGY
The essential focus of the technology that has resulted from our research and
development process is to provide accurate authentication of identity for
interactions between parties, of which non-cash financial transactions represent
the most obvious application. Hence the technology may also apply in a wide
range of non e-commerce applications, including (but not limited to) Automated
Teller Machines, point of sale credit/debit card approval processes, online
banking transactions, cellular telephone security and particularly government
welfare/benefit entitlement claims.
Some additional applications of Milinx' "bio-commerce" technology include
banking by phone, banking by Internet, and buying and selling securities by
telephone or by Internet.
Moving away from the strictly financial transaction arena, there are also
applications for this technology in the fields of workstation and network
access, physical access, high value incentive programs such as frequent flyer
systems, border control, national/state ID and law enforcement.
MARKET CONTEXT FOR ADDITIONAL APPLICATIONS
A major application of this new technology would be for fraud prevention, and
its potential here is estimated significant with fraud costing more than US$20
billion annually. US Banks lose estimated $3 billion each year in credit and
debit card theft schemes and twice that much through fraudulent use of checks
(Source: US National Fraud Center) . Fraud in entitlement programs is estimated
at more than US $10 billion per year (Source: US General Accounting Office).
ADDITIONAL R&D ACTIVITY
Milinx Research and Development works under two assumptions. Firstly, it is our
intent to try to develop proprietary products that will add value to existing
Milinx products. Secondly we want to ensure we stay abreast of technological
advancements so that we can make judicious decisions in the alliances we make
and in the services we offer.
This ongoing research will enable us to select those technologies that will be
most beneficial to our clients and ensure that the company stays at the
forefront of innovation, thereby maximizing our competitive advantage and
shareholder value.
In our ongoing technology research we are intimately aware of multi-function
chip technology, Virtual Private Network (VPN), Voice Over Internet Protocol
(VOIP) gateway technologies and last mile All Digital Subscriber Line (xDSL)
solutions. The convergence of Internet, thin client and broadband technologies
is estimated to bring streaming video, interactive interfaces and virtually free
long distance communications to the market place.
24
<PAGE> 25
SUPPLIERS
Major suppliers are KRP Communications, Ltd for computer hardware and software,
Discount Computer for computer hardware and software, Catalyst for furniture,
and Bar Graphics for printing.
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<PAGE> 26
PROPERTY
The Company has four leases for properties in Vancouver and Seattle. The
Seattle facility is for 1,300 square feet, and expires in October, 2000. Office
space in Seattle is currently tight and expensive. In Vancouver, there are three
leases for an aggregate of 12,000 square feet. All leases are until 2004. Office
space in Vancouver is believed plentiful and the company expects to add more
space without difficulty as needed.
MANAGEMENT:
EXECUTIVE AND DIRECTORSHIP
MAYNARD L. DOKKEN, PRESIDENT, CEO AND DIRECTOR Age: 37
He is the founder of the Company and was experienced in the real estate
development business prior to his interest in Internet related businesses. He
commenced researching the feasibility of introducing a new unique credit card
product in 1994. After spending in excess of US$1,000,000 on the project, he
reengineered the idea of offering another consumer card to the general public in
1997. He turned his energies to the Internet and telecommunications industries.
He is currently the majority shareholder of Milinx Business Group, Inc. He also
controls two Companies that have licenses or other arrangements with Milinx:
Milinx International and Credit Assure International, Inc. He is married to
Mikiko Fujisawa, Vice President.
M.W. (MAX) TOMASZEWSKI EXECUTIVE VICE PRESIDENT (SUBSIDIARY) Age: 51
He has a B.Sc. Degree from McGill and a M.Sc. (I.A.) Industrial Administration
from the University of Birmingham (U.K.). Mr. Tomaszewski has held various
positions in the field of Marketing and Administration for multi-national
companies, including a division of Abitibi-Consolidated and Hunter Douglas.
During the past 21 years, 16 of which as president and majority shareholder of a
group of private real estate development and investment companies called The
Amadon Group, he was responsible for ventures with a combined value of over
$250,000,000.
MIKIKO FUJISAWA, VICE PRESIDENT, CORPORATE SECRETARY AND DIRECTOR Age: 32
A Japanese citizen, she has over seven years' experience in administrative and
secretarial positions including assisting the Vice President of a corporation
employing over 150,000 people, as well as a Newspaper Editor for Cyugoku
Shinbun-Shya, a newspaper with a circulation of several million. In addition,
she provides corporate secretarial services and is responsible for compliance
matters with the Securities and Exchange Commissions. She is a graduate of
Kwasei Gakuin University (Japan) with a Bachelor of Arts and CDI College of
Business and Technology (Vancouver) with a Business communications Certificate
and a Diploma in Computerized Office Administration. She holds various executive
positions in licensors or suppliers to Milinx including Milinx International and
Credit Assure International Limited. She is married to Maynard Dokken.
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<PAGE> 27
DONALD L. WILLIAMS, CHIEF OPERATING OFFICER (SUBSIDIARY) Age: 47
Mr. Williams is former president of SoftRisk Technologies. As president, he was
responsible for the overall operation of the company including guiding the
marketing and sales of software products. Of four software products Mr. Williams
conceived of and commercialized, one is an Internet-based application now used
by the United Nations in international peacekeeping and humanitarian assistance
operations. He has several years of experience in senior management and
consulting positions, and is skilled in cultivating and maintaining long-term
business and customer relations. He has been with Milinx since September 15,
1999.
BARRY W. PHILLIPS, TREASURER, CFO AND DIRECTOR Age: 59
He was employed with the Canadian Imperial Bank of Commerce both in Canada and
internationally, from 1956 to 1977 and his experience included: operations,
human resource management, executive training, corporate lending, branch
management, corporate marketing and international money management. He
established a management consulting firm in 1977 in Winnipeg, Manitoba,
specializing in corporate finance and reorganizations, mergers and acquisitions,
succession planning and sale of businesses and the implementation of financial
and management information systems. He is on the advisory board of five private
companies, a director of three private mining companies and has retired from the
Boards of two public companies.
JAMES R. MEDLEY, CHAIRMAN OF THE AUDIT COMMITTEE, DIRECTOR Age: 58
Mr. Medley is the founder and president of Laux Medley Norris Inc, investment
advisors and business counselors since 1976. He currently serves as Treasurer
and Chief Financial Officer for Leading-Edge Earth Products Inc., a publicly
traded development stage company. James Medley has twenty-five years of
experience in diverse areas of financial management and analysis. He manages
portfolios including precious metals, securities and real estate for individuals
and partnerships. He develops financial plans and strategies, does financial
analysis and cash flow forecasting for Businesses, advises companies on SEC
reporting matters and produces financial proformas for start-up companies. He
graduated from the Naval Air Training Command, Maintenance Management and
Information Systems at Ohio University, University of Washington Graduate School
of Business Administration Management Course, and Wentworth Institute,
Mechanical Engineer in Machine Design. James spent ten years in the Navy,
becoming Standardization Officer in the Naval Air Advance Training Command and
Carrier Aircraft Commander before starting Laux Medley Norris, Inc. in Seattle.
KEY PERSONNEL (ALL ARE EMPLOYED AT SUBSIDIARY LEVEL)
BONNIE ROBB, ADVERTISING MANAGER Age: 46
Ms. Robb has Diplomas in Broadcast Journalism and Multimedia Production. She has
been in the communications business for the past twenty years including
ownership of her own business and as a production manager in radio and
television.
Her responsibilities include: the development of advertising strategies for
target markets,
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<PAGE> 28
assist with the negotiations with advertising agencies, approving advertising
scripts and monitoring the cost benefit of the various advertising programs.
DAVID LIBBY, B. COMM., CMA, GROUP CORPORATE CONTROLLER Age: 48
He is a Certified Management Accountant with over twenty five years experience
as a Corporate Controller, initially with General Motors in 1978 and most
recently with Surfwood Supply. He has extensive experience in all aspects of
accounting, including cost accounting, management information systems and
General Accepted Accounting (GAAP) issues.
His responsibilities include: managing all the accounting operations for the
Milinx Group of companies; managing the budgeting system and reporting;
responsibility for all internal controls and costs; monitoring the cash
management systems; the preparation of financial statements for management and
external purposes; and maintaining the relationship with the company's external
auditors.
EDWIN MARK, B. COMM. (FINANCE), LLB, CORPORATE COUNSEL Age: 32
Since his graduation from the University of Saskatchewan seven years
ago, he has been working in a private practice with Mair, Jensen & Blair,
specializing in corporate and commercial law. He also was co-founder of the
Entrepreneurs Business Group and was formerly the Legal Chair for the United Way
(Kamloops). He brings a background in law with a business perspective to the
company.
His responsibilities include: assisting with and advising on all corporate and
legal issues; the review of all contracts and licensing agreements on a
continuous basis; the legal requirements of conducting business throughout the
United States, Canada and other countries which Milinx may eventually operate
in; and assisting with the negotiations on all mergers, acquisitions and
marketing alliances.
GRENFELL FEATHERSTONE, DIRECTOR OF CONCEPT DEVELOPMENT Age: 49
Mr. Featherstone received a B.A. Hons. (Magna Cum Laude) from the University of
Victoria and a Masters in English from Dalhousie. He has considerable experience
in School Administration, teaching courses in English and History of Ideas. He
is a past President of the Debate and Speech Association of British Columbia,
Director of the Canadian Student Debating Federation and President of the
International Independent Schools Public Speaking League.
He has been a Consultant in his own firm providing services in Strategic
Planning and Board Policy in Education and on various projects involving
communications. His responsibilities include: the development of new products
based on market research; the monitoring of the competitiveness of the present
product offerings; coordinating the launch of new products; the development of
corporate communication programs; the development of advertising strategies;
assist with the development of new marketing materials and strategies; and the
development of advertising programs, including monitoring the cost effectiveness
of expenditures.
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<PAGE> 29
HAMID H. TEHRANI, INFORMATION SYSTEMS M Age: 32
He has a BSc. in Comp. Eng. (Bachelor of Computer Engineering) and a MSc. in
Comp.Sc. (Masters of Computer Science). He also has experience as a Programmer,
Project Manager, and Software Developer with The University of Vienna and the
Middle East Technical University. He has skills in various operating systems
including Microsoft NT and Unix, Linux, Sun Solaris and HP-UX. His
responsibilities include: the development of Internet systems, programming
(including Web programming), directing and managing a group of programmers and
administrators, maintain internal computer and network systems including the
company intranet, developing specifications for hardware and software purchases,
assist with the negotiations with vendors, licensing and the integration of all
systems with the World Wide Web.
JAN FORCIER CTI TEAM LEADER Age: 31
Mr. Forcier has a BSc from UBC and Computer Science Diploma from Langara. He has
over 12 years experience in the computer industry, including programming and
telephony systems with Natural Micro Boards. His time and project management
background provides him with the experience to handle a team of programmers in
development environments. His responsibilities include installation and
servicing of telephony and voice recognition systems and software.
JIM B. MAEDEL, HUMAN RESOURCES DIRECTOR Age: 37
Mr. Maedel has a BA in Economics from the University of Waterloo. A District
Manager for Agency Rent A Car for 7 years and Regional Manager for Interactive
Media Corp in Toronto followed by the Call Center Manager for Future Shop. As a
result of his background, he has experience with recruiting, personnel
management policies and relations. His responsibilities include: recommendations
on personnel policies and procedures, preparing job descriptions in conjunction
with department heads, the recruiting of qualified personnel, preparing
recommendations on compensation including salary ranges and benefits, the
management of the company's education and training programs and professional
development, and the supervision of administration personnel.
JONATHAN MYERS, TELECOMMUNICATIONS MANAGER Age: 52
Mr. Myers has spent the past 18 years as a very successful Service Manager with
BC Telecom. He has also worked as a consultant on e-commerce issues. Jonathan
was responsible for the Western Canadian Data Network of the Royal Bank
Financial Group and the National Network of the Hong Kong Bank, as well as the
ICBC Year 2000 conversion. He is currently enrolled in the Masters program for
Project Management at George Washington University.
His responsibilities include: The coordination of telecommunications software
and hardware installation and maintenance, negotiations with telecommunications
service and resource providers, and relevant project management tasks.
MELANIE MITRA, CALL CENTER AND CUSTOMER SERVICE MANAGER Age: 32
Ms. Mitra has an Honors Degree in Political Science and a Minor in Economics
from Bishops University. For the past ten years she has been in the call center
industry involved with the Southam Newspaper Group and Chubb Security. She has
managed more than 400 Call Center Employees and has experience in all operating
positions from set-up to ongoing management, coordination of marketing, IS,
human resources and many other aspect of the requirements for
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<PAGE> 30
Corporate Call Centers. Her responsibilities include: the organization of the
Call and Customer Service Center and systems, the recruiting of qualified
personnel, the training of Customer Service personnel, the maintaining of a high
standard of service, and the generation of new business and auxiliary business
to achieve profitability for the center.
REZA BAZARGAN, TECHNICAL RESEARCH AND DEVELOPMENT MANAGER Age: 34
Reza comes to Milinx with a 5-year degree in Mechanical Design Engineering from
the Technical University in Persia. He has a strong background in project
management, operations management, and strategy planning, including membership
at PMI (Project Management Institute), and various types of consulting work for
Bell Sygma Telecom Solutions, the City of Surrey, and IBM. He also has
represented the Canadian Government in international relations. His
responsibilities include: the management and co-ordination of the technically
oriented projects of the company.
RICHARD BERGIN, DIRECTOR OF SALES AND MARKETING Age: 43
Mr. Bergin has many years of experience in sales and marketing for a range of
companies in highly competitive industries in the United Kingdom. Before coming
to Milinx on October 15, 1999, he led Sales and Marketing for the UK launch of
the Nannini range of Italian eyewear. Prior to that, he was Client Services
Director for the in-house marketing and communications consultancy for Samsung's
electronics businesses in Europe. He was also a managing partner of his own UK
advertising agency. As a board director of Saatchi & Saatchi subsidiary ad
agency in London, he headed the domestic and international account team for
British Telecom, one of the five largest advertisers in the UK. Recently awarded
an MBA with Distinction from Kingston University of London. His responsibilities
include: All sales and marketing activities, including the further development
of appropriate sales and marketing strategies, building and maintaining a strong
sales team, and supervision of the development and growth of our advertising
department.
SASAN KOMAIED, DATABASE DEVELOPMENT TEAM LEADER Age: 35
Mr. Komaied studied Technical Physics, Translation and Informatic at the
University of Austria. He is a Certified Oracle Designer 2000 and Developer
2000. He has two Omnis Certifications, Certification in Siemens Software
Engineering, and is an IBM AS400 Software Engineer. His projects have included
the Daimler Benz Web and Internal Database and Application, including archiving,
video, image and voice in an Oracle database for use on the Web and in internal
applications. Mr. Komaied was also responsible for the online database,
e-commerce, archiving and billing, ordering and shipping for Otto and Nova for
their on-line store and web development and catalogue. These companies are now
two of the largest European online stores. His responsibilities include: the
development of the Oracle database; the day-to-day management of the system; and
the integration of the database with the Internet and telecommunication systems.
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<PAGE> 31
EXECUTIVE AND DIRECTORS' COMPENSATION
The following table shows the annual compensation of the executive officers and
directors of Milinx Business Group, Inc. and its subsidiary, Milinx Business
Services, Inc. ("MBS"):
<TABLE>
<CAPTION>
- ------------------------------------------------------------ -------------------
Name Annual Salary (US$)
- ------------------------------------------------------------ -------------------
<S> <C>
Maynard L. Dokken $120,000
President, CEO, Director
- ------------------------------------------------------------ -------------------
Mikiko Fujisawa 87,000
Vice President, Secretary, Director
- ------------------------------------------------------------ -------------------
Barry Phillips 42,000
Chief Financial Officer, Director
- ------------------------------------------------------------ -------------------
James Medley 36,000
Director
- ------------------------------------------------------------ -------------------
Max Tomaszewski 62,000
Executive Vice President (MBS)
- ------------------------------------------------------------ -------------------
Don Williams 65,500
Chief Operating Officer (MBS)
- ------------------------------------------------------------ -------------------
</TABLE>
MARKET FOR MILINX SECURITIES
Milinx has been a non-reporting company with certain of its securities exempt
from registration under the Securities Act of 1933 pursuant to Rules 504 of
Regulation D and Rule 701 of the General Rules and Regulations of the Securities
and Exchange Commission. Milinx did not file a registration statement with the
Securities and Exchange Commission and has not been a reporting company under
the Securities Exchange Act of 1934. Shares are not traded on the OTC Bulletin
Board or any exchange and are not listed in the "Pink Sheets". Milinx intends to
seek listing on the OTC Bulletin Board and NASDAQ listing when qualified.
RELATED TRANSACTIONS
Maynard Dokken, President and Mikiko Fujisawa, Vice President both have
interests in Companies which licensed or sold property to Milinx.
LITIGATION
Two related claims or potential claims involving computer software licensing
have been asserted against Milinx. As at December 17, 1999, KRP Communications,
Ltd. ("KRP"), is claiming the sum of $210,048.71 Canadian funds for an alleged
failure to pay timely license fees for computer software. No formal claim other
than a demand letter has been advanced in connection with the KRP claim. On
January 11, 2000, Interactive Intelligence, Inc. ("Interactive") advanced a
claim through the American Arbitration Association for $3,900,000 U.S. funds for
an alleged breach of a Software License Agreement. KRP is Interactive's
reseller. Interactive is the owner of a software program designed to handle
intra company telecommunications and small answering services. Milinx has
responded to Interactive's Arbitration claim by denying any amount is owing and
counterclaiming against Interactive for damages stemming from Interactive's
failure to deliver a workable system. On February 2, 2000, Milinx commenced suit
in the Supreme Court of British Columbia (the "British Columbia Lawsuit"),
naming as defendants KRP, Interactive and others. Although both the Arbitration
and the British Columbia Lawsuit were just recently commenced and no discovery
has taken place, Management believes that it has valid defenses to Interactive
and KRP's claims and that it will prevail in its claims and counterclaims
against Interactive and KRP. Milinx intends to vigorously defend the KRP and
Interactive claims and vigorously pursue its claims and counterclaims against
KRP and Interactive.
RISK FACTORS
CRITICAL RISK EVALUATION
Milinx has undergone a rigorous process of risk evaluation and has identified a
number of critical success factors that will need to be addressed in order to
meet its business objectives.
LITIGATION/ARBITRATION
"Milinx is currently the subject of an arbitration claim and has made a
counterclaim in that arbitration. A related lawsuit has been commenced by
Milinx. At this time Milinx is unable to predict the potential damages to or
compensation due the Company resulting therefrom.
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<PAGE> 32
BUSINESS ENVIRONMENT
The Application Service Provider (ASP) Internet-based business model challenges
the Independent Software Vendor (ISV) packaged software model directly. This
challenge defines "the shape of things to come" as the ongoing convergence of
technology provides varied means for Internet-centric ("net-centered") software
distribution. It is expected that the ASP versus ISV battles that are starting
to take shape will contribute significantly to the risks faced by Milinx.
For example, Milinx, along with its business partners, will be offering various
versions of StarOffice - among other applications and services - over the
Internet to computer, cellular telephone and "web appliance" users (users of
Personal Digital Assistants or PDAs). From a software functionality perspective,
StarOffice offers features that are similar to Microsoft Office. As the dominant
ISV, Microsoft can be expected to protect its packaged software business as well
as enter into the ASP environment by also offering its software applications as
a service over the Internet.
Milinx is addressing this critical risk by association with strategic business
partners. Our strategic partners are challenging Microsoft and its competitors
head on. Together, we will have first-to-market advantage and will benefit from
technology convergence, which will enable our net-centered applications to be
accessed by personal computers as well as a growing variety of wireless handheld
devices.
The extent of the business opportunity for well-positioned ASPs is significant.
While the research points to a range of numbers, they are all in the billions of
dollars in the short term. The high tech community is waking up to this
discovery and some big companies are positioning themselves strategically. In
other words, we're going to have more competition.
CRITICAL SUCCESS FACTORS
Milinx is working aggressively with our business partners to build a technology
infrastructure that is highly scalable, reliable and expandable. We are
implementing industry standard technology capable of delivering on-line
solutions to millions of customers with a high accessibility rate. In addition,
Milinx will be utilizing industry-leading "softswitch" telecommunications
technology believed at least six months ahead of any competitor in the ASP
business environment. The softswitch will further increase our capacity and
reliability while reducing the overall cost of distribution dramatically. Milinx
is moving quickly in the implementation of an ever-increasing scope of products
and services in support of the growing Internet-based communications, office
productivity, collaboration and e-commerce needs of the business community. The
company is also investigating the implementation and provision of knowledge
management applications for business that are at least two years' ahead of any
known competitive source. There is uncertainty regarding the receptivity of
packaged software users to the ASP way of doing business because: a) it is new,
b) it requires data conversion, and c) there is a security issue. This means
that there is likely to be some "built-in" resistance on the part of software
users to change from an ISV to an ASP. By now, however, most software users are
accustomed to new innovations and, while data conversion represents an
additional process, it is a relatively straightforward one. Nonetheless, we are
addressing this market acceptance factor by working
32
<PAGE> 33
with our industry partners to introduce Milinx to selected customers of theirs
who are demanding ASP services. The key inhibitor to market acceptance, then, is
security.
Milinx is addressing this critical success factor through innovation. The
company owns a worldwide patent pending property entitled "A Method and
Apparatus for Secure E-Commerce Transactions". The embodiment of the patent
pending is a device- independent apparatus that will enable secure
communications and e-commerce transactions in a wide variety of applications
including but not limited to those being offered as a service to our customers.
In addition, this state-of-the-art security feature will set Milinx apart from
its competitors who may have to come to us for a solution to this key security
problem.
We acknowledge that Milinx is a start-up company. As such, the company has no
revenue or track record. This poses numerous problems not the least of which is
financing. Milinx will need access to financing on an ongoing basis if it is to
be successful.
Our iPlanet business partners are helping to address this critical success
factor by creatively supporting of our financing requirements. In addition,
recognized capital corporations have made their presence known and have offered
financing for enabling the replication of data centers as needed across North
America. This fact is expected to provide a measure of comfort and credibility
for prospective investors as we move forward as a reporting company in search of
financing to carry out our business plan.
The company's core technology is under development. Milinx is in the process of
building a data center and working with its business partners to develop and
implement the technology infrastructure required to operate as an ASP. There are
risks associated with this development work that could adversely affect the
overall performance of the company.
This critical success factor is being defined as the timely delivery of product
from our industry partners. Milinx has agreements in place that provide strong
incentives for the timely delivery of our technology backbone by iPlanet
business partners.
SPECIFIC RISKS
MILINX IS CURRENTLY OPERATING AT A LOSS. There have been no revenues from
operations and none are expected for several months The company has been
completely dependent on investments, leases and financing arrangements for
operations. Its ability to develop operations is dependent upon its ability to
advertise its products and generate sales of its BBT and similar products. If
unable to sell sufficient amount of its products at a sufficiently profitable
level, it will need to raise additional capital through the placement of its
securities or from other debt or equity financing. If the Company is not able to
raise such financing or to obtain alternative sources of funding, management
will be required to curtail operations.
MILINX COMMENCED OPERATIONS IN 1999 AND HAS A LIMITED OPERATING HISTORY. Milinx
commenced operations in 1999 and has only a limited history of operations which
to date have not been profitable. Its operations are subject to the risks and
competition inherent in the establishment of
33
<PAGE> 34
a relatively new business enterprise. There can be no assurance that future
operations will be profitable. Revenues and profits, if any, will depend upon
various factors, including market acceptance of its concepts, market awareness,
reliability and acceptance of the Internet, dependability of its distribution
network, and general economic conditions. There is no assurance that Milinx will
achieve its expansion goals and the failure to achieve such goals would have an
adverse impact on it.
MILINX ISSUED PREFERRED STOCK HAS SUPER MAJORITY VOTING RIGHTS. Milinx has
designated 15,000,000 shares of Series A preferred stock of which approximately
3,675,000 are issued. Each share of Series A preferred stock entitles the holder
to 2 times the common stock into which it may be converted, currently 6 votes.
Thus, these shares have voting rights equivalent to approximately 20,000,000
common shares giving the holders control of the Company. Maynard Dokken,
President, controls most of these shares. In addition, Milinx may, without
further action or vote by its shareholders, designate and issue additional
series or shares of preferred stock.
The terms of the super majority preferred stock adversely affect the voting
power of the holders of the common stock and may in turn reduce the value of the
common stock. Such designation and issuance of preferred stock favorable to
current management or shareholders makes the possible takeover of the Company or
the removal of management of the Company very difficult and discourages hostile
bids for control of the Company which bids might have provided shareholders with
premiums for their shares.
VOTING CONTROL OF MILINX BY PRESIDENT. Maynard Dokken, founder, President and a
director, owns and controls beneficially the voting rights ascribed
approximately 17,000,000 common shares, and in addition has options for
preferred shares which would vote as if 1,200,000 common shares. His wife,
Mikiko has voting rights in preferred shares or options equivalent to
approximately 4,000,000 common shares.
LACK OF CONTINUED DEVELOPMENT OF E-COMMERCE MARKET. The use of the Internet and
World Wide Web for commercial purposes is expanding dramatically. There is no
assurance, however, that as increased commerce takes place on the Internet that
unforeseen overloads, lack of sufficient hardware, telephone availability or
other problems may develop. In addition, consumer use of the Internet for
purchases, banking, and other commercial uses may decline for any number of
reasons such as security problems, overload difficulties, shopping trends, or
slow Internet access.
COMPETITION FROM LARGER AND MORE ESTABLISHED COMPANIES MAY HAMPER MARKETABILITY.
The competition in the business applications industry is intense. There are
numerous well-established competitors, including national, regional and local
companies possessing substantially greater financial, marketing, personnel and
other resources than Milinx. Milinx may not be able to market or sell its
products if faced with direct product competition from these larger and more
established companies.
TRADEMARK PROTECTION AND PROPRIETARY MARKS. Notwithstanding the pending patent
pending, there is no assurance Milinx will secure a patent for any process or
invention, or be able to sustain a proprietary position in its technology.
34
<PAGE> 35
MANAGEMENT AND AFFILIATES OWN ENOUGH SHARES TO CONTROL SHAREHOLDER VOTE. Milinx
executive officers and directors and 5% holders beneficially own approximately
20,720,400 common shares with voting rights of 33,945,525 common shares, that
result in an absolute majority control. As a result, these executive officers
are able to exercise controlling interest over matters requiring stockholder
approval, including the election of directors and the approval of material
corporate matters such as change of control transactions. The effects of such
control could be to delay or prevent a change of control of Milinx unless the
terms are approved by such stockholders.
ISSUANCE OF FUTURE SHARES MAY DILUTE INVESTORS SHARE VALUE. The Certificate of
Incorporation as amended of Milinx authorizes the issuance of 210,000,000 shares
of common stock and 100,000,000 shares of preferred stock. The future issuance
of all or part of the remaining authorized common stock may result in
substantial dilution in the percentage of the Company's common stock held by its
then existing shareholders. Moreover, any common stock issued in the future may
be valued on an arbitrary basis by Milinx. The issuance of the Company's shares
for future services or acquisitions or other corporate actions may have the
effect of diluting the value of the shares held by investors, and might have an
adverse effect on any trading market, should a trading market develop for the
Company's common stock.
CURRENT TRADING MARKET FOR THE COMPANY'S SECURITIES. Milinx common stock is not
traded on the OTC Bulletin Board operated by Nasdaq, and there is no assurance a
trading market will develop, or if developed, at what volume or price. Milinx
did not file a registration statement with the Securities and Exchange
Commission and has not been a reporting company under the Securities Exchange
Act of 1934.
PENNY STOCK REGULATION. Upon commencement of trading in the Company's stock, if
such continues (of which there can be no assurance) the Company's common stock
may be deemed a penny stock. Penny stocks generally are equity securities with a
price of less than $5.00 per share other than securities registered on certain
national securities exchanges or quoted on the Nasdaq Stock Market, provided
that current price and volume information with respect to transactions in such
securities is provided by the exchange or system. The Company's securities may
be subject to "penny stock rules" that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a penny
stock, unless exempt, the "penny stock rules" require the delivery, prior to the
transaction, of a disclosure schedule prescribed by the Commission relating to
the penny stock market. The broker-dealer also must disclose the commissions
payable to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements must be sent
disclosing recent price information on the limited market in penny stocks.
Consequently, the "penny stock rules" may restrict the ability of broker-dealers
to sell the Company's securities. The foregoing required penny stock
restrictions will not apply to the Company's securities if such securities
35
<PAGE> 36
maintain a market price of $5.00 or greater. There can be no assurance that the
price of the Company's securities will reach or maintain such a level.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
Not applicable.
ITEM 5. OTHER EVENTS
SUCCESSOR ISSUER ELECTION.
Upon effectiveness of the exchange, pursuant to Rule 12g-3(a) of the General
Rules and Regulations of the Securities and Exchange Commission, Milinx became
the successor issuer to Forestay Corporation for reporting purposes under the
Securities Exchange Act of 1934 and elects to report under the Act effective on
December 9, 1999.
ITEM 6. RESIGNATIONS OF DIRECTORS AND EXECUTIVE OFFICERS
The sole Officer and Director of the registrant, Forestay, resigned upon the
acquisition being effective and the successor election being made. No directors
or executive officers of Milinx have resigned as a result of the acquisition or
since the succession.
ITEM 7. FINANCIAL STATEMENTS
Financial Statements are attached as Exhibit 2.
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<PAGE> 37
ITEM 8. CHANGE IN FISCAL YEAR
The successor issuer is adopting a fiscal year end of June 30.
EXHIBITS
1 Agreement and Plan of Merger and amendment thereto between Forestay
Corp. and Milinx. (Previously filed)
2 Financial Statements
3 Original unamended Certificate of Incorporation of Milinx
27 Financial Data Schedule
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 hereunto duly authorized.
Milinx Business Group, Inc.
By /s/ Maynard Dokken
------------------------
President, Director
Date: February 14, 2000
37
<PAGE> 1
EXHIBIT 2
Consolidated Financial Statements and Report of
Independent Certified Public Accountants
MILINX BUSINESS GROUP, INC. AND SUBSIDIARY
June 30, 1999 and September 30, 1999 (unaudited)
<PAGE> 2
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 3
FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 4
CONSOLIDATED STATEMENTS OF OPERATIONS 5
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 6
CONSOLIDATED STATEMENTS OF CASH FLOWS 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
</TABLE>
<PAGE> 3
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Milinx Business Group, Inc.
We have audited the accompanying consolidated balance sheet of Milinx Business
Group, Inc. (a Delaware corporation) and its subsidiary, (the Company) as of
June 30, 1999 and the related consolidated statements of operations,
stockholders' equity, and cash flows for the six months then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Milinx Business
Group, Inc. and its subsidiary, as of June 30, 1999, and the results of their
consolidated operations and their cash flows for the six months then ended, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Seattle, Washington
November 19, 1999 except for
notes L(4) and M as to which
the date is February 4, 2000
3
<PAGE> 4
Milinx Business Group, Inc. and Subsidiary
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
---------- -------------
<S> <C> <C>
CURRENT ASSETS (unaudited)
Cash $ 4,522 $ 9,778
Accounts receivable, net 67,826 105,688
Prepaid expenses 34,873 50,994
---------- -----------
Total current assets 107,221 166,460
PROPERTY AND EQUIPMENT -- AT COST, net of accumulated depreciation 714,232 1,073,562
OTHER ASSETS AND DEFERRED CHARGES
Licenses 261,250 311,198
Deposits 24,834 28,593
---------- -----------
$1,107,537 $ 1,579,813
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 496,491 $ 865,393
Due to Milinx Marketing Group, Inc. 25,813 7,314
Due to Milinx Management Corporation 3,586 3,420
Due to Milinx International, Inc. -- current portion 25,000 25,000
Loans payable -- short term -- 13,606
---------- -----------
Total current liabilities 550,890 914,733
DUE TO MILINX INTERNATIONAL, INC., less current portion 200,000 200,000
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series A 10% non-cumulative, voting convertible preferred stock -- $0.001 par
value, 15,000,000 shares authorized, 3,675,000 shares issued and outstanding 3,675 3,675
Series B voting convertible preferred stock -- no par value, 10,000,000 shares
authorized, none issued and outstanding -- --
Common stock -- $0.001 par value, 210,000,000 shares authorized, 8,470,000
issued and outstanding 8,470 8,470
Additional paid in capital 1,209,275 2,436,775
Accumulated deficit (844,250) (1,970,809)
Cumulative translation adjustment (20,523) (13,031)
---------- -----------
356,647 465,080
---------- -----------
$1,107,537 $ 1,579,813
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
Milinx Business Group, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months Three months
ended June 30, ended September 30,
1999 1999
-------------- -------------------
(unaudited)
<S> <C> <C>
Net sales $ 43,424 $ 45,971
Cost of sales 48,112 100,657
--------- -----------
Gross profit (4,688) (54,686)
--------- -----------
Selling, general and administrative expenses 839,192 1,069,329
Other 370 2,544
--------- -----------
Net loss from operations $(844,250) $(1,126,559)
========= ===========
NET LOSS PER COMMON SHARE -- BASIC AND DILUTED $ (0.32) $ (0.13)
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
Milinx Business Group, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Six months ended June 30, 1999 and three months ended September 30, 1999
<TABLE>
<CAPTION>
Series A preferred Series B preferred
stock stock Common stock Additional
------------------- ------------------ ------------------- Paid In
Shares Amount Shares Amount Shares Amount Capital
--------- -------- ------ --------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 -- $ -- -- $ -- -- $ -- $ --
Issuances of common stock
through series of placements -- -- -- -- 8,470,000 8,470 592,825
Issuance of Series A preferred
stock to officers and a 2,925,000 2,925 -- -- -- -- --
legal counsel
Issuance of Series A preferred
stock through exercise of
stock options by Credit Assure 750,000 750 -- -- -- -- 26,250
Issuance of Internal Warrants A
to a director and a legal counsel -- -- -- -- -- -- 200
Issuance of Class A
units to various investors -- -- -- -- -- -- 590,000
Foreign currency translation
adjustment -- -- -- -- -- -- --
Net loss for the six months
ended June 30, 1999 -- -- -- -- -- -- --
--------- -------- ------ -------- --------- -------- -----------
Balance at June 30, 1999 3,675,000 3,675 -- -- 8,470,000 8,470 1,209,275
Issuance of Class A units (unaudited) -- -- -- -- -- -- 1,227,500
Change in cumulative translation
adjustment (unaudited) -- -- -- -- -- -- --
Net loss for the three months
ended September 30, 1999 (unaudited) -- -- -- -- -- -- --
--------- -------- ------ -------- --------- -------- -----------
Balance at September 30, 1999
(unaudited) 3,675,000 $ 3,675 -- $ -- 8,470,000 $ 8,470 $ 2,436,775
========= ======== ====== ======== ========= ======== ===========
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Translation Accumulated
Adjustment Deficit Total
------------- ----------- -----
<S> <C> <C> <C>
Balance at January 1, 1999 $ -- $ -- $ --
Issuances of common stock
through series of placements -- -- 601,295
Issuance of Series A preferred
stock to officers and a -- -- 2,925
legal counsel
Issuance of Series A preferred
stock through exercise of
stock options by Credit Assure -- -- 27,000
Issuance of Internal Warrants A
to a director and a legal counsel -- -- 200
Issuance of Class A units to
various investors -- -- 590,000
Foreign currency translation
adjustment (20,523) -- (20,523)
Net loss for the six months
ended June 30, 1999 -- (844,250) (844,250)
----------- ----------- -----------
Balance at June 30, 1999 (20,523) (844,250) 356,647
Issuance of Class A units (unaudited) -- -- 1,227,500
Change in cumulative translation
adjustment (unaudited) 7,492 -- 7,492
Net loss for the three months
ended September 30, 1999 (unaudited) -- (1,126,559) (1,126,559)
----------- ----------- -----------
Balance at September 30, 1999
(unaudited) $ (13,031) $(1,970,809) $ 465,080
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE> 7
Milinx Business Group, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months Three months
ended June 30, ended September 30,
Increase (Decrease) in cash 1999 1999
-------------- -------------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $ (844,250) $ (1,126,559)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 42,362 83,285
Write off of license costs -- 100,000
Changes in assets and liabilities
Accounts receivable (67,826) (37,862)
Prepaid expenses (34,873) (16,121)
Accounts payable and accrued liabilities 496,491 368,902
Due from Milinx Marketing Group, Inc. (39,868) (18,499)
Due to Milinx Management Corporation 3,586 (166)
---------- -----------
Net cash used in operating activities (444,378) (647,020)
Cash flows from investing activities
Acquisition of fixed assets (677,163) (435,740)
Deposits (24,834) (3,759)
Licenses (50,000) (156,823)
---------- -----------
Net cash used in investing activities (751,997) (596,322)
Cash flows from financing activities
Proceeds from issuance of common stock 601,295 --
Proceeds from issuance of Series A preferred stock 2,925 --
Proceeds from issuance of 1999 Class A Units 590,000 1,227,500
Proceeds form issuance of 1999 Internal Warrants A 200 --
Proceeds from issuance of stock options 27,000 --
Proceeds from borrowings, net -- 13,606
--------- ---------
Net cash provided by financing activities 1,221,420 1,241,106
Effect of the exchange rate changes on cash (20,523) 7,492
---------- -----------
Net increase in cash and cash equivalents 4,522 5,256
Cash and cash equivalents at beginning of year -- 4,522
---------- -----------
Cash and cash equivalents at end of year $ 4,522 $ 9,778
========== ===========
</TABLE>
Non-cash transactions:
(1) In connection with an asset acquisition (see note D), the Subsidiary has
issued a $65,681 demand note payable.
The accompanying notes are an integral part of these statements.
7
<PAGE> 8
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Milinx Business Group, Inc. (the Company) was incorporated on December 10, 1998
in the state of Delaware as Milinx Marketing Group, Inc. and commenced its
operations on February 10, 1999. Effective May 5, 1999, the Company changed its
name to Milinx Business Group, Inc. The Company is developing and marketing
business application products including Unified Messaging, Virtual Office
Systems, and supplying communication productivity, and e-commerce functionality.
Milinx is targeting Small and Medium Enterprises (SMEs) in the business
Application Service Provider (ASP) market in North America. Effective April 1,
1999, the Company formed a wholly owned Canadian subsidiary, Milinx Business
Services, Inc. (BC) (the Subsidiary) to develop and market its product in
Canada. Both companies have adopted June 30 fiscal year ends.
1. Principles of Consolidation
The financial statements include the accounts of the Company and its wholly
owned Subsidiary. All significant intercompany balance and transactions have
been eliminated.
2. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method over estimated useful lives ranging as follows:
Furniture and fixtures 5 years
Computer hardware 2 - 3 years
Computer software 3 years
Leasehold improvements The lesser of the period of the
lease term or the estimated
useful life of the asset
3. License
License fees are amortized using straight-line method over the life of the
license agreement.
4. Loss per share
Basic loss per share is based on the weighted average number of common shares
outstanding during the period. The weighted average number of common shares
outstanding during the six months ended June 30, 1999 and the three months ended
September 30, 1999 (unaudited) was 2,656,040 and 8,470,000, respectively.
Diluted loss per share includes the effect of all potentially dilutive common
stock equivalents. Diluted loss per share for the period ended June 30, 1999 and
September 30, 1999 equaled basic loss per share due to antidilutive effect of
the common stock equivalents.
8
<PAGE> 9
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
5. Translation Adjustments
The Company considers the U.S. dollar its functional currency. Its Subsidiary's
functional currency is the Canadian dollar. Translation adjustments resulting
from the process of translating the Subsidiary's financial statements into the
U.S. dollars for consolidation purposes is reported as a separate component of
stockholders' equity.
6. Comprehensive Income
The Company adopted SFAS 130, Reporting Comprehensive Income. The statement
requires inclusion of foreign currency translation adjustments, reported
separately in stockholders' equity, in other comprehensive income. The Company
had no other comprehensive income items for the six months ended June 30, 1999.
The Company's total comprehensive loss for the six months ended June 30, 1999
and the three months ended September 30, 1999 (unaudited) was $864,773 and
$1,119,067, respectively.
7. Accounting Estimates
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
NOTE B -- MANAGEMENT PLANS
The Company's operations to date have consumed substantial and increasing
amounts of cash. The Company's negative cash flow from operations is expected to
continue and could accelerate in the foreseeable future. The Company expects
that its existing capital resources will be adequate to satisfy the requirements
of its current and planned operations until the end of fiscal year 2000.
However, the rate at which the Company expends its resources is variable, may be
accelerated and will depend on many factors. The Company may need to raise
substantial additional capital to fund its operations and may seek such
additional funding through public or private equity or debt financing.
Subsequent to June 30, 1999, the Company raised $2,772,500 (unaudited) through a
series of private placements of 1,386,250 (unaudited) Class A units at $2.00 per
unit. The Company is currently in the process of raising $10,000,000 through an
additional series of private placements. While certain expressions of interest
have been received, no significant amounts have been yet raised.
Management believes that the Company's plans to generate additional capital from
private financings will be sufficient to allow the Company to continue in
existence through June 30, 2000. However there can be no assurance that
sufficient additional funding will be available.
9
<PAGE> 10
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE C -- PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
June 30, September 30,
1999 1999
----------- --------------
(unaudited)
<S> <C> <C>
Furniture and fixtures $ 75,476 $ 148,551
Computer hardware 248,137 389,731
Computer software 340,296 426,023
Leasehold improvements 78,935 214,279
-------- ----------
742,844 1,178,584
Accumulated depreciation and amortization 28,612 105,022
-------- ----------
$714,232 $1,073,562
======== ==========
</TABLE>
NOTE D -- RELATED PARTIES
The Company's majority shareholder and President has controlling interest
in the following companies: Milinx Marketing Group, Inc. (Texas), Milinx
Marketing Group, Inc. (British Columbia), Milinx Management Corporation, Milinx
International, Inc. (Cayman), Credit Assure International, Inc., Assured Card
Corporation (currently inactive). Effective April 1, 1999, Milinx Marketing
Group, Inc. (British Columbia) sold all of its tangible and intangible assets to
Milinx Business Services, Inc. (British Columbia), the Subsidiary, in exchange
for $96,948 (CND) or approximately $65,900 (US). See also note M(2).
NOTE E -- LICENSES
On February 12, 1999, the Company signed a ten-year license agreement with
Milinx International, Inc. ("Milinx International"), an affiliated company (see
note D). The agreement grants the Company an exclusive right to use Internet and
communication technologies, software, trade secrets and marketing systems for
Milinx products in North America. The agreement calls for $50,000 to be paid by
August 12, 1999, and nine yearly payments of $25,000 commencing February 12,
2000. The Company has recorded a liability of $225,000 for future payments to be
made. The initial payment of $50,000 was made prior to June 30, 1999. The
Company recorded a corresponding asset of $275,000 which it is amortizing over
the life of the agreement. Amortization expense for the six months ended June
30, 1999 and the three months ended September 30, 1999 (unaudited) was $13,750
and $6,875, respectively. See also note M(2).
10
<PAGE> 11
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE F -- TRADEMARKS
On March 15, 1999, the Company entered into an agreement with Credit Assure
International, Inc. ("Credit Assure"), an affiliated company (see note D). Under
the agreement, the Company was granted an exclusive right to use "CreditAssure"
trademark and serve as its exclusive distributor and marketer in the United
States and Canada. In consideration of the rights received, the Company granted
Credit Assure an option to purchase 750,000 shares of the Company's Preferred A
Stock for $27,000. Options were granted on March 15, 1999 and exercised on April
6, 1999. Due to the absence of any market for the Company's preferred stock,
value of the option, if any, at the date of grant was considered negligible. See
also note M(2).
NOTE G -- DUE TO MILINX MANAGEMENT CORPORATION
On February 12, 1999, the Company entered into a management agreement with
Milinx Management Corporation ("Milinx Management"), an affiliated company (see
note D). Under the terms of the agreement Milinx Management was to provide
management, administrative and marketing services to the Company in
consideration for payment of all of the associated expenses to be incurred by
the Milinx Management in connection with providing the services, including
personnel costs. In addition, Milinx Management was entitled to a management fee
equal to fifteen percent of the expenses to be billed to the Company. Before
this agreement was terminated on April 1, 1999, the Company received services
from Milinx Management, totaling approximately $44,800. All but $3,586 and
$3,420 (unaudited) of these fees was paid by the Company prior to June 30, 1999
and September 30, 1999, respectively. The balance bears no interest and is due
on demand.
NOTE H -- DUE TO MILINX MARKETING GROUP, INC.
In connection with acquisition of assets from Milinx Marketing Group, Inc. (BC)
(see note D), the Subsidiary issued a demand promissory note with principal
balance of $65,681 that bears interest at 10% per annum. During the period, the
Company accrued $1,643 in interest on this promissory note. As of June 30, 1999
there were no payments made on the note.
The Subsidiary also incurred various expenses on behalf of Milinx Marketing
Group, Inc. totaling $39,427. At June 30, 1999 the entire balance was recorded
as a receivable from Milinx Marketing. Per agreement between the Subsidiary and
Milinx Marketing, at June 30, 1999 the balance due to the Subsidiary was offset
against the balance due to Milinx Marketing with remaining $25,813 being due to
Milinx Marketing Group, Inc. As of September 30, 1999 (unaudited), the Company
satisfied all but $7,314 of the aforementioned liability.
11
<PAGE> 12
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE I -- STOCKHOLDERS' EQUITY
The Company has the following types of securities authorized and outstanding:
Common Stock -- $0.001 par value, 210,000,000 shares authorized, 8,470,000
shares outstanding. On June 12, 1999, the directors resolved to increase the
authorized shares to 210,000,000 from 45,000,000 and approved a two for one
stock split on the Company's common stock to facilitate proposed financing
plans. However, on November 4, 1999, the Board of Directors voted to reverse the
foregoing stock split and to consolidate the issued and outstanding shares of
common stock at a ratio of one for two, thus, effectively, negating the June 12,
1999 stock split. The number of authorized shares remained at 210,000,000.
Preferred Stock -- During the six month ended June 30, 1999 and prior to the
issuance of the financial statements the Board has authorized a total of
35,000,000 shares of preferred stock designated into series as follows:
Series A $0.001 par value, 10% non-cumulative, voting, convertible preferred
stock -- 15,000,000 shares authorized, 3,675,000 shares issued and outstanding.
Series A preferred shareholders are entitled to a non-cumulative 10% cash
dividend. Each share has a $.32 liquidation preference in addition to any
declared and unpaid dividends outstanding at the time of liquidation (up to $.32
of accumulated dividends per each Series A preferred share). Each preferred
shareholder is entitled to a number of votes that equals twice the number of
common shares into which said Series A preferred stock may be converted but no
less than six votes for each Series A preferred share. General conversion
provisions entitle each preferred share to be converted into three common stock
shares. The agreement also has variable conversion provisions designed to
prevent dilution of the preferred shareholders' position. No shares can be
converted during the twelve months following issuance. The agreement also
contains automatic conversion provisions at the election of the Company. At June
30, 1999 the conversion ratio of Series A preferred stock into common stock was
1:3.
Series B no par value voting, convertible preferred stock -- 10,000,000 shares
authorized, none issued and outstanding. Each share of Series B preferred stock
has a $3.00 liquidation preference. Each preferred shareholder is entitled to a
number of votes that equals the number of common shares into which said Series B
preferred stock may be converted. General conversion provisions entitle each
preferred share to be converted into two common stock shares. The agreement also
has variable conversion provisions designed to prevent dilution of the preferred
shareholders' position. No shares can be converted until after December 31,
1999. The agreement also contains automatic conversion provisions at the
election of the Company. At June 30, 1999 the conversion ratio of Series B
preferred stock into common stock was 1:1.
Series C $0.001 par value, 10% non-cumulative, voting, convertible preferred
stock -- Subsequent to June 30, 1999, the Board of Directors authorized
10,000,000 Series C preferred shares. Series C preferred shareholders are
entitled to a non-cumulative 10% cash dividend. Each share of Series C preferred
stock has a $1.00 liquidation preference less accumulated total dividends paid
up to the time of liquidation. Each preferred shareholder is entitled to a
number of votes that equals the number of common shares into which said Series C
preferred stock may be converted. General conversion provisions entitle each
preferred share to be converted into one common stock share. The agreement also
has variable conversion provisions designed to prevent dilution of the preferred
shareholders' position. No shares can be converted until after December 31,
1999. The agreement also contains automatic conversion provisions at election of
the Company.
12
<PAGE> 13
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE I -- STOCKHOLDERS' EQUITY -- Continued
Warrants -- during the period from inception to June 30, 1999, the Company
authorized the following warrants:
1999 Internal Warrant A
On May 25, 1999, the Board of Directors voted to authorize 900,000 1999
Internal Warrants A. These warrants are exchangeable for common shares
at $7.50 per share until January 1, 2001.
1999 International Warrant A
On April 2, 1999, the Board of Directors voted to create a class of
warrants known as the 1999 International Warrant A. These warrants are
exchangeable for common shares at $2.00 per common share until
September 30, 2000. The Company, at a nominal sum, may repurchase these
warrants if the common shares of the Company trade at $2.40 for five
consecutive trading days and the warrant is not exercised.
Subsequent to June 30, 1999, the company authorized the following warrants:
1999 Internal Warrant B
On July 25, 1999, the Board of Directors voted to authorize 650,000
1999 Internal Warrant B. These warrants are exchangeable for Series A
Preferred shares at $6.00 per share until March 31, 2005.
Class A Warrants
On September 29, 1999, the Directors resolved to create a class of
500,000 warrants known as Class A Warrants. These warrants are
exchangeable for common shares at $5.00 per common share until
September 30, 2000. The Company, at a nominal sum, may repurchase these
warrants if the common shares of the Company trade at $7.50 for five
consecutive trading days and the warrant is not exercised.
Class B Warrants
On September 29, 1999, the Directors resolved to create a class of
500,000 warrants known as Class B Warrants. These warrants are
exchangeable for common shares at $7.50 per common share until
September 30, 2000. The Company, at a nominal sum, may repurchase these
warrants if the common shares of the Company trade at $10.00 for five
consecutive trading days and the warrant is not exercised.
Class D Warrants
On November 10, 1999, the Directors resolved to create a class of
5,000,000 warrants known as Class D Warrants. These warrants are
exchangeable for common shares at $2.00 per common share until November
15, 2000. The Company, at a nominal sum, may repurchase these warrants
if the common shares of the Company trade at $2.80 for five consecutive
trading days and the warrant is not exercised.
13
<PAGE> 14
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE I -- STOCKHOLDERS' EQUITY -- Continued
Class E Warrants
On November 10, 1999, the Directors resolved to create a class of
1,000,000 warrants known as Class E Warrants. These warrants are
exchangeable for common shares at $2.00 per common share until December
31, 2000.
Units -- the Company authorized the following types of hybrid securities:
1999 Class A Units
On April 2, 1999 the Board authorized creation of 1,000,000 1999 Class
A Units. Each unit consist of one Series B preferred share and 1/2
International Warrant A.
1999 Class C Units
On September 29, 1999, the Board of Directors resolved to authorize and
create 10,000,000 1999 Class C Units. These units are comprised of 1
Series B preferred share, 1/2 Class A Warrant, and 1/2 Class B Warrant.
1999 Class D Units
On November 10, 1999, the company's Directors resolved to authorize and
create 10,000,000 1999 Class D Units. These units are comprised of 1
Series C preferred share and 1/2 Class D Warrant.
Issuances:
During the period from inception to June 30, 1999, the company issued the
following:
On February 12, 1999, the Company completed the first round of a public
placement under Rule 504 of Regulation D selling 4,300,000 shares of
its voting common stock for total proceeds of $100,000.
Also on February 12, 1999, the Company issued 2,925,000 Series A
preferred shares (as a private placement) to two of the Company's
directors (including President) and to its legal counsel for cash
proceeds of $2,925, and 45,000 shares of its voting common stock to an
officer of the Company for $45 cash.
On March 19, 1999, the Company completed a public placement under Rule
504 of Regulation D selling 1,300,000 shares of its voting common stock
for total proceeds of $130,000.
On March 26, 1999, Credit Assure exercised its option on 750,000 Series
A preferred shares for cash proceeds of $27,000.
14
<PAGE> 15
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE I -- STOCKHOLDERS' EQUITY -- Continued
On April 2, 1999, the Company completed a private placement under Rule
701 of Regulation D selling 675,000 shares of its voting common stock
for total proceeds of $33,750 to directors (including President)
officers and consultants of the Company.
On April 5, 1999, the Company completed a public placement under Rule
504 of Regulation D selling 1,800,000 shares of its voting common stock
for total proceeds of $320,000.
On April 20, 1999, 200,000 options were granted (under Rule 701) to
four of the Company's sales associates permitting the purchase of
common shares at $2.00 per share effective July 15, 1999 and expiring
on March 31, 2001. Using an option valuation model, fair value of the
options at the date of grant was determined to be negligible due to low
stock volatility and options being "out of the money" at the date of
grant.
On May 25, 1999, the Company completed a private placement under Rule
701 selling 350,000 shares of its voting common stock for total
proceeds of $17,500 to an officer of the Company. The proceeds were
collected in full prior to the issuance of the financial statements;
however, $17,150 were included in total accounts receivable at June 30,
1999.
On May 25, 1999, 900,000 1999 Internal Warrant A were privately issued
to a director and the Company's legal counsel. These warrants are
exercisable at $7.50 per common share until January 31, 2001. The
warrants were issued for cash proceeds of $200.
On June 30, 1999, the Company privately issued 295,000 Class A units at
$2.00 per unit for total cash proceeds of $590,000.
Subsequent to June 30, 1999 the Company issued the following:
On July 25, 1999, 650,000 1999 Internal Warrant B were issued to two directors.
These warrants are exercisable at $6.00 per Series A preferred share until March
31, 2005.
On September 30, 1999, the Company issued 613,750 1999 Class A units at $2.00
per unit.
On October 31, 1999, the Company issued 163,500 1999 Class A units at $2.00 per
unit.
On November 11, 1999 the Company allotted 71,000 common shares for issuance to
employees of the Subsidiary. These shares will be issued at $0.05 per common
share.
15
<PAGE> 16
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE J -- INCENTIVE PLANS
Employee-Associates Incentive Warrant Plan
On March 15, 1999, the Board of Directors approved the 1999
Employee-Associates Incentive Warrant Plan (the Plan). The Plan was
established as compensation incentive for retention and motivation of
employees and independent contractors. A total of up to 780,000 warrants
could be authorized to be issued (Rule 701) under this plan under Rule 701.
The warrants could be purchased by qualified employees at $0.05 per
warrant. Each warrant entitled a warrant holder to purchase one share of
the Company's voting common stock at a maximum of $2 per share. The
exercise price varies based on the underlying stock performance. No
warrants were issued under the Plan through the period ending June 30,
1999, and this plan has subsequently been replaced with the 1999-7 Employee
Stock Option Plan.
1999-7 Employee Stock Option Plan
On July 14, 1999, the Board of Directors approved the creation of the
1999-7 Employee Stock Option Plan to replace the Employee-Associates
Incentive Warrant Plan. Under this plan, the Company may grant up to
4,000,000 options (Rule 701) to employees to acquire one common share per
option of the Company at an exercise price of $0.002 to $2.00 per share
commencing December 31, 1999 and expiring March 31, 2005. After November 4,
1999 stock consolidation (see note I), each option is now convertible to
1/2 share of the Company's common stock. On November 10, 1999, the number
of options under this plan was increased to 6,000,000.
Director and Executive Stock Option Plan
On July 25, 1999, the Directors authorized the creation of 1,000,000
options for directors and executives. Each option would entitle its holder
to acquire one share of the Company's common stock at $2.00 per share.
These options are exercisable for the period from July 25, 1999 to March
31, 2005. On July 25, 1999, 500,000 options were granted under this plan to
a director of the Company.
NOTE K -- INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards 109, Accounting for Income
Taxes (SFAS 109).
16
<PAGE> 17
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE K -- INCOME TAXES -- Continued
The income tax provisions reconciled to the tax computed at the statutory
federal rate for the period ended June 30, 1999 were:
<TABLE>
<CAPTION>
The Company The Subsidiary
----------- --------------
<S> <C> <C>
Tax benefit at statutory rate $(93,766) $(197,589)
Increase in valuation allowance 93,766 197,589
--------- ---------
Total $ - $ -
========= =========
</TABLE>
The components of deferred taxes are as follows at June 30, 1999:
<TABLE>
<CAPTION>
The Company The Subsidiary
----------- --------------
<S> <C> <C>
Deferred tax asset:
Net operating loss carryforward $ 64,186 $ 210,532
Organization costs 29,580 -
Fixed asset depreciation - (12,943)
Valuation allowance (93,766) (197,589)
-------- ---------
$ - $ -
======== =========
</TABLE>
The Company has established the above valuation allowances as of June 30, 1999
due to uncertainty of future realization of deferred tax assets. At June 30,
1999, the Company has net operating loss carryforwards for federal income tax
purposes available to offset future income which expire in 2019.
17
<PAGE> 18
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE L -- COMMITMENTS AND CONTINGENCIES
1. Operating Leases
The Company has obligations under long term, non-cancelable operating leases for
premises and equipment. Lease terms range from 4 to 5 years. The future minimum
payments are as follows:
<TABLE>
<CAPTION>
Year ending June 30, September 30,
- -------------------------- ---------- -------------
(unaudited)
<S> <C> <C>
2000 $156,800 $166,800
2001 169,100 178,400
2002 177,400 173,500
2003 183,300 181,500
2004 187,000 177,900
Thereafter 12,000 11,600
-------- --------
Total minimum lease payments $885,600 $889,700
======== ========
</TABLE>
2. Employment Agreements
At June 30, 1999 the Company has employment contracts with two of its
officers/directors requiring monthly compensation payments of $17,250 in
aggregate and expiring December 9, 2002. Total payments due were as follows:
<TABLE>
<CAPTION>
Year ending June 30, September 30,
- -------------------------- --------- -------------
(unaudited)
<S> <C> <C>
2000 $207,000 $207,000
2001 207,000 207,000
2002 207,000 207,000
2003 86,250 34,500
-------- --------
$707,250 $655,500
======== ========
</TABLE>
Total accrued under contracts during the six months ended June 30, 1999 was
$51,750 and $103,500 at September 30, 1999 (unaudited).
3. Management and Financial Consulting Services Agreement
The Company also has a management and financial consulting services agreement
with a company controlled by a director. Under this contract, the Company was
obligated to pay up to $1,200 per week for services rendered by this director,
up to June 30, 1999. The Company incurred $3,200 under this agreement during the
six months ended June 30, 1999 and $11,000 during the three months ended
September 30, 1999 (unaudited).
18
<PAGE> 19
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE L -- COMMITMENTS AND CONTINGENCIES -- Continued
4. Legal
Two related claims or potential claims involving computer software licensing
have been asserted against the Company. As at December 17, 1999, KRP
Communications, Ltd. ("KRP"), is claiming the sum of $210,048 Canadian funds for
an alleged failure to pay timely license fees for computer software. No formal
claim other than a demand letter had been advanced in connection with the KRP
claim. On January 11, 2000, Interactive Intelligence, Inc. ("Interactive")
advanced a claim through the American Arbitration Association for $3,900,000
U.S. funds for an alleged breach of a Software License Agreement (see note
M(1)). KRP is Interactive's reseller. Interactive is the owner of a software
program designed to handle intra company telecommunications and small answering
services. The Company has responded to Interactive's Arbitration claim by
denying any amount is owing and counterclaiming against Interactive for damages
stemming from Interactive's failure to deliver a workable system. On February 2,
2000, the Company commenced suit in the Supreme Court of British Columbia, (the
"British Columbia Lawsuit"), naming as defendants KRP, Interactive and others.
Although both the Arbitration and the British Columbia Lawsuit were just
recently commenced and no discovery has taken place, management believes that it
has valid defenses to Interactive and KRP's claims and that it will prevail in
its claims and counterclaims against Interactive and KRP. The Company intends to
vigorously defend the KRP and Interactive claims and vigorously pursue its
claims and counterclaims against KRP and Interactive.
NOTE M -- SUBSEQUENT EVENTS
1. License Agreement
Subsequent to June 30, 1999, the Company entered into a license agreement to
obtain the rights to use telephony and communications software for total
consideration of $4,000,000 payable in instalments as follows:
<TABLE>
<S> <C>
September 21, 1999 $ 100,000
September 28, 1999 300,000
Upon delivery of software 1,000,000
Upon proof that the software can accommodate 75,000 users 1,000,000
Upon proof that the software can accommodate 150,000 users 1,600,000
----------
$4,000,000
==========
</TABLE>
The initial payment contemplated under this agreement was made subsequent to
June 30, 1999. The remaining payments are currently in dispute (see note L(4)).
2. Acquisition of Intellectual Property
On October 15, 1999, the Company's acquired substantially all assets of Milinx
International, Inc. for consideration of 375,000 of the Company's common shares.
19
<PAGE> 20
Milinx Business Group, Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and September 30, 1999 (unaudited)
NOTE M -- SUBSEQUENT EVENTS -- Continued
Also on October 15, 1999, the Company's acquired substantially all assets of
Credit Assure International, Inc. for consideration of 50,000 of the Company's
common shares.
3. Forestay Acquisition
Pursuant to a share exchange agreement between Forestay Corporation
("Forestay"), a Delaware corporation, and the Company, on December 9, 1999 all
the outstanding shares of common stock of Forestay Corporation were exchanged
for 250,000 shares of common stock and 250,000 Warrants of Milinx Business
group, Inc. in a transaction in which Forestay became a wholly owned subsidiary
of the Company. Milinx has elected successor issuer status under Exchange Act
Rule 12g-3 as of December 9, 1999.
4. Equity Transactions
On November 30, 1999, the Company issued 212,500 1999 Class A units at $2.00 per
unit.
On December 9, 1999, the Company awarded a director 90,000 warrants that are
vested over a two year period and exchangeable (each) into one common share with
exercise price of $7.50 per warrant.
On December 31, 1999, the Company issued 396,500 1999 Class A units at $2.00 per
unit.
On January 14, 2000, the Company increased the authorized number of preferred
shares to 100,000,000.
20
<PAGE> 1
EXHIBIT 3
CERTIFICATE OF INCORPORATION
OF
MILINX MARKETING GROUP, Inc.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promotional purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of
the State of Delaware (particularly Chapter 1, title 8 of the Delaware Code
and the acts mandatory thereof and supplemental thereto, and known, identified
and referred to as the "General Corporation Law of the State of Delaware"),
hereby certifies that:
First: The name of the corporation ("hereunder called the Corporation") is
MILINX MARKETING GROUP, Inc
Second: The address, including street, number, city, and country of the
registered office of the Corporation in the State of Delaware is 1013 Centre
Road, City of Wilmington 19805, Country of New Castle, and the name of the
registered agent of the Corporation at said address is Corporation Service
Company.
Third: The nature of the business and the purposes to be conducted and
promoted by the Corporation shall be to engage in any lawful act or activity
for which corporations may be organized under the laws of the State of
Delaware.
Fourth: The total number of shares which the Corporation shall have
authority to issue shall be 50,000,000 Shares. Per value of said shares shall
be $.001. Said shares shall consist of 45,000,000 Common Shares and 5,000,000
Preferred Shares. Shares of a Class may be increased or decreased (but not below
those outstanding) without an affirmative vote of that Class. Each Common Share
shall have one vote, and each Preferred Share, or Series thereof, shall have no
votes or such votes per share as may be specified in the Designation of Rights
and Preferences for said Preferred Shares or Series thereof. The Board of
Directors of the Corporation is authorized, to the maximum extent provided by
law, unless otherwise provided herein, to provide for the issuance of Preferred
Shares or to provide for the issuance of shares of Preferred Stock in one or
more series, to establish from time to time the number of shares in each such
series, and to fix the designations, voting powers, preferences, rights and
qualifications, limitations or restrictions of the shares of Preferred Stock
or such Series. Shares may be redeemable or convertible on such terms or
conditions as may be determined by the Board of Directors.
<PAGE> 2
Fifth: The name and address of the incorporator is as follows:
Bruce A. Butcher, JSD
Butcher & Williams, P.S.
Suite 3827 1001 Fourth Avenue
Seattle, WA 98154
Sixth: The Corporation shall have perpetual existence.
Seventh: The Directors shall have the power to adopt, amend or repeal
the By-Laws except as otherwise provided by the By-Laws.
Eighth: The personal liability of the Directors of the Corporation is
eliminated to the fullest extent permitted by the provisions of K(8) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
Ninth: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of the State of Delaware.
Tenth: The Corporation shall have the power to indemnify those persons
whom it may indemnify under Section 145 of the General Corporation Law of the
State of Delaware to the maximum extent provided by law.
Eleventh: The number of Directors which the Corporation shall
initially have shall be three, whose names and addresses are:
Maynard L. Dokken Mikiko Fujisawa Barry W. Phillips
3827 1001 Fourth Avenue 3827 1001 Fourth Avenue 3827 1001 Fourth Avenue
Seattle WA 98154 Seattle WA 98154 Seattle WA 98154
The number of Directors which the Corporation may hereafter have may be more or
less than three, and shall be as determined by Directors resolution or the
By-Laws.
Twelfth: The Corporation reserves the right to amend this Certificate
from time to time and in any manner as may be permitted by law, and all rights
granted hereunder are subject to such reservation.
The effective time of this Certificate and the time when its corporate existence
shall commence shall be the date of filing hereof.
Signed this 10th day of December, 1998
By: /s/ Bruce A. Butcher
------------------------------
Bruce A. Butcher, JSD, Incorporator
2
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<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> JUN-30-2000 JUN-30-2000
<PERIOD-START> JAN-01-1999 JUL-01-1999
<PERIOD-END> JUN-30-1999 SEP-30-1999
<CASH> 4,522 9,778
<SECURITIES> 0 0
<RECEIVABLES> 67,826 105,688
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 107,221 166,460
<PP&E> 742,884 1,178,584
<DEPRECIATION> 28,612 105,022
<TOTAL-ASSETS> 1,107,537 1,579,813
<CURRENT-LIABILITIES> 550,890 914,733
<BONDS> 0 0
0 0
3,675 3,675
<COMMON> 8,470 8,470
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,107,537 1,579,813
<SALES> 43,424 45,971
<TOTAL-REVENUES> 43,424 45,971
<CGS> 48,112 100,657
<TOTAL-COSTS> 839,192 1,069,329
<OTHER-EXPENSES> 370 2,544
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (844,250) (1,126,559)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (844,250) (1,126,559)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (844,250) (1,126,559)
<EPS-BASIC> (0.32) (0.13)
<EPS-DILUTED> (0.32) (0.13)
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