AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON , 1999
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LINUXONE, INC.
(Exact name of registrant as specified in its charter)
Nevada 7375 88-0421462
- -------------------------- ------------------------ -----------------------
(State of other jurisdiction (Primary Standard (Federal Tax Indentifi-
of incorporation or Industrial Classifi- cation Number)
organization) cation Code Number)
------------------------
1619 Morgan Court
Mountain View, California 94043
(650) 948-6201
-----------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
Dr. Wun C. Chiou, Sr.
Chairman and Chief Executive Officer
LinuxOne, Inc.
1619 Morgan Court
Mountain View, California 94093
(650) 948-6201
- --------------------------------------------------------------------------------
(Name, address including zip code, and telephone number, including area code, of
agent for service)
With Copies To:
Michael J. Morrison, Esq.
1495 Ridgeview Drive, Suite 220
Reno, Nevada 89509
Telephone: (775) 827-6300
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date hereof.
<PAGE>
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
<TABLE>
<CAPTION>
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CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------
Title of Each. . . Amount Proposed Proposed
Class of to be Maximum Maximum Registration
Securities to. . . Registered Offering Aggregate Fee
Be Registered Price Per Offering Price
Share (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 3,000,000 $ 8.00 $24,000,000 $ 6,672
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act of 1933, as amended.
------------------------------
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION. DATED , 1999.
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL NOR DOES IT SEEK AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
3,000,000 Shares
LinuxOne, Inc.
Common Stock
----------------
This is an initial public offering of shares of LinuxOne, Inc. All of the
3,000,000 shares of common stock are being sold by LinuxOne. It is currently
estimated that the initial public offering price per share will be between $6.00
and $8.00.
LinuxOne has reserved up to 300,000 shares of common stock for sale at the
initial public offering price through a directed share program, to directors,
officers and employees of LinuxOne and to open source software developers and
other persons that LinuxOne believes have contributed to the success of the open
source software community and the development of LinuxOne.
Prior to this offering, there has been no public market for the common
stock. Application has been made for quotation of the common stock on the Nasdaq
National Market System under the symbol "LINX".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT CERTAIN FACTORS YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF THE COMMON STOCK.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR
ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
<TABLE>
<CAPTION>
Per Share Total
-------------------- -----------------
<S> <C> <C>
Initial public offering price $ 8.00 $24,000,000
Proceeds, before expenses, to LinuxOne $ 8.00 $24,000,000
</TABLE>
LinuxOne expects to deliver the shares against payment in Mountain View,
California on____________________, 1999.
Prospectus dated , 1999.
<PAGE>
------------------------
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary 1
The Offering 2
Summary Financial Data 3
Risk Factors 4
Special Note Regarding Forward-Looking Statements 15
Use of Proceeds 15
Dividend Policy 15
Capitalization 16
Dilution 16
Selected Financial Data 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Year 2000 Compliance 24
Business 27
Management 39
Executive Compensation 41
Transactions with Affiliates 42
Principal Stockholders 42
Description of Capital Stock 43
Determination of Offering Price 46
Plan of Distribution 46
Legal Matters 46
Experts 46
Where You Can Find More Information 46
</TABLE>
------------------------
Through and including , 1999 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealer's obligation to deliver a prospectus when
acting as an underwriter and concerning an unsold allotment or subscription.
<PAGE>
PROSPECTUS SUMMARY
------------------
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND OUR FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS APPEARING
ELSEWHERE IN THIS PROSPECTUS.
LinuxOne, Inc.
==============
Our Business
- ------------
We are an emerging developer and provider of open source software and
services, including the LinuxOne Operating System, which we call "LinuxOne OS".
Unlike proprietary software, open source software has publicly available source
code and can be copied, modified and distributed with minimal restrictions. Our
web site, Linuxone.net, is an online source of information and news about open
source software and one of the online communities of open source software users
and developers. In addition to offering content for the open source community,
Linuxone.net serves as a forum for open source software development and offers
software downloads and a shopping site. Our professional services include
technical support, training and education, custom development and consulting. We
are committed to serving the interests and needs of open source software users
and developers and to sharing all of our product developments with the open
source community.
LinuxOne Operating System is our principal product. Since it was only
introduced in September, 1999, we do not have a history of operations, but we
believe it will become one of the more popular Linux-based operating systems in
the world. Our products are also generally available via free download from
Linuxone.net and other sites across the internet, but do not include technical
support or printed user documentation in these instances.
Our Market Opportunity
- ----------------------
The rapid growth of the internet in recent years has accelerated the
development of open source software. Under the open source software model,
software is created through the collaborative efforts of large communities of
independent developers. Developers work alone or in groups to write code, make
the code available over the internet, solicit feedback on it from other
developers, then modify and share it with others for general use. This
continuous process results in the rapid evolution and improvement of open source
software.
We believe open source software offers many potential benefits for software
customers, users and vendors. Customers and users are able to acquire the
software at little or no cost, install the software on as many computers as they
wish, and customize the software to suit their particular needs. In addition,
customers and users can obtain software updates, improvements and support from
multiple vendors, reducing reliance on any single vendor. Vendors are able to
leverage the community of open source developers, allowing them to reduce
development costs and decrease their time to market. Vendors are also able to
distribute their products freely over the internet, enabling them to create
large global user bases quickly.
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Open source software is particularly well-suited to the internet and
includes the following leading internet software and server products:
Apache Web Server - the most common web server in use today;
Perl - a standard scripting language for Apache servers; and
Sendmail - an email routing tool that handles a majority of all email
traffic.
Operating systems based on the Linux kernel are some of the better known
open source products. Linux-based operating systems represented 17% of new
license shipments of server operating systems in 1998, according to
International Data. Despite strong initial market acceptance, these operating
systems have been slow to penetrate large corporations at the enterprise level
due in part to the lack of viable open source industry participants to offer
technical support and other services on a long-term basis.
Our Strategy
- ------------
We seek to establish a position as a leading provider of open source
software and services by:
- - continuing to enhance our web site to create one of the definitive online
destinations for the open source community;
- - expanding our professional services capabilities to capture large
corporate business on an enterprise basis;
- - increasing market acceptance of open source software, particularly through
technology alliances and sharing our development efforts and resources
with third-party developers;
- - enhancing the LinuxOne brand through targeted advertising and public
relations campaigns.
Our History
- -----------
LinuxOne, Inc. was incorporated in Nevada in March 1999. Unless the context
otherwise requires, any reference to "LinuxOne", "we", "our" and "us" in this
prospectus refers to LinuxOne, Inc., a Nevada corporation. Our principal
executive offices are located at 1619 Morgan Court, Mountain View, California
94093.
"LinuxOne", LinuxOpen", "LinuxOne OS" and "One Stop for Linux" are
trademarks or service marks of LinuxOne, Inc. Other trademarks and trade names
in this prospectus are the property of their respective owners.
THE OFFERING
------------
<TABLE>
<CAPTION>
<S> <C>
Shares offered by LinuxOne. . . . . . . . . . . 3,000,000 shares
Shares to be outstanding after the
Offering 9,162,500 shares
2
<PAGE>
Use of proceeds To provide working capital and
and for other general
corporate purposes including
geographic expansion. See
"Use of Proceeds".
Proposed Nasdaq symbol "LINX"
</TABLE>
The number of shares of common stock to be outstanding after the offering is
based on the number of shares outstanding on July 31, 1999. This number does not
include 600,000 shares of common stock reserved as of July 31, 1999 for future
stock option grants and purchases under our executive compensation plans. See
"Management--Director Compensation" and "Executive Compensation".
SUMMARY FINANCIAL DATA
----------------------
The following table summarizes the financial data of our business. You
should read this information with the discussion in "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and our financial
statements and notes to those statements included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period From Inception
To July 31, 1999
---------------------
<S> <C>
Statement of Operations Data:
Revenue $ 0
Net Income (Loss) (17,190)
Net Income (Loss) available to Common (17,170)
Stockholders
Earnings (Loss) per common share ( .003)
Weighted Average common shares outstanding
Weighted average common shares outstanding. 6,162,500
</TABLE>
(1) Our fiscal year ends on December 31, 1999.
The following table presents a summary of our balance sheet at July 31,
1999:
<TABLE>
<CAPTION>
July 31, 1999
-------------
<S> <C>
Balance Sheet Data:
Cash and cash equivalents $ 147,336
Property and Equipment, Net 4,984
-------------
Total assets $ 177,396
Total liabilities $ 26,086
Total stockholders' equity $ 151,310
</TABLE>
3
<PAGE>
RISK FACTORS
------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER THE
RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN THE SHARES OF COMMON STOCK.
RISKS RELATED TO OUR LINUX-BASED OPEN SOURCE BUSINESS MODEL
-----------------------------------------------------------
OUR BUSINESS MAY NOT SUCCEED BECAUSE OPEN SOURCE SOFTWARE BUSINESS MODELS ARE
UNPROVEN.
We have not demonstrated the success of our open source business model,
which gives our customers the right freely to copy and distribute our software.
No other company has built a successful open source business. Few open source
software products have gained widespread commercial acceptance partly due to the
lack of viable open source industry participants to offer adequate service and
support on a long-term basis. In addition, open source vendors are not able to
provide industry standard warranties and indemnities for their products, since
these products have been developed largely by independent parties over whom open
source vendors exercise no control or supervision. If open source software
should fail to gain widespread commercial acceptance, we would not be able to
sustain our revenue growth and our business could fail.
OUR RELIANCE ON THE SUPPORT OF LINUX TORVALDS AND OTHER PROMINENT LINUX
DEVELOPERS COULD IMPAIR OUR ABILITY TO RELEASE MAJOR PRODUCT UPGRADES AND
ESTABLISH MARKET SHARE.
We may not be able to release major product upgrades of our products on a
timely basis because the heart of our products, the Linux kernel, is maintained
by third parties. Linux Torvalds, the original developer of the Linux kernel,
and a small group of independent engineers are primarily responsible for the
development and evolution of the Linux kernel. If this group of developers fails
to further develop the Linux kernel or if Mr. Torvalds or other prominent Linux
developers were to join one of our competitors or no longer work on the Linux
kernel, we will have to either rely on another party to further develop the
kernel or develop it ourselves. We cannot predict whether enhancements to the
kernel would be available from reliable alternative sources. We could be forced
to rely to a greater extent on our own development efforts, which would increase
our development expenses and may delay our product release and upgrade
schedules. In addition, any failure on the part of the kernel developers to
further develop and enhance the kernel could stifle the development of
additional Linux-based applications.
WE MAY NOT BE ABLE TO EFFECTIVELY ASSEMBLE AND TEST OUR SOFTWARE BECAUSE IT
CONSISTS LARGELY OF CODE DEVELOPED BY INDEPENDENT THIRD PARTIES OVER WHOM WE
EXERCISE NO CONTROL, WHICH COULD RESULT IN UNRELIABLE PRODUCTS AND DAMAGE TO OUR
REPUTATION.
LinuxOne OS, in compressed form, consists of approximately 570 megabytes
(MB) of code and in uncompressed form, consists of approximately 1400 MB of
code. Of that total, approximately 500 megabytes have been developed by
independent third parties. Included within the code are numerous distinct
software components developed by thousands of individual programmers which we
must assemble and test before we can release a new version of LinuxOne OS. If
these components are not reliable, LinuxOne OS could fail, resulting in serious
4
<PAGE>
<PAGE>
damage to our reputation and potential litigation. Although we attempt to
assemble only the best available components, we cannot be sure that we will be
able to identify the highest quality and most reliable components or to
successfully assemble and test them. In addition, if these components were no
longer available, we would have to develop them ourselves, which would
significantly increase our development expenses.
THE SCARCITY OF SOFTWARE APPLICATIONS FOR LINUX-BASED OPERATING SYSTEMS COULD
PREVENT COMMERCIAL ADOPTION OF OUR PRODUCTS.
Our products will likely not gain widespread commercial adoption until there
are more third-party software applications designed to operate on Linux-based
operating systems. These applications include word processors, databases,
accounting packages, spreadsheets, e-mail programs, internet browsers,
presentation and graphics software and personal productivity applications. We
intend to encourage the development of additional applications that operate on
Linux-based operating systems by attracting third-party developers to the Linux
platform and through marketing and technical support for third-party developers.
If we are not successful in achieving these goals, however, our products will
not gain widespread commercial acceptance and we will not be able to establish
our product sales growth.
WE MAY NOT BE ABLE TO GENERATE REVENUE FROM SALES OF LINUXONE OS IF USERS CAN
MORE QUICKLY DOWNLOAD IT FROM THE INTERNET.
Anyone can download a free copy of LinuxOne OS from the Internet. However,
because this download can take up to 36 hours using a standard telephone
connection, many users are expected to purchase the shrink-wrapped version of
the product. If hardware and data transmission technology advances in the future
to the point where increased bandwidth allows users to more quickly download our
products from the Internet, users may no longer choose to purchase LinuxOne OS.
This could lead to a significant loss of projected product revenue.
OUR CUSTOMERS MAY FIND IT DIFFICULT TO INSTALL AND IMPLEMENT LINUXONE OS, WHICH
COULD LEAD TO CUSTOMER DISSATISFACTION AND DAMAGE OUR REPUTATION.
Installation and implementation of LinuxOne OS often involves a significant
commitment of resources, financial and otherwise, by our customers. This process
can be lengthy due to the size and complexity of our products and the need to
purchase and install new applications. The failure by us to attract and retain
services personnel to support our customers, the failure of companies with which
we may establish strategic alliances to commit sufficient resources towards the
installation and implementation of our products, or a delay in implementation
for any other reason could result in dissatisfied customers. This could damage
our reputation and the LinuxOne OS brand, resulting in decreased product
revenue.
RISKS RELATED TO OUR FINANCIAL RESULTS AND CONDITION
----------------------------------------------------
WE HAVE A LIMITED OPERATING HISTORY AND IT IS DIFFICULT TO EVALUATE OUR
BUSINESS.
LinuxOne was formed in March 1999, and has not yet had any earnings. We
face all the risks inherent in a new business and there can be no assurance we
will be successful and/or profitable. We began offering LinuxOne software, in
5
<PAGE>
<PAGE>
beta form, in September 1999. Our limited operating history makes it difficult
to evaluate the risks and uncertainties that we face. Our failure to address
these risks and uncertainties could cause our business results to suffer and
result in the loss of all or part of your investment.
WE EXPECT TO INCUR SUBSTANTIAL LOSSES IN THE FUTURE.
We have incurred operating losses since inception. We expect to incur
significant losses at least through the fiscal year ending December 31, 2001 as
we substantially increase our sales and marketing, research and development and
administrative expenses. As a result, we cannot be certain when or if we will
achieve sustained profitability. Failure to become and remain profitable may
adversely affect the market price of our common stock and our ability to raise
capital and continue operations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview", "--Results of
Operations" and "--Liquidity and Capital Resources".
WE ARBITRARILY ESTABLISHED OUR OFFERING PRICE FOR SHARES
The offering price of the Shares was arbitrarily established by us in order for
us to raise a gross amount of approximately $23,000,000 in this offering. The
offering price bears no relationship whatsoever to our assets, earnings, book
value, or other criteria of value. Among the factors considered was our limited
operating history, the proceeds to be raised by the offering, the nature of our
assets, estimates of our business potential, the amount of capital to be
contributed by investors in this offering in proportion to the amount of stock
to be retained by the existing stockholders, and the general condition of the
securities market. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations", "Business", "Principal Stockholders" and
"Financial Statements".
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN QUALIFIED PROFESSIONALS, WHO ARE
CURRENTLY IN HIGH DEMAND AND WHOSE NUMBERS ARE LIMITED.
We compete intensely with other software companies nation-wide to recruit
and hire from a limited pool of qualified personnel. If we cannot attract and
hire additional qualified sales and marketing, professional services and
software engineering and development personnel, our business results will
suffer.
OUR MANAGEMENT TEAM MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS
STRATEGIES BECAUSE IT HAS ONLY RECENTLY BEGUN TO WORK TOGETHER.
Our business is highly dependent on the ability of our management to work
together effectively to meet the demands of our growth. Several members of our
senior management, including our President, Wun C. Chiou, Sr., our Chief
Financial Officer, Stan Kawczynski, and our Vice President- Marketing, Robert
Philips, have been employed by us for a relatively short period of time. These
individuals have not previously worked together as a management team. The
failure of our management team to work together effectively could prevent
efficient decision-making by our executive team, affecting product development
and sales and marketing efforts, which could negatively impact our operating
results.
6
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<PAGE>
WE COULD LOSE DR. WUN CHIOU, SR., STAN KAWCZYNSKI, ROBERT PHILIPS OR OTHER KEY
PERSONNEL, WHICH COULD PREVENT US FROM EXECUTING OUR BUSINESS STRATEGIES.
Our future success depends on the continued services of a number of key
officers, including Dr. Wun Chiou, Sr., Stan Kawczynski and Robert Philips. The
loss of the technical knowledge and industry expertise of any of these officers
could seriously impede our success. Moreover, the loss of one or a group of our
key employees, especially our software engineers, particularly to a competitor,
and any resulting loss of customers could reduce our market share and diminish
the LinuxOne brand.
WE MAY LACK THE FINANCIAL AND OPERATIONAL RESOURCES NEEDED TO INCREASE OUR
MARKET SHARE AND COMPETE EFFECTIVELY WITH MICROSOFT, OTHER ESTABLISHED OPERATING
SYSTEMS DEVELOPERS AND OTHER SERVICE AND SUPPORT PROVIDERS.
In the market for operating systems, we face significant competition from
larger companies with greater financial resources and name recognition than we
have. These competitors, which offer hardware-independent multi-user operating
systems for Intel platforms and/or UNIX-based operating systems, include
Microsoft, Novell, IBM, Sun Microsystems, The Santa Cruz Operation, AT&T,
Compaq, Hewlett-Packard, Olivetti and Unisys. We do not believe that any of
these competitors currently produce and market any open source software
products.
As we increase our services offerings, we may face competition from larger
and more capable companies that currently service and support other operating
systems, particularly UNIX-based operating systems, due to the fact that Linux
and UNIX-based operating systems share many common features. These companies may
be able to leverage their existing service organizations and provide higher
levels of support on a more cost-effective basis than we can. We may not be able
to compete successfully with these current or potential competitors. See
"Business--Competition".
WE MAY NOT BE ABLE TO MATCH THE PROMOTIONAL ACTIVITIES AND PRICING POLICIES
OFFERED BY OTHER SUPPLIERS OF LINUX-BASED AND OTHER OPEN SOURCE OPERATING
SYSTEMS, WHICH COULD RESULT IN A LOSS OF MARKET SHARE.
In the new and rapidly-evolving market for Linux-based operating systems, we
face intense competition from a number of other suppliers of Linux-based
operating systems, especially Red Hat, Inc. We also face competition to a lesser
extent from developers of non-Linux-based open source operating systems such as
BSD-based operating systems. BSD-based operating systems such as FreeBSD, NetBSD
and OpenBSD are open source operating systems produced by communities of
developers working together via the internet, and which are published and
distributed by Walnut Creek CD-ROM, among others. We expect competition in
broader open source operating systems and the Linux-based operating systems
market to intensify. In addition, companies like Sun Microsystems, Corel and
Cygnus Solutions, which have large customer bases and greater financial
resources and name recognition than we do, have indicated a growing interest in
the market for Linux-based operating systems. These companies may be able to
undertake more extensive promotional activities, adopt more aggressive pricing
policies, and offer more attractive terms to their customers than we can.
Furthermore, because Linux-based operating systems can be downloaded from the
internet for free or purchased at a nominal cost and modified and re-sold with
few restrictions, traditional barriers to entry are minimal. Accordingly, it is
possible that new competitors or alliances among existing competitors may emerge
and rapidly acquire significant market share. See "Business--Competition".
7
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<PAGE>
IF WE FAIL TO ESTABLISH AND MAINTAIN STRATEGIC DISTRIBUTION AND OTHER BUSINESS
RELATIONSHIPS WITH ESTABLISHED COMPANIES, WE MAY NOT BE ABLE TO ATTRACT AND
RETAIN A LARGER CUSTOMER BASE.
Our success depends on our ability to establish and maintain strategic
distribution and other business relationships with established hardware
manufacturers, distributors, software vendors and enterprise solutions
providers. These relationships will allow us to offer our products and services
to a much larger customer base than we would otherwise be able to through our
direct sales and marketing efforts. We may not be able to establish these
relationships or, if established, to replace them on attractive terms.
In addition, any strategic relationships we may establish may not afford us
any exclusive marketing or distribution rights. As a result, the companies with
which we may establish strategic alliances will be free to pursue alternative
technologies and to develop alternative products and services in addition to or
in lieu of our products and services, either on their own or in collaboration
with others, including our competitors. Moreover, we cannot guarantee that the
companies with which we may establish strategic relationships will market our
products effectively or devote the resources necessary to provide us with
effective sales, marketing and technical support. See "Business--Sales,
Marketing and Distribution".
WE MAY NOT BE ABLE TO GENERATE ENOUGH ADDITIONAL REVENUE FROM OUR PLANNED
INTERNATIONAL EXPANSION TO OFFSET THE COSTS ASSOCIATED WITH ESTABLISHING AND
MAINTAINING FOREIGN OPERATIONS.
A key component of our growth strategy is to expand our presence in foreign
markets. We are in the process of establishing subsidiaries in Hong Kong, Japan,
Taiwan, China and Singapore and are considering further expansion within Europe.
We may also enter other markets as opportunities arise. We anticipate it will be
costly to establish international facilities and operations, promote our brand
internationally, and develop localized web sites and other systems. Revenue from
international activities may not offset the expense of establishing and
maintaining these foreign operations. In addition, because we have little
experience in marketing and distributing products or services for these markets,
we may not benefit from any first-to-market advantages.
WE FACE RISKS INHERENT IN INTERNATIONAL BUSINESS AND EXPANSION
We will seek to enter into marketing and/or development agreements with various
foreign joint venture partners, all as part of our overall corporate strategy
for global expansion. There are no guarantees we will be able to successfully
market, sell and deliver our products in any foreign markets. Further, there are
certain risks inherent in doing business within a global marketplace, including
political and economic instability within the foreign marketplace, foreign law
and regulation, unexpected changes in regulatory requirements, tariffs and
export controls, difficulties in managing foreign operations, highly complex
financial instruments (e.g., letters of credit), fluctuations in currency
exchange rates and currency hedges and issues related to taxation of
international business transactions. Such global risk exposure could adversely
affect our business. See "Business".
ATTEMPTS TO EXPAND BY MEANS OF BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES MAY
NOT BE SUCCESSFUL AND MAY HARM OUR OPERATIONAL EFFICIENCY, FINANCIAL PERFORMANCE
AND RELATIONSHIPS WITH EMPLOYEES AND THIRD PARTIES.
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We may expand our operations or market presence by entering into business
combinations, investments, joint ventures or other strategic alliances with
hardware manufacturers, software vendors, internet companies, open source
software developers or other companies, both in the United States and
internationally. Our ability to expand in this way may be limited due to the
many financial and operational risks accompanying these transactions. For
example:
- we may have difficulty assimilating the operations, technology and
personnel of the combined companies;
- our business may be disrupted by the allocation of resources to consummate
these transactions;
- we may have problems retaining key technical and managerial personnel from
acquired companies;
- we may experience one-time in-process research and development charges and
ongoing expenses associated with amortization of goodwill and other
purchased intangible assets;
- our stockholders will be diluted if we issue equity to fund these
transactions;
- acquired businesses may initially be unprofitable, resulting in our
assumption of operating losses and increased expenses;
- our reputation may be harmed if the open source development community does
not approve of these transactions; and
- our relationships with newly-acquired employees, customers and business
partners
may be weakened or terminated as a result of these transactions.
RISKS RELATED TO OUR INTERNET STRATEGY
--------------------------------------
WE ARE SUBJECT TO PROBLEMS INHERENT IN INTERNET COMMERCE
Security on the Internet has always been a concern to companies which conduct
business via the Web; however, with money now exchanging hands in Internet
transactions, it is an even greater concern. The potential for viruses which can
virtually destroy a system is a distinct possibility and hackers now have the
potential technology to wreak havoc on any business operation. Unsecured
transactions on the Internet are subject to inspection by just about anyone who
knows how to access the information regarding them. As credit card or checking
account numbers are being exchanged, the window of opportunity for theft is wide
open. We will attempt to obtain the highest security measures for our site;
however, there is no guarantee we will not fall prey to any of the
afore-mentioned potential disasters. See "Business".
WE MAY FAIL TO PROMOTE AND ENHANCE OUR WEB SITE EFFECTIVELY, WHICH MAY PREVENT
US FROM ATTRACTING NEW VISITORS, ADVERTISERS OR ELECTRONIC COMMERCE PARTNERS TO
OUR WEB SITE
Enhancing the Linuxone.net web site is critical to our ability to increase
our revenue. In order to attract and retain internet users, advertisers and
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electronic commerce partners, we intend to substantially increase our
expenditures for enhancing and further developing our web site. Our success in
promoting and enhancing the Linuxone.net web site will also depend on our
ability to provide high quality content, features and functionality. If we fail
to promote our web site successfully or if visitors to our web site or
advertisers do not perceive our services to be useful, current or of high
quality, our ability to generate revenue from our web site will be significantly
impaired.
BECAUSE THERE IS NO INDUSTRY STANDARD FOR THE MEASUREMENT OF THE EFFECTIVENESS
OF INTERNET ADVERTISING, ADVERTISERS MAY NOT INCREASE OR EVEN MAINTAIN THEIR
CURRENT LEVELS OF INTERNET ADVERTISING, WHICH WOULD PREVENT US FROM GENERATING A
SIGNIFICANT AMOUNT OF REVENUE FROM OUR WEB SITE.
As we execute our internet strategy, we expect to derive an increasing
percentage of our revenue from sponsorships and advertising on our web site. We
may not generate these revenues if advertisers do not establish, maintain or
increase their levels of internet advertising. As there is no industry standard
for the measurement of the effectiveness of internet advertising, advertisers
that currently advertise on the internet may reduce or eliminate this form of
advertising and advertisers that have traditionally relied upon other
advertising media may be reluctant to begin to advertise on the internet.
Moreover, widespread adoption of currently available software programs that
limit or prevent advertisements from being delivered to an internet user's
computer would negatively affect the commercial viability of internet
advertising and would further deter advertisers from increasing or maintaining
current levels of internet advertising. Our ability to successfully execute our
internet strategy will be adversely affected if the market for internet
advertising fails to develop or develops more slowly than expected.
WE MAY BE UNABLE TO ADEQUATELY MEASURE THE DEMOGRAPHICS OF VISITORS TO OUR WEB
SITE, WHICH IS CRITICAL TO OUR ABILITY TO ATTRACT ADVERTISING REVENUE.
We expect that it will be important to our advertisers that we accurately
measure the demographics of the visitors to our web site. While we have not
committed any resources to the measurement of demographics to date, we are
currently implementing systems designed to record demographic data on our web
site's visitors. This implementation may be costly, and if not done
effectively, may not permit us to accurately measure the demographic
characteristics of our web site's visitors. Until these new systems are
functional, we will continue to rely on third parties to provide some of these
measurement services. If these parties were unable to provide these services, we
would need to obtain them from other providers, which might not be readily
available. Companies may choose not to advertise on our web site or may pay less
for advertising if they do not perceive our measurements or measurements made by
third parties to be reliable.
OUR INTERNET STRATEGY WILL FAIL IF THE INFRASTRUCTURE OF THE INTERNET IS NOT
CONTINUALLY DEVELOPED AND MAINTAINED.
The success of our internet strategy will depend in large part on the
continued development and maintenance of the infrastructure of the internet.
Because global commerce and the online exchange of information is new and
evolving, we cannot predict with any certainty that the internet will be a
viable commercial marketplace in the long term. The internet has experienced,
and we expect it to continue to experience, significant growth in the number of
users and amount of traffic. If the internet continues to experience an
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<PAGE>
increased number of users, frequency of use or increased bandwidth requirements
of users, it may not be able to support the demands placed upon it by this
growth, and its performance and reliability may suffer. Furthermore, the
internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and could face similar outages and
delays in the future. Any outage or delay could affect the level of internet
usage, as well as the volume of traffic on our web site. In addition, the
internet could lose its viability due to increased governmental regulation and
delays in the development or adoption of new standards and protocols to handle
increased levels of activity. If the necessary infrastructure, standards or
protocols or complementary products, services or facilities are not developed,
or if the internet does not become a viable commercial marketplace, our internet
strategy will not succeed.
OUR OPERATIONS MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION OF THE
INTERNET
Although there are currently very few Internet content or commerce regulations,
we anticipate there could be substantial new regulations in the very near
future. However, at this time, there is no way to predict what such regulations
may address or how such regulations may affect our business.
WE ARE VULNERABLE TO UNEXPECTED NETWORK INTERRUPTIONS CAUSED BY SYSTEM FAILURES,
WHICH MAY RESULT IN REDUCED VISITOR TRAFFIC ON OUR WEB SITE, DECREASED REVENUE
AND HARM TO OUR REPUTATION.
Substantially all of our communications hardware and other hardware related
to our web site is located at our facilities. Fire, floods, earthquakes, power
loss, telecommunications failures, break-ins and similar events could damage
these systems. In addition, although we have implemented network security
measures, our servers are vulnerable to computer viruses, electronic break-ins,
human error and other similar disruptive problems which could adversely affect
our systems and web site. Although we try to prevent unauthorized access to our
systems, we cannot eliminate this risk entirely. We could lose revenue and
suffer damage to our reputation if our systems were affected by any of these
occurrences. Our insurance policies may not adequately compensate us for any
losses that may occur due to failures or interruptions in our systems. We do not
presently have any secondary "off-site" systems or a formal disaster recovery
plan.
VISITORS TO OUR WEB SITE COULD EXPERIENCE DELAYS AND DECREASED PERFORMANCE
DURING PERIODS OF HEAVY TRAFFIC, WHICH COULD RESULT IN DISSATISFACTION WITH OUR
WEB SITE AND DAMAGE TO OUR REPUTATION.
Our web site could experience slower response times or decreased traffic
for a variety of reasons. These occurrences may have a material impact on our
business. These types of occurrences in the future could materially adversely
affect our reputation and brand name and could cause users to perceive our web
site as not functioning properly. Under these circumstances, our users might
choose another web site or other methods to obtain Linux-based operating systems
or Linux-related information.
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<PAGE>
RISKS RELATED TO LEGAL UNCERTAINTY
----------------------------------
WE COULD BE PREVENTED FROM SELLING OR DEVELOPING OUR PRODUCTS IF THE GNU GENERAL
PUBLIC LICENSE AND SIMILAR LICENSES UNDER WHICH OUR PRODUCTS ARE DEVELOPED AND
LICENSED ARE NOT ENFORCEABLE.
The Linux kernel and the LinuxOne Operating System have been developed and
licensed under the GNU General Public License and similar licenses. These
licenses state that any program licensed under them may be liberally copied,
modified and distributed. We know of no circumstance under which these licenses
have been challenged or interpreted in court. Accordingly, it is possible that a
court would hold these licenses to be unenforceable in the event that someone
were to file a claim asserting proprietary rights in a program developed and
distributed under them. Any ruling by a court that these licenses are not
enforceable, or that Linux-based operating systems, or significant portions of
them, may not be liberally copied, modified or distributed, would have the
effect of preventing us from selling or developing our products.
OUR PRODUCTS MAY CONTAIN DEFECTS THAT MAY BE COSTLY TO CORRECT, DELAY MARKET
ACCEPTANCE OF OUR PRODUCTS AND EXPOSE US TO LITIGATION.
Despite testing by us and our customers, errors may be found in our products
after commencement of commercial shipments. This risk is exacerbated by the fact
that most of the code in our products is developed by independent parties over
whom we exercise no supervision or control. If errors are discovered, we may
have to make significant expenditures of capital to eliminate them and yet may
not be able to successfully correct them in a timely manner or at all. Errors
and failures in our products could result in a loss of, or delay in, market
acceptance of our products and could damage our reputation and our ability to
convince commercial users of the benefits of Linux-based operating systems and
other open source software products.
In addition, failures in our products could cause system failures for our
customers who may assert warranty and other claims for substantial damages
against us. Although our license agreements with our customers typically contain
provisions designed to limit our exposure to potential product liability claims,
it is possible that these provisions may not be effective or enforceable under
the laws of some jurisdictions. These claims, even if unsuccessful, could be
costly and time consuming to defend.
WE ARE VULNERABLE TO CLAIMS THAT OUR PRODUCTS INFRINGE THIRD-PARTY INTELLECTUAL
PROPERTY RIGHTS PARTICULARLY BECAUSE OUR PRODUCTS ARE COMPRISED OF MANY DISTINCT
SOFTWARE COMPONENTS DEVELOPED BY THOUSANDS OF INDEPENDENT PARTIES.
We may be exposed to future litigation based on claims that our products
infringe the intellectual property rights of others. This risk is exacerbated by
the fact that most of the code in our products is developed by independent
parties over whom we exercise no supervision or control. Claims of infringement
could require us to reengineer our products or seek to obtain licenses from
third parties in order to continue offering our products. In addition, an
adverse legal decision affecting our intellectual property, or the use of
significant resources to defend against this type of claim, could place a
significant strain on our financial resources and harm our reputation.
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OUR EFFORTS TO PROTECT OUR TRADEMARKS MAY NOT BE ADEQUATE TO PREVENT THIRD
PARTIES FROM MISAPPROPRIATING OUR INTELLECTUAL PROPERTY RIGHTS
Our most valuable intellectual property is our collection of trademarks and
service marks. The protective steps we have taken in the past have been, and may
in the future continue to be, inadequate to deter misappropriation of our
trademark and/or service mark rights. Although we do not believe that we have
suffered any material harm from misappropriation to date, we may be unable to
detect the unauthorized use of, or take appropriate steps to enforce, our
rights. We have filed trademark and/or service mark registrations in the United
States and intend to file others in Canada, Singapore, Europe, Hong Kong, Japan
and China. Effective trademark and/or service mark protection may not be
available in every country in which we offer or intend to offer our products and
services. Failure to adequately protect our rights could damage or even destroy
the LinuxOne brand and impair our ability to compete effectively. Furthermore,
defending or enforcing our rights could result in the expenditure of significant
financial and managerial resources. See "Business-- Intellectual Property".
WE MAY BE SUED AS A RESULT OF INFORMATION PUBLISHED OR POSTED ON OR ACCESSIBLE
FROM OUR LINUXONE.NET WEB SITE.
We may be subjected to claims for defamation, negligence, copyright or
trademark/service mark infringement or other claims relating to the information
we publish on our web site. These types of claims have been brought, sometimes
successfully, against online services in the past, and can be costly to defend.
We may also be subjected to claims based on content that is accessible from our
web site through links to other web sites or through content and materials that
may be posted by visitors to our web site. We believe that the scope and amount
of our general liability insurance is appropriate, given our current financial
position. However, this insurance may not adequately protect us against these
types of claims. We have not been a party to any lawsuit of this type to date.
OUR SOFTWARE PRODUCTS, AS WELL AS THOSE OF OUR CUSTOMERS AND SUPPLIERS, COULD
FAIL AS A RESULT OF THE YEAR 2000 PROBLEM.
We have conducted a review of LinuxOne and our internal systems to identify
functions that need correction to be "Year 2000 compliant". We have not,
however, tested our other products and have not tested or sought certifications
from third parties bundling software applications and components with Official
LinuxOne. Any failure by our products or third-party software bundled with our
products to function in the Year 2000 may decrease the value of our products,
give rise to warranty claims and tarnish the LinuxOne brand. Additionally, the
Year 2000 problem may affect us by causing disruptions in the business
operations of, or delay technology purchases by, companies with which we do
business, such as customers and suppliers causing a decrease in our product
revenue. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Year 2000 Compliance".
RISKS RELATED TO THIS OFFERING
------------------------------
CONCENTRATION OF OWNERSHIP MAY LIMIT YOUR ABILITY TO INFLUENCE CORPORATE
MATTERS.
Immediately following this offering, our directors, executive officers and
their affiliates will beneficially own approximately 45% of our outstanding
common stock. These stockholders, together with other stockholders holding any
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amount in excess of 6% of our total outstanding common stock, could determine
the outcome of actions taken by us that require stockholder approval. For
example, these stockholders could elect all of our directors, delay or prevent a
transaction in which stockholders might receive a premium over the prevailing
market price for their shares and control changes in management.
INVESTORS IN THIS OFFERING WILL SUFFER IMMEDIATE SUBSTANTIAL DILUTION
Our existing stockholders acquired their shares at a price substantially less
than that which the purchasers in this offering will pay for their shares.
Accordingly, an investment in our shares in this offering will result in the
immediate and substantial dilution of the net tangible book value of any shares
you purchase. See "Dilution" and "Financial Statements".
PROVISIONS OF OUR CHARTER AND BY-LAWS MAY DELAY OR PREVENT TRANSACTIONS THAT
MANY STOCKHOLDERS MAY FAVOR.
Provisions of our certificate of incorporation and by-laws may discourage,
delay or prevent a merger or acquisition that stockholders may consider
favorable, including transactions in which you might otherwise receive a premium
for your shares.
Some provisions of Nevada law may also discourage, delay or prevent someone
from acquiring us or merging with us. See "Description of Capital Stock--Nevada
Law and Certain Charter and By-Law Provisions."
OUR STOCK PRICE MAY BE EXTREMELY VOLATILE AND YOU MAY NOT BE ABLE TO RESELL YOUR
SHARES AT OR ABOVE THE INITIAL OFFERING PRICE.
Following this offering, the price at which our common stock will trade,
assuming a market develops, may be extremely volatile and may fluctuate
significantly. We will determine the initial public offering price of our common
stock based on an assessment of the valuation of our stock. The public market
may not agree with or accept this valuation. In addition, the stock market has,
from time to time, experienced significant price and volume fluctuations that
have affected the market prices for the securities of technology companies,
particularly software and internet companies. After this offering, therefore,
you might not be able to resell your shares at or above the initial public
offering price.
A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK COULD BE SOLD INTO THE PUBLIC
MARKET WITHIN ONE YEAR AFTER THIS OFFERING, WHICH COULD DEPRESS OUR STOCK PRICE.
Once a trading market develops for our common stock, many of our
stockholders will have an opportunity to sell their stock for the first time.
More than 6,000,000 shares, or three times the number of shares sold in this
offering will become eligible for sale in the public market at various dates
beginning approximately 6 months after the date of this prospectus. Sales of a
substantial number of shares of common stock in the public market, or the threat
that substantial sales might occur, could cause the market price of our stock to
decrease significantly. These factors could also make it difficult for us to
raise additional capital by selling stock. See "Description of Capital
Stock-Shares Eligible for Future Sale".
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
-------------------------------------------------
Some of the statements under "Prospectus Summary", "Risk Factors",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Business", and elsewhere in this prospectus constitute
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "expects", "plans",
"anticipates", "believes", "estimated", "predicts", "potential", or "continue"
or the negative of such terms or other comparable terminology. These statements
are only predictions and involve known and unknown risks, uncertainties, and
other factors that may cause our or our industry's actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. These factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
forward-looking statements to actual results.
USE OF PROCEEDS
---------------
We estimate the net proceeds to us from the sale of 3,000,000 shares of
common stock in this offering to be approximately $23,000,000, assuming an
initial public offering price of $8.00 per share, and after deducting the
estimated offering expenses.
The principal purposes of this offering are to increase our capitalization
and financial flexibility, to provide a public market for the common stock and
to facilitate access to public equity markets.
We expect to use the net proceeds for working capital and other general
corporate purposes, including website development, software development, and
geographic expansion involving the establishment of additional foreign offices
and/or subsidiaries. We have not allocated any specific portion of the net
proceeds to any particular purpose, and our management will have the ability to
allocate the proceeds at its discretion. A portion of the net proceeds may be
used for the acquisition of businesses, products and technologies that are
complementary to our own, as well as to expanding our software products and
consulting services. The net proceeds of this offering will be invested in
short-term, interest-bearing, investment-grade securities until allocated for
specific use.
DIVIDEND POLICY
---------------
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. We presently
intend to retain future earnings, if any, to finance the expansion and growth of
our business. Payment of future dividends, if any, will be at the discretion of
our Board of Directors after taking into account various factors, including our
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
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CAPITALIZATION
--------------
The following table sets forth the capitalization of LinuxOne as of July 31,
1999:
- on an actual basis; and
- on a pro forma as adjusted basis to reflect the sale of the 3,000,000
shares of common stock offered in this offering at an assumed initial
public offering price of $8.00 per share, after deducting the estimated
underwriting discount and offering expenses.
The outstanding share information excludes 600,000 shares of common stock
reserved as of May 31, 1999 for future stock option grants and purchases under
our equity compensation plans. See "Management-Director Compensation" and
Executive Compensation".
You should read this information together with Our financial statements and
the notes to those statements appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
July 31, 1999
- -------------
Actual Pro Forma
as of As Adjusted
July 31, 1999 After Offering
------------- --------------
<S> <C> <C>
Stockholders' equity:
Common stock, par value $.001 -
(Actual) 25,000,000 shares authorized,
6,162,500 shares issued and outstanding; $ 6,163 $ 6,163
(Pro forma after offering) 25,000,000
authorized, 9,162,500 shares issued
and outstanding
Additional paid-in capital $ 162,337 23,162,337
Accumulated deficit $ (17,190) (17,190)
----------- -----------
Total stockholders' equity $ 151,310 $23,151,310
</TABLE>
DILUTION
--------
Our net tangible book value per share immediately after this offering will
be substantially less than the assumed initial public offering price. Our net
tangible book value as of July 31, 1999 was $125,997, or $.02 per share. Net
tangible book value per share represents the amount of total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding. After giving effect to the sale by us of the 3,000,000 shares of
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common stock in this offering at an assumed initial public offering price of
$8.00 per share, after deducting the estimated offering expenses, the adjusted
net tangible book value of LinuxOne will be $23,125,997, or $2.52 per share.
This represents an immediate increase in pro forma as adjusted net tangible book
value of $2.50 per share to existing stockholders and an immediate dilution of
$5.48 per share to investors purchasing common stock in this offering. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
<S> <C>
Assumed initial public offering price . . . . . . . . . . . . . . . $8.00
Net tangible book value per share prior to this offering .02
Increase per share attributable to this offering 2.50
Adjusted net tangible book value per share after this offering 2.52
---------
Dilution per share to new investors $5.48
</TABLE>
The following table summarizes, on a pro forma as adjusted basis, the
difference between the number of shares of common stock purchased from us, the
total consideration paid to us, and the average price per share paid by existing
stockholders and by new investors at an assumed initial public offering price of
$8.00 per share, before deducting the estimated offering expenses.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------ ---------------------
Number Percent Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Existing stockholders. . . . . 6,162,500 67% $ 168,500 1%
New investors 3,000,000 33% $24,000,000 99%
------------ ----- ----------- -----
Total. . . . . . . . . .. . . 9,162,500 100% $24,168,500 100%
</TABLE>
SELECTED FINANCIAL DATA
-----------------------
The statement of operations data presented below for the period from
inception to July 31, 1999, and the balance sheet data as of July 31, 1999 have
been derived from our financial statements which have been audited by Mark
Bailey & Co., Ltd., independent accountants, and are included elsewhere in this
prospectus. You should read the data presented below in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes to those statements appearing
elsewhere in this prospectus.
17
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<TABLE>
<CAPTION>
Period from Inception
To July 31, 1999
---------------------
STATEMENT OF OPERATIONS DATA:
<S> <C>
Revenue: $ 0
Other Income
Interest Income 919
Costs and Expenses
Operating and administrative expenses 17,872
Depreciation expense 237
----------
Net Loss $ 17,190
Loss per share $ .003
Shares of common stock used in computing
Net income (loss) per share: 6,162,500
</TABLE>
<TABLE>
<CAPTION>
Period from Inception
To July 31, 1999
---------------------
<S> <C>
BALANCE SHEET DATA:
Current Assets
Cash $ 147,336
-------------
Total current assets $ 147,336
Property and Equipment
Property and Equipment, Net $ 4,984
----------
Other Assets
Organizational Costs $ 25,076
----------
Total Assets $ 177,396
Total liabilities $ 26,086
Total stockholders' equity $ 151,310
- -------------------------
(1) Our fiscal year ends on December 31, 1999.
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH OUR
FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE INDICATED IN
SUCH FORWARD-LOOKING STATEMENTS. SEE "SPECIAL NOTE REGARDING FORWARD-LOOKING
STATEMENTS".
Overview
- --------
LinuxOne, Inc. is a newly-formed developer and provider of open source
software products and services, and has built a web site dedicated to the open
source software community. LinuxOne, Inc. was incorporated in Nevada in March
1999. We have financed our activities to date through proceeds from the private
sale of equity securities.
Sales of LinuxOne OS, our principal product, have not resulted in any
revenue since its introduction in September 1999. We will seek to derive our
software and related products revenue primarily from the sale of software
products:
- through distributors (which we anticipate establishing) to enterprise and
retail accounts;
- directly to individual users and enterprises through our Linuxone.net web
site and our call center; and
- from original equipment manufacturers which we intend to solicit to
license our software directly.
We anticipate that we will recognize revenue from software product sales to
distributors and original equipment manufacturers for which no technical support
is provided at the time our products are shipped, net of a reserve for estimated
sales returns. This reserve is recognized based on our estimated distributors'
rates of sell-through to the end user. Revenue from the sale of software
products to individual users and enterprises for which no technical support is
provided is expected to be recognized on the date we ship the software products.
In accordance with the provisions of Statement of Opinion No. 97-2 "Software
Revenue Recognition", we intend to recognize all of the revenue from the sale of
LinuxOne OS ratably over the period that the technical support services are
provided in proportion to the costs incurred to provide such technical support
services as compared to estimated total costs to be incurred.
We have recently introduced our Linuxone.net web site. We intend to develop
additional features for our web site which we believe will result in both a
substantial increase in the number of visitors who access our web site and
increased advertising revenue. Advertising revenue is anticipated to be derived
principally from short-term advertising contracts in which we typically will
guarantee a minimum number of impressions to be delivered to users over a
specified period of time for a fixed fee. Advertising rates are typically
measured on a cost per thousand impressions basis. Advertising revenue
recognized ratably in the period in which the advertisement is displayed,
provided that we have no significant remaining obligations, at the lesser of the
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ratio of impressions delivered over total guaranteed impressions or the straight
line basis over the term of the contract. If we do not meet minimum guaranteed
impressions requirements, we defer recognition of the corresponding revenue
until the minimum number of guaranteed impressions is achieved. We have not yet
generated revenue from the sale of advertising on our web site. However, we
believe that the expected increase in traffic on our web site, along with our
focus on marketing our advertising services, may generate some advertising
revenue in the future.
Prior to September 1999, we did not provide any service offerings to our
customers. In September 1999, we expanded our service offerings to include
comprehensive support and maintenance, custom development, consulting and
education services. These services have not generated any amount of revenue.
We intend to market and attempt to sell our software products worldwide. In
September 1999, we commenced plans to establish international operations and we
expect that total revenue derived from sales outside of North America will
increase in the fiscal year ending December 31, 2000 as we seek to expand these
operations.
We plan to expand sales through distributors as well as direct sales through
our web site. We also plan to establish original equipment manufacturer
relationships in the fiscal year ending December 31, 2000 and, therefore, expect
that our original equipment manufacturer-related revenue for this fiscal year
will increase.
We employed 10 people at August 31, 1999. This headcount resulted primarily
from:
- an increase in administrative personnel as we recruited our management
team;
- an increase in support, maintenance, consulting and education personnel
associated with our efforts to develop the infrastructure of our services
organization;
- an increase in research and development personnel; and
- the commencement of international operations.
We expect to continue to increase expenses associated with our sales and
marketing, research and development and general and administrative groups in
anticipation of growth and expansion. Given the expected increase in headcount,
we anticipate that we will need to either expand our existing offices or lease
additional office space within the next 12 to 18 months. We believe that this
expansion will result in an increase in total facilities costs.
RESULTS OF OPERATIONS
---------------------
The following table sets forth the results of our operations for e
expressed as a percentage of total revenue. The historical results are not
necessarily indicative of results to be expected for any future period.
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<TABLE>
<CAPTION>
For the period from Inception
To July 31, 1999
-----------------------------
<S> <C>
Revenue $ 0
Other Income
Interest Income $ 919
Costs and Expenses
Operating and administrative expenses . . . . . .$ 17,872
Depreciation expense 237
-----------
Net loss $ 17,190
Loss per share $ .003
</TABLE>
Total Revenue
- -------------
We have not yet realized any revenues from our business operations.
Operating Expense -
Sales and Marketing
- -------------------
Sales and marketing expense consists primarily of salaries and other related
costs for sales and marketing personnel, sales commissions, travel, public
relations, marketing materials and tradeshows. There were no sales and marketing
expenses for the period from inception to July 31, 1999, since we have just
completed production of our initial LinuxOne OS product and have not yet
commenced distribution and sales. We expect sales and marketing expense to
increase in the foreseeable future as we promote the expansion of our services
offerings and web site and expand our international operations.
Research and Development
- ------------------------
Research and development expense consists primarily of personnel and related
costs for our software products and web development efforts. Research and
development expense for the period from inception to July 31, 1999, totaled
$12,514. We expect research and development expenses to continue to increase in
the future as we develop our web site and expand features in LinuxOne.
General and Administrative
- --------------------------
General and administrative expense consists primarily of personnel and
related costs for general corporate functions, including finance, accounting,
legal, human resources, facilities and information system expenses. General and
administrative expense for the period from inception to July 31, 1999, totaled
$17,872.
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We expect general and administrative expense to continue to increase in the
next 12 months as we add administrative personnel to support our business
expansion.
Provision for Income Taxes
- --------------------------
We had no provision for income taxes for the period from inception to July
31, 1999, as we incurred losses during this period.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
We derived all of our liquidity and operating capital from private sales of
our restricted common stock since inception. At July 31, 1999, cash and cash
equivalents totaled $147,336, all of which was attributed to private sales of
our common stock. We did not realize any revenues from sales of our products
during the period from inception to July 31, 1999, as LinuxOne OS was not
completed and offered for sale until September, 1999.
Cash used by operations of $12,514 for the period from inception to July 31,
1999, resulted primarily from our net loss of $17,190. These costs resulted
from development and release of LinuxOne OS in late September 1999.
Cash generated by financing activities of $165,100 for the period from
inception to July 31, 1999 constituted net proceeds from the private sales of
our common stock.
We have experienced substantial operating expenses since our inception in
connection with the growth of our operations and staffing and the expansion of
our services operation and web site. Our capital requirements during the fiscal
year ending December 31, 2000 will depend on numerous factors, including the
amount of resources we devote to:
- fund our domestic and international expansion;
- enhance our Linuxone.net web site;
- improve and extend our consulting services offerings;
- make possible investments in businesses, products and technologies; and
- expand our sales and marketing programs and conduct more aggressive brand
promotions.
Our anticipated future operating results will likely fluctuate for many
reasons, some of which are:
- our ability to establish customers, attract new customers and
satisfy our customers' demand;
- changes in gross margins of our current and future products and services;
- the timing of our release of upgrade versions of our products;
- introduction of new products and services by us or our competitors;
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- changes in the market acceptance of Linux-based operating systems;
- changes in the usage of the internet and online services;
- timing of upgrades and developments in the Linux kernel and other open
source software products;
- the effects of acquisitions and other business combinations, including
one-time charges, goodwill amortization and integration expenses or
difficulties; and
- technical difficulties or system downtime affecting the internet or our
web site.
For these reasons, you should not rely on period-to-period comparisons of
our financial results to forecast our future performance. Our future operating
results may fall below expectations of securities analysts or investors, which
would likely cause the trading price of our common stock to decline
significantly.
We believe that the net proceeds from this offering, together with our cash
and cash equivalents, short-term investments and cash flow from operations, will
be sufficient to meet our anticipated cash needs for working capital and capital
expenditures for at least the next 12 months, as we are projecting that our
capital needs will be approximately $20 million during this period. We may need
to raise additional funds, however, in order to fund more rapid expansion. We
may seek to sell additional equity or debt securities or to obtain a credit
facility. The sale of additional equity or debt securities, if Convertible,
could result in additional dilution to our stockholders. The incurrence of
indebtedness would result in increased fixed obligations and could result in
operating covenants that would restrict our operations. We cannot guarantee that
financing will be available in amounts or on terms acceptable to us, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities". This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. As issued, this
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999, with earlier application encouraged. In May 1999, the
Financial Accounting Standards Board delayed the effective date of this
statement for one year, to fiscal years beginning after June 15, 2000. We do not
currently nor do we intend in the future to use derivative instruments and
therefore do not expect that the adoption of Statement of Accounting Standards
No. 133 will have any impact on our financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants, issued Statement of Position No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which provides guidance regarding when software developed or
obtained for internal use should be capitalized. This statement is effective for
transactions entered into in fiscal years
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beginning after December 15, 1998. We do not expect that the adoption of this
statement will have a material impact on our financial position or results of
operations.
In December 1998, the Accounting Standards Executive Committee issued
Statement of Position No. 98-9, "Modification of Statement of Position No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions". Statement
of Position No. 98-9 amends Statement of Position No. 97-2 to require
recognition of revenue using the "residual method" in circumstances outlined in
Statement of Position No. 98-9. Under the residual method, revenue is recognized
as follows:
- the total fair value of undelivered elements, as indicated by vendor
specific objective evidence is deferred and subsequently recognized in
accordance with the relevant sections of Statement of Position No. 97-2;
and
- the difference between the total arrangement fee and the amount deferred
for the undelivered elements is recognized as revenue related to the
delivered elements.
Statement of Position No. 98-9 is effective for transactions entered into in
fiscal years beginning after March 15, 1999. Also, the provisions of Statement
of Position No. 97-2 that were deferred by Statement of Position No. 98-4 will
continue to be deferred until the date Statement of Position No. 98-9 becomes
effective. We do not expect that the adoption of Statement of Position No. 98-9
will have a significant impact on our results of operations or financial
position.
YEAR 2000 COMPLIANCE
--------------------
The Year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software and
computer systems with date-sensitive functions that are not Year 2000 compliant
may not be able to distinguish whether "00" means 1900 or 2000, which may result
in failures or the creation of erroneous results.
We have defined "Year 2000 compliant" as the ability to:
- correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
- function according to the product documentation provided for this date
change, without changes in operation resulting from the advent of a new
century, assuming correct configuration;
- where appropriate, respond to two-digit date input in a way that resolves
the ambiguity as to century in a disclosed, defined, and predetermined
manner;
- if the date elements in interfaces and data storage specify the century,
store and provide output of date information in ways that are unambiguous
as to century; and
- recognize the year 2000 as a leap year.
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<PAGE>
In July 1999, we formed a committee consisting of our President, Chief
Financial Officer, and a systems administrator, as part of our effort to perform
a coordinated audit of:
- our proposed products;
- the software components and applications with which our proposed products
will be
bundled; and
- the systems upon which we rely for our internal operations.
Products
- --------
The committee has tested versions of LinuxOne OS by accelerating the date
within these software programs to December 31, 1999 and observing which software
components failed as the date changed to January 1, 2000. These tests revealed
that all versions of LinuxOne OS were Year 2000 compliant. In addition, in
September 1999, we hired an independent contractor to test LinuxOne OS for Year
2000 readiness. The independent contractor certified these products as Year 2000
compliant. In light of the testing results and certification, we do not plan to
generate a contingency plan if either of these products is later found not to be
Year 2000 compliant. We have not, however, tested any products other than
LinuxOne OS. The Year 2000 committee plans to test or have these products tested
by the end of November 1999.
If it is later determined that products that we have not tested are not Year
2000 compliant, we believe that we have the resources, either in-house or within
the open source community, to quickly remedy any non-compliant products. If it
is necessary to remedy problems related to the Year 2000 issue, such efforts
could otherwise divert our resources from pursuing our business strategy. In
addition, known or unknown errors or defects in our products could result in
delay or loss of revenue, diversion of development resources, damage to our
reputation, or increased service and warranty costs, any of which could
materially adversely affect our business, operating results or financial
condition. Furthermore, some commentators have predicted significant litigation
regarding Year 2000 compliance issues, and we are aware of such claims and
actions against other software vendors. Because of the unprecedented nature of
this litigation, it is uncertain whether or to what extent we may be affected by
it.
Third-Party Products
- --------------------
We bundle third-party applications and software components with LinuxOne OS.
To date, the committee has made no assessment of and has no knowledge of
third-party Year 2000 readiness. We intend to contact these third parties and
remedy problems on a case-by-case basis, as problems arise. Because we believe
that the costs associated with the failure of third-party products will not be
material to our business, results of operations or financial condition, we do
not intend to expend resources to seek out and correct problems before they
arise. Accordingly, it is possible that some of our customers may experience
difficulties related to third-party software, which may affect the performance
of our products and may lead to adverse results such as an unusually high number
of calls to our technical support department or other unusual requests for
information or assistance. Responding to these requests may divert resources
from pursuing our business strategy. Moreover, failure of applications bundled
with our software may reduce the value of our products, decrease or delay
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revenues, tarnish our brand, give rise to breach of warranty claims or divert
resources, any of which could materially adversely affect our business, results
of operations and financial condition.
Internal Systems
- ----------------
We are in the process of identifying and evaluating the Year 2000 compliance
of systems upon which we rely for internal operations such as our computer
hardware, software, web server and other related equipment and systems, such as
phone systems and security systems. In October 1999, we plan to test our
internal systems by simulating a century roll-over. We do not believe that the
costs involved in making our internal systems Year 2000 compliant will be
material because all of our internal mission-critical hardware and enterprise
software vendors and systems are certified Year 2000 compliant. These vendors
include Oracle, Sun Microsystems, Lucent and Cisco. In addition, most of our
internal systems run on LinuxOne OS. Most of our computer hardware is new, but
in the event any of our hardware malfunctions, we will replace it. We do not
expect to incur material costs to replace any such defective hardware.
The lessor of our corporate headquarters has indicated that our offices are
Year 2000 compliant. We currently house substantially all of our communications
hardware and our other computer operations related to our web site on site at
our facilities.
Worst Case Scenario
- -------------------
We have not tested any of our products other than LinuxOne OS and have not
tested software provided by, nor sought certifications from, third parties
bundling software with LinuxOne OS. Our likely worst case Year 2000 scenario
would be that these products and bundled software from third-parties fail in the
year 2000, resulting in a decreased demand for our products and damage to the
LinuxOne OS brand. In the event of a Year 2000 failure we would devote
resources to correct it. Because of our skilled in-house developers and
relationships with the open source community and third-parties whose
software we bundle with LinuxOne OS, we believe we will be able to respond
promptly to any failures that occur. The costs of such response and the
diversion of resources, however, could have a material adverse effect on our
business, results of operation and financial condition.
Contingency Plans and Expected Costs
- ------------------------------------
The committee is in the process of developing further checklists of software
applications to test and systems upon which we rely and, as we deem appropriate,
we will seek certification documents from the developers and providers regarding
Year 2000 compliance of their systems and products. The committee will develop
contingency plans based on the responses regarding its critical systems that it
receives, or does not receive, from its providers and developers. We presently
expect that we will complete this effort in the late fall of 1999.
To date, we have not expended a material amount of capital resources on Year
2000 compliance and do not anticipate future expenditures to be material to our
business, results of operations and financial condition. We have not hired
additional personnel to specifically address our Year 2000 compliance issues,
and presently, we do not expect to do so. Through August 31 1999, we have
incurred approximately $500 in costs to make our internal systems Year 2000
compliant. These costs were primarily incurred to update our accounting and
financial management software and systems. The product and testing expenditures
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<PAGE>
to date relate primarily to on-going salary costs of personnel, including
committee members, participating at various levels in our compliance efforts, as
well as payments of approximately $500 to the independent contractor that tested
LinuxOne OS. All costs related to achieving Year 2000 readiness are being
expensed as incurred, unless they relate to the cost of new software or hardware
for our internal systems.
BUSINESS
========
We are a newly-formed developer and provider of open source software and
services, including the LinuxOne Operating System. Our web site, Linuxone.net,
is a new online source of information and news about open source software and
one of the online communities of open source software users and developers. In
addition to offering content for the open source community, Linuxone.net serves
as a forum for open source software development and offers software downloads
and a shopping site. Our professional services include custom development and
consulting, technical support, training and education. We are committed to
serving the interests and needs of open source software users and developers and
to sharing all of our product developments with the open source community.
INDUSTRY BACKGROUND
-------------------
Impact of the Internet
- ----------------------
The internet has emerged as a global communications medium, enabling
millions of people to gather information, communicate and conduct business
electronically. International Data estimates that there were approximately 142
million users of the internet at the end of 1998 and that the number of users
will grow to over 500 million by the end of 2003. In addition, International
Data estimates that worldwide internet commerce revenue will increase from
approximately $50 billion in 1998 to more than $1 trillion in 2003.
International Data projects the worldwide software market is projected to
reach $220.6 billion dollars by 2002; Linux-related product shipments are
projected to grow at a rate of 25% from 1999 through 2003Office workers demand
global access to data communications, fax, e-mail, file transfer, software
downloading, and multi-lingual translation software. Linux , which is a
"variant" of UNIX, has virtually every aspect of technical advantage over
Microsoft NT software. In 1998, Linux growth was twice as fast as that of
Microsoft NT.
The internet's ability to empower customers, reduce transaction costs and
product development times and accelerate the pace of business transactions has
dramatically transformed the competitive landscape of a wide range of
industries. The internet provides customers with a broader selection, increased
purchasing power and unparalleled convenience while enabling businesses to reach
a global audience, increase economies of scale and operate with minimal
infrastructure. The internet has facilitated the emergence of new competitors
and is increasingly affecting the methods by which incumbent competitors sell
goods and services and manage relationships with customers.
For example, in the software industry, the internet is profoundly changing
the way that software is developed and distributed. The internet has enabled
multiple groups of developers to collaborate on specific projects from remote
locations around the globe. Developers can write code alone or in groups, make
their code available over the internet, give and receive comments on other
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developers' code and modify it accordingly. The internet has also provided an
avenue not only for less expensive and speedier delivery of code, but also for
support and other online services.
Open Source Software
- ---------------------
The internet has accelerated the development of open source software. Open
source software has its origins in the academic and research environments and is
based on an open, collaborative approach to the development and distribution of
software. The growth of the internet has greatly increased the scale and
efficiency of open source development through the availability of collaborative
technologies such as e-mail lists, news groups and web sites. These technologies
have enabled increasingly large communities of independent developers to
collaborate on more complex open source projects. An early example of open
source development is the X Windows system, a graphical user interface developed
by the X Consortium. The members of the X Consortium, originally Digital,
Hewlett-Packard, IBM and Sun Microsystems, wanted a common user interface for
their own proprietary operating systems. By openly sharing development ideas and
coding efforts, these companies were able to quickly and cost-effectively
develop a superior user interface.
Open source software has emerged as a viable alternative to traditional
proprietary software. Under the proprietary model of software development, a
software developer generally licenses to the user only the object or binary
code. Binary code consists of the 1s and 0s that only the computer understands.
By contrast, under the open source development model, the software developer
provides to the user access to both the binary code and the source code. Source
code is the language used by the developers. The principal differentiating
points of open source software include:
- development process--open source software allows a company's in-house
development team to collaborate with a community of independent
developers;
- license terms--under open source licenses, the user has access to both
binary and source code, and the rights to copy, modify, alter and
redistribute the software; and
- shared improvements--under the open source model, the user has ongoing
access to improvements made to the software by others.
We believe open source software offers many potential benefits for software
customers, users and vendors. Customers and users are able to acquire the
software at little or no cost, install the software on as many computers as they
wish, and customize the software to suit their particular needs. In addition,
customers and users can obtain
software updates, improvements and support from multiple vendors, reducing
reliance on any single vendor. Vendors are able to leverage the community of
open source developers, allowing them to reduce development costs and decrease
their time to market. Vendors are also able to distribute their products freely
over the internet, enabling them to create
large global user bases quickly.
Participants in open source development can generate revenue in a variety of
ways, including:
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- making their own open source products widely available, and then offering
technical support, custom development, and related services to customers;
- using open source products as a means of attracting visitors to their web
sites, where they can earn money from the sale of other products,
services, and advertising; and
- developing brand loyalty and a reputation for quality by providing
technically superior open source software products, which they can
leverage to sell additional products and services to customers.
Just as the open source model has benefited from the success of the
internet, it has also greatly contributed to the internet's success. Open source
software comprises much of the internet's infrastructure, from domain name
server software to web servers and e-mail router software. Open source software
is particularly well-suited to the internet. With access to the source code,
system administrators and developers can collaborate to debug, fix and optimally
configure their software on a real-time basis. This enables them to improve
performance and keep data flowing continually across the internet, minimizing
the disruptions and downtime common with proprietary software.
The following examples demonstrate the prevalence of open source software on
the internet:
- Apache Web Server--based on code originally written at the National Center
for Supercomputing Applications at the University of Illinois at
Champaign-Urbana, is the most common web server in use today according to
a survey conducted by Netcraft.
- Perl--a standard scripting language for Apache servers.
- Sendmail--the internet's standard e-mail routing tool, which we believe
handles a majority of the internet's e-mail traffic.
One of the better known open source products is the Linux kernel, the engine
of Linux-based operating systems. An operating system is the software that
allows a computer and its various hardware and software components to interact.
An initial goal of the open source software movement was to develop an operating
system that was better, faster and more reliable than the proprietary operating
systems then available. Viewing UNIX as the best commercially-available
operating system, the open source community decided to incorporate the best
design ideas from UNIX. Open source developers rewrote all of the underlying
source code so that it could not be controlled by a single corporation or
individual. By the early 1990s, these efforts had resulted in a number of
significant software initiatives but had fallen short of building a complete
operating system. Still missing from the project was the engine upon which the
new operating system was to run, known as the kernel.
In 1991, Linus Torvalds, a young Finnish developer, supplied a stable and
powerful open source kernel, known as Linux, to run the operating system.
Operating systems based on the Linux kernel are robust and dynamic. Thousands of
developers worldwide continually collaborate on improving Linux-based operating
systems and update them on a regular basis.
Since 1991, the use of Linux-based operating systems has rapidly grown.
According to International Data, Linux-based operating systems represented 17%
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of all new license shipments of server operating systems in 1998. Beginning in
1998, a number of major technology industry leaders, including IBM, Intel and
Hewlett-Packard, announced support for Linux-based operating systems. The Linux
kernel and the standards around which it is developed remain under the close
supervision of Linus Torvalds and a small group of kernel developers working
under his leadership.
Some of the benefits enjoyed by users of Linux-based operating systems
include:
- reduced licensing costs;
- flexibility resulting from access to and legal right to modify source
code;
- stability and high performance;
- comprehensive internet support;
- compliance with standards; and
- multi-platform capability.
Despite a strong initial market acceptance of Linux-based operating systems
and other open source products, there exists a number of obstacles to widespread
adoption within the enterprise, including:
- lack of service and support;
- scarcity of applications supporting Linux-based operating systems; and
- lack of well-financed, viable open source industry participants.
The ability of a Linux-based operating system to penetrate large businesses
on an enterprise-wide basis and to gain widespread acceptance as a viable
alternative to operating systems developed under the proprietary software model,
depends, in large part, on the emergence of a proven leader in the open source
community. This open source leader must demonstrate to the business enterprise,
as well as to the community of application developers upon whom the business
enterprise relies, a successful business model and the ability to support and
service its products at a consistently high level.
THE LINUXONE SOLUTION
---------------------
To address the challenges facing the open source software market, our
product and services offer the following features and benefits:
Superior Open Source Product Offerings
- --------------------------------------
We engineer what we believe to be the most technically advanced open source
operating system, LinuxOne OS. Our software engineers continuously seek to
remain abreast of technical advances, plans for development of new features and
timing of releases, as well as other information related to the development of
the Linux kernel and other open source projects. As a result, we are able to
react quickly to new developments and to contribute to the future direction of
the Linux kernel and the open source concept.
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We compile and integrate approximately 570 separate software packages into
LinuxOne OS consisting of some of the most technically advanced software
products available, including compilers and web, e-mail, file transfer protocol
and file servers. LinuxOne OS is:
- flexible and scalable--capable of running a single desktop machine or the
entire network of a large business enterprise;
- functional--able to handle discrete or multiple applications being
accessed by multiple users;
- adaptable--allowing the user to modify the software to meet particular
needs and requirements; and
- reliable--constantly monitored and fine-tuned by thousands of developers
worldwide.
In addition to offering technically advanced products, we intend to provide
purchasers of our LinuxOne OS with extensive written documentation and limited
installation support. Our technical writers work closely with our software
development engineers to prepare manuals and other documentation that accurately
and clearly describe the many features of LinuxOne OS and advise the user on how
to exploit these features. In addition, we make LinuxOne OS available to users
via free download from our web site.
Online Destination for the Open Source Community
- ------------------------------------------------
We have established our web site as a new online destination related to the
open source movement. We are dedicated to serving the interests and needs of
open source software users and developers online. Our web site is a
comprehensive resource for the latest information related to Linux and other
open source projects. It contains news of interest to open source users and
developers, software updates and downloads, and a shopping center for our
shrink-wrapped products and support offerings. We intend to make our website a
clearinghouse of open source and Linux-related information, and facilitating the
interaction of developers, businesses and technology enthusiasts in the open
source movement.
Commitment to the Open Source Model
- -----------------------------------
LinuxOne has fully embraced the open source model. Whereas others have
incorporated certain aspects of the open source software model into their
businesses while retaining various features of the proprietary model, our
product offerings are true open source offerings. We share all of our
developments on and improvements to the Linux kernel and other open source
products with the development community. In this way, we benefit
independent developers by making our products more useful for them in their own
development projects. In addition, we have promoted and distributed our products
in the marketplace by making them available free of charge by download from our
website, and by issuing free CD-ROMs containing LinuxOne through direct mailing
campaigns.
Professional Services
- ---------------------
We also offer professional services relating to the development and use of
open source products. These services include technical support, custom
development, consulting, training, and education. We believe that providing
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these services and establishing ourselves as our customers' technology
development partner will allow us to facilitate the widespread adoption of
LinuxOne OS as a full scale enterprise solution.
Strategic Alliances
- -------------------
In an effort to increase the market acceptance of open source software in
general, and the LinuxOne operating system in particular, we will seek to
establish development, marketing and/or distribution relationships with leading
technology companies. In addition, we intend to share our development efforts
with and commit resources to third party developers and vendors in order to
expand the number of applications available for Linux-based operating systems.
By establishing and maintaining these relationships, we will seek to increase
market awareness of open source software. See "Sales, Marketing and
Distribution".
STRATEGY
--------
Our objective is to establish our position as a leading worldwide developer
and provider of advanced, open source products and services, both via
traditional channels and the internet. The key elements of our strategy are:
Continue to Develop Our Web Site
- --------------------------------
We are continuing to develop our web site in an effort to create the
definitive online destination for open source software products, software
updates, news, and other information related to Linux-based operating systems
and other open source projects, and to provide advertisers with a large and
technically sophisticated audience. At Linuxone.net, people from around the
world will be able to obtain updates to open source software, purchase a wide
array of open source products and services, access and copy code for their own
programming efforts, read news and link to related topics of interest to the
community and interact with other community members. New features we anticipate
adding to our web site include:
- software update notification;
- automatic software updating for those who want it;
- open source classifieds (including products for sale and employment
listings);
- schedule of Linux-related events, including trade shows; and
- virtual trade shows.
By adding these features to our web site, we believe that our visitors will
continue to visit on a regular basis, and that we will attract an increasing
number of new visitors. In addition, we believe that these new features and
offerings will keep visitors on our site for longer periods of time, which we
believe will be crucial to our ability to generate significant advertising
revenue.
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Expand Service Capabilities to Address the Enterprise Needs of Large
Corporations
- ---------------------------------------------------------------------
We believe that we must expand our services capabilities to address the
market need for quality custom engineering and development. We are currently
making plans to expand our professional services organization to enhance our
ability to provide such services. We believe that as our user base grows, more
of our customers, particularly our larger customers, will look to us to help
them customize their operating systems to perform optimally within their
particular computing environments. We believe that by increasing our capacity to
offer such services, we will be able to significantly increase our services
revenue and establish ourselves as one of the premier open source service
providers.
Increase Market Acceptance of Open Source Software
- --------------------------------------------------
Although recent years have seen a substantial increase in the market
acceptance of Linux-based operating systems and other open source software, we
intend to promote further acceptance of open source software through a variety
of means, including establishing alliances with other information technology
companies. The strength of these alliances is crucial to the expansion of the
open source community, the technical advancement and widespread distribution of
open source products and the development of third-party applications suitable
for Linux-based operating systems.
Although we intend to increase our own engineering and development efforts,
we believe that by entering into and maintaining strategic relationships with
other market-leading companies, we will ensure that LinuxOne continues to
develop technically, and that such development is compatible with the
technological innovations of other key vendors in our industry.
By entering into additional strategic distribution relationships with major
distributors, retail outlets, original equipment manufacturers, and value-added
resellers worldwide, we intend to make LinuxOne and other open source products
more widely available.
Additional means of increasing the market acceptance for Linux-based
operating systems and other open source software include expanding our
international presence, broadening our services offerings and attending trade
shows.
Develop and Continue to Enhance the LinuxOne Brand
- --------------------------------------------------
We believe that building the LinuxOne brand is vital to the creation and
expansion of our customer base. We intend to aggressively promote our web site
as a definitive source for open source products, services, resources and other
information. In addition, we expect to design tightly-focused advertising
campaigns, both in computer related publications and in general purpose media,
in order to attract new users to LinuxOne and open source software. Through
these measures, we intend to build the LinuxOne brand into a symbol of quality
for open source software.
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PRODUCTS AND SERVICES
---------------------
We intend to become an emerging provider of open source software products
and services. Our product offerings include LinuxOne OS and related tools,
documentation, manuals and general merchandise. Our professional services
offerings include technical support, training and education, consulting and
custom development.
LinuxOne and Related Software
- -----------------------------
LinuxOne OS is our principal product. We first released LinuxOne OS in
September, 1999, in beta form, and began shipping in September, 1999. LinuxOne
OS provides everything the user needs to perform a wide variety of server
functions, including setting-up a web, e-mail, file or print server as well as
using the computer as a general purpose desktop workstation to perform virtually
any computing function. LinuxOne OS comes with a number of third-party
applications, including office productivity and e-commerce applications, as well
as comprehensive user manuals and limited installation support. The suggested
retail price for LinuxOne OS will be $29.95, without support, and $79.95 for
LinuxOne OS Professional, with technical support for 30 days.
We plan to introduce versions of our LinuxOne software products tailored for
six distinct language markets: Chinese, Japanese, French, Spanish, German and
English. In addition to the English version, the Chinese version will be the
first international version to be delivered, with a penetration strategy that
focuses first on a very low cost version, followed by upgrades and enhancements
sold at competitive market prices.
Linuxone.net
- ------------
As of August 31, 1999 we had 3 professionals focused on the development and
maintenance of our Linuxone.net web site. Linuxone.net offers users access to
broad and authoritative content on open source software including news,
employment and links to other Linux-related sites. We also offer extensive
features for the open source community, software updates and downloads and a
shopping center for our shrink-wrapped products and support offerings.
We also intend to create and offer the following benefits via our web site:
- Personalization--users will be able to register on the site and select
custom presentations of information that are specifically tailored to
their needs.
- Advertising and sponsorships--the Linuxone.net target audience is highly
focused and technically sophisticated, representing an attractive target
market of computing professionals for advertisers.
- Commerce--we intend to build the LINUXONE.NET store into one of the most
comprehensive open source shopping resources for Linux-related products.
- Licensing--we intend to license our content to other content providers,
thereby generating additional traffic, extending the LinuxOne brand and
increasing revenue.
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LinuxOne Games
- ---------------
We are presently compiling games and other graphic applications for operation on
our Linux software. We intend to build a web site with the operating software
available for $19.95. With each copy, the purchaser may elect to join and become
a member of a game club for $9.95, which provides an online library of available
games that will grow monthly. Parents can request a PIN to control access to
violent or sex-content games. Once the fee has been paid, members will have
perpetual access. Games will be rated, and all will be certified for operation
on the Linux software. The "Games" phase is intended to provide us with early
market recognition, build interest and set the stage for follow-up products and
services.
Professional Services
- ---------------------
Although we have not generated any revenue to date from our proposed
professional services, we have recently significantly expanded the scope of our
proposed service offerings and expect them to generate significant revenue in
the future.
Support and Maintenance
- -----------------------
Customers who purchase our LinuxOne OS Professional product are entitled to
30 days of telephone installation support at no additional charge. Customers
seeking additional technical support may purchase telephone support agreements,
with the prices based on requirements. We have a highly-trained and skilled
staff of technical support engineers to provide these services to our customers.
Training and Education
- ----------------------
We intend to provide training and educational programs to those customers
who want to learn how to optimize their use of LinuxOne OS. We also intend to
conduct on-site training for customers. We anticipate that we will work with
third-party training and educational program providers to develop and offer
additional training courses on a variety of topics related to LinuxOne OS and
open source software.
Consulting and Custom Development
- ---------------------------------
We intend to offer specific consulting and custom development services on an
individualized basis. We intend to develop our consulting and custom
development capabilities in the near future.
SALES, MARKETING AND DISTRIBUTION
---------------------------------
Software Products and Services
- ------------------------------
We intend to sell our products and services worldwide through direct
marketing and telesales campaigns and our web site, and indirectly through our
proposed distributors, retailers, catalogs and original equipment manufacturers.
Our direct sales force of 3 individuals, as of August 31, 1999, is focused on
establishing worldwide sales. As of August 31, 1999, our indirect distribution
channel was in the planning stage.
Initially, we intend to target large corporations and universities with
internal UNIX server strategies as our primary customer targets. This, along
35
<PAGE>
with anticipated key partnerships with the major computer manufacturers and
suppliers, will permit rapid market penetration and revenue growth. This
strategy will minimize the required investment, while building a solid customer
base and market share. During this phase, we will attempt to position Dr. Chiou
as a leading presence in the Linux market through speaking engagements,
publications, and other media exposure.
We anticipate that our direct marketing efforts will support our sales and
distribution efforts through participation in industry trade shows, targeted
advertising, public relations campaigns, retail promotions, customer surveys and
the promotion of our products through our web site. In addition, we offer our
software products for free download from Linuxone.net.
Linuxone.net Web Site
- ---------------------
We are preparing materials designed to sell advertising on our web site. We
expect to generate significant revenue from the sale of advertising and
sponsorships in the future.
COMPETITION
-----------
In the market for operating systems, we compete with a number of large and
well-established companies that have significantly greater financial resources,
larger development staffs and more extensive marketing and distribution
capabilities. These competitors include Microsoft, Novell, IBM, Sun Microsystems
and The Santa Cruz Operation, all of which offer hardware-independent multi-user
operating systems for Intel platforms, and AT&T, Compaq, Hewlett-Packard,
Olivetti and Unisys, each of which, together with IBM and Sun Microsystems,
offers its own version of the UNIX operating system. Many of these competitors
bundle competitive operating systems with their own hardware offerings, thereby
making it more difficult for us to penetrate their customer bases.
In the newer and rapidly evolving Linux-based operating system market, we
compete with a number of well-respected vendors and development projects. These
competitors have established and stable customer bases and continue to attract
new customers. We also compete for services revenue with a number of companies
that provide technical support and other professional services to users of
Linux-based operating systems. Most of these companies have larger and more
experienced organizations than we do. In addition, we face potential competition
from several companies with larger customer bases and greater financial
resources and name recognition than we have, such as Red Hat, SuSE, Caldera, and
Mandrake, each of which is established in the Linux-based operating systems
market.
The Linux-based operating systems market is not characterized by the
traditional barriers to entry that are found in most other markets, due to the
open source nature of our products. For example, anyone can copy, modify and
redistribute LinuxOne themselves. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share.
We believe that the major factors affecting the competitive landscape for
our products include:
- name and reputation of vendor;
36
<PAGE>
- product performance, functionality and price;
- strength of relationships in the open source community;
- availability of user applications;
- ease of use;
- networking capability;
- breadth of hardware compatibility;
- quality of support and customer services;
- distribution strength; and
- alliances with industry partners.
Although we believe that we can compete favorably with many of our
competitors in a number of respects, including product performance,
functionality and price, networking capability, and breadth of hardware
compatibility, we believe that many of our competitors enjoy greater name
recognition, have superior distribution capabilities and offer more extensive
support services than we currently do. In addition, there are significantly more
user applications available for competing operating systems, such as Windows NT
and UNIX, than there are for Linux-based operating systems. An integral part of
our strategy in the near future, however, is to address these shortcomings by,
among other things, establishing strategic relationships in an effort to enhance
our name recognition, expand our distribution capabilities and attract more
attention to the open source movement, which in turn, should create additional
incentives for software developers to write more applications for LinuxOne.
In the market for advertising revenue, we will compete with other online
content providers and traditional forms of media such as newspapers, magazines,
radio and television. We believe that the principal competitive factors in
attracting advertisers include the amount of traffic on LinuxOne, brand
recognition, customer service and support, the demographics of our users and
visitors, our ability to attract targeted audiences and the overall
cost-effectiveness of the advertising medium that we offer.
SOFTWARE ENGINEERING AND DEVELOPMENT
------------------------------------
We have invested, and intend to continue to invest, substantial amounts of
our resources in product and technology development. We intend to focus and
modify our product development efforts based on the needs of users and changes
in the marketplace. We are currently focusing our development efforts on
improving the Linux kernel, as well as commercializing our software innovations
into new products and product enhancements that are easier to use and provide
greater functionality.
Our software engineers have contributed to the development and maintenance
of some of the most important components of the LinuxOne OS, including the
installation program and the package management program. The installation
program provides users with a single method to install the hundreds of separate
software programs that are included with LinuxOne OS so that, from the user's
perspective, the hundreds of programs appear as one. This simplified process
37
<PAGE>
sharply reduces the time and effort required to install a Linux-based operating
system, as compared to the alternative of gathering the hundreds of programs one
by one via the internet. The installation program provides default settings for
the user depending upon whether the user wishes to use LinuxOne OS as a server
operating system or as a workstation operating system. The installation also
provides advanced users with the ability to customize the programs that are
installed, allowing for significant flexibility and control over the operating
system. The installation also automatically detects the type of hardware that
comprises the user's computer, in order to ensure that all programs necessary
for LinuxOne OS to work on the hardware are properly installed.
Our software development engineers perform extensive testing of LinuxOne to
ensure that it is properly assembled and works as a coherent whole from the
user's perspective. We use industry standard methods of quality assurance
testing to ensure that LinuxOne is solidly engineered and ready for use by our
customers when shipped. We also operate a beta testing program for LinuxOne OS.
Under this beta testing program, we post a beta or test version of the operating
system on the internet. Developers and users around the world then suggest
improvements and identify bugs. Each suggestion is circulated over the internet
in an attempt to encourage others to assist in the programming of a solution. In
this way, LinuxOne OS users are treated as co-developers. Bug fixes and
enhancements are tested by other users and our engineers, and when corrected,
added to the next release. When the beta version is viewed as stable and
complete, it becomes the next production version, and a new beta cycle begins.
Our web development team consists of engineers with considerable experience
in developing scalable web-based applications. We continue to develop
applications on LINUXONE.NET for user registration, commerce, and content
management and publication. We test these programs and have built in the
software necessary to ensure high quality visits to our web site.
Most of our software engineering and development work takes place at our
headquarters. As of August 31, 1999, we employed 7 individuals in our
engineering group, all of whom are software engineers with experience in Linux
software development.
INTELLECTUAL PROPERTY
---------------------
LinuxOne has been developed and made available for licensing under the GNU
General Public License and similar licenses. These licenses generally permit
anyone to copy, modify and distribute the software, subject only to the
restriction that any resulting or derivative work is made available to the
public under the same terms. Therefore, although we retain the copyrights to the
code that we develop ourselves, due to the open source nature of our software
products and the licenses under which we develop and distribute them, our most
valuable intellectual property is our collection of trademarks. We rely
primarily on a combination of trademarks and copyrights to protect our
intellectual property. We also enter into confidentiality and nondisclosure
agreements with our employees and consultants, and generally control access to
and distribution of our documentation and other proprietary information.
We have registered the trademarks/service marks "LinuxOne", "LinuxOne
OS","One Stop for Linux" and "LinuxOpen" in the United States and will seek
registrations in Hong Kong, Japan, China, Taiwan and Singapore. We will also
pursue protection of our marks in Europe.
38
<PAGE>
Despite our efforts to protect our trademark/service mark rights,
unauthorized third parties may attempt to misappropriate our rights. We cannot
be certain that we will succeed in preventing the misappropriation of our
trademarks/service marks in these circumstances or that we will be able to
prevent unauthorized use in the future. The laws of some foreign countries do
not protect our trademark/service mark rights to the same extent as do the laws
of the United States. In addition, policing unauthorized use of our rights is
difficult, expensive and time consuming. The loss of any material trademark or
service mark could have a material adverse effect on our business, operating
results and financial condition.
Although we do not believe that our products infringe the rights of third
parties, third parties may, in the future, assert infringement claims against us
which may result in costly litigation or require us to obtain a license to
third-party intellectual rights. There can be no assurance that such licenses
will be available on reasonable terms or at all, which could have a material
adverse effect on our business, operating results and financial condition.
EMPLOYEES
---------
As of August 31, 1999, we had a total of 10 employees. Of the total
employees, 7 were in software engineering, 1 in sales and marketing, 1 in
customer service and technical support, and 1 in finance and administration. Our
future success will depend in part on our ability to attract, retain and
motivate highly qualified technical and management personnel, for whom
competition is intense. From time to time we may also employ independent
contractors to support our professional services, product development, sales,
marketing and business development organizations. Our employees are not
represented by any labor union and are not organized under a collective
bargaining agreement, and we have never experienced a work stoppage. We believe
our relations with our employees are good.
FACILITIES
----------
Our headquarters are currently located in a leased facility in Mountain
View, California, consisting of approximately 2,500 square feet under a verbal
monthly lease. The monthly rental expense under this lease is approximately
$4,200. We believe that additional space will be required as our business
expands and will be available on acceptable terms.
LEGAL PROCEEDINGS
-----------------
We are not a party to any material legal proceedings. We may from time to
time become a party to various legal proceedings arising in the ordinary course
of our business.
MANAGEMENT
----------
Executive Officers and Directors
- --------------------------------
The following table sets forth our executive officers, directors and key
employees, their ages and the positions held by them as of July 31, 1999:
39
MANAGEMENT
----------
Executive Officers and Directors
- --------------------------------
The following table sets forth our executive officers, directors and key
employees, their ages and the positions held by them as of July 31, 1999:
39
<PAGE>
<TABLE>
<CAPTION>
Name Age Position(s)
- ---------------------------- ---- -------------------------
<S> <C> <C>
Wun C. Chiou, Sr. 57 President, Director, Chairman
of Board
Stan Kawczynski 54 Chief Financial Officer,
Treasurer and Director
Robert Philips 45 Vice President-Marketing
Paul Kraus 54 Secretary and Director
</TABLE>
Background of Officers and Directors
- ------------------------------------
Dr. Wun C. Chiou, Sr. has been the President, Chief Executive Officer and
Chairman of the Board of Directors of our Company since inception. He has been
active in the computer industry for more than 15 years. He holds a B.S. Degree
from National Taiwan University in General Science and Psychology; a Masters
Degree from Bowling Green State University in Physics and Mathematics; and a
Ph.D. from Ohio State University in Biophysics. Dr. Chiou has also completed
post-doctoral work at Ohio State University on image modeling. Dr. Chiou has
held a variety of positions including Research Physicist for the U.S. Army,
Areomed (1974-1979); Senior Staff Engineer for Hughes Aircraft Co. (1979-1981);
Research Scientist for Teledyne Systems, Co., Northridge (1981-1982); Senior
Technologist for the California Institute of Technology, Jet Propulsion
Laboratory (1982-1984); Chief of Artificial Intelligent Branch of NASA Ames
Research Center (1984-85); Consultant for Peterson & Co., Northridge; Senior
Scientist for Lockheed, Palo Alto Research Center where he organized Lockheed's
Artificial Intelligence Center (1985-1987); Founder, President and Director of
Pacific Microelectronics, Inc. (1987-1996), which became NetUSA, Inc., a public
corporation (1996-1999). Dr. Chiou resigned from NetUSA, Inc. and formed the
Company in March 1999. Dr. Chiou has also taught at Cal State, Northridge and
U.C. Berkeley Extension. He possesses knowledge and research experience
regarding expert systems, artificial intelligence, image modeling, optical
information processing, and system integration, among others. Prior to founding
the Company, he was the Branch Chief of Artificial Intelligence software at
NASA, at Ames Research Center in Mountain View. He has published many
scientific articles in a variety of periodicals. Dr. Chiou is a member of the
Optical Society of America, Society of Photo-Instrumentation Engineers, and the
National Association for Artificial Intelligence. He will devote full time to
the business of our Company.
Stan Kawczynski has been the Treasurer and Chief Financial Officer, and a
Director of our Company since April, 1999. Since 1995, he has also been Vice
President of Investments, specializing in estate and retirement planning, for
Birchtree Financial Services, Inc., a member NASD/SIPC wholly-owned subsidiary
of Block Financial Corporation, with offices in Sunnyvale and San Rafael,
California and Kansas City, Missouri. From 1993 to 1995, he was Vice President
of Government Affairs, as well as the Director and Chairman of the Board of
Trilogy Systems, Inc., a new business opportunities incubator company.
Throughout his 19-year investment career, Mr. Kawczynski has held positions of
Account Executive with Dean Witter Reynolds, Senior Account Executive with
40
<PAGE>
PaineWebber and Vice President of Investments with First California Capital
Markets Group. He is an active member of many civic organizations, including
Council Member, former Mayor of the City of Sunnyvale, California, candidate for
the California State Assembly, Chair of the Advisory Counsel for the Digital
Clubhouse Network, member of the Steering Committee on Information Technology
and Communication for the National League of Cities, past Chair, Policy
Committee on Transportation, Communication and Public Works for the League of
California Cities, past Zone Chairman, President and Secretary of the Sunnyvale
Host Lions Club, and many others. Mr. Kawczynski will devote his time as
required to the business of our Company.
Robert Philips has been Vice President of Marketing for our Company since
April, 1999. Since 1996, he has also been a Communications Engineer for NEC
Electronics, Inc. From 1995 to 1996, he was Vice President of Engineering and
Marketing for GIK Technology and from 1991 to 1995, he was Vice President of
Marketing for Mobile Link Solutions, Inc. He has been a founding executive for
numerous Silicon Valley start up firms with responsibilities varying from
development of business plans, proposals, collateral materials, advertising and
public relations. Mr. Philips has a technical background in hardware, software,
and network technology that provides insight to high-technology products. He
holds a B.S. Degree in Physics, a B.S. Degree in Philosophy, an MBA Degree in
Marketing and an MBA Degree-Extended Edition in High Technology Management. Mr.
Philips will devote his time as required to the business of our Company.
Paul Kraus has been a Director and Secretary of our Company since April,
1999. He is a licensed California architect and founder of the Design
Partnership in San Francisco, California. He was also founder and principal of
Investpac Inc., a company which developed real estate during the 1980's. From
1992 to the present, he has been the President/CEO of Goodco Press Inc., a
lithographic company located in Silicon Valley. Mr. Kraus will devote his time
as required to the business of our Company.
Election of Officers and Directors
- ----------------------------------
Our executive officers are elected by the Board of Directors on an annual
basis and serve until their successors are duly elected and qualified. There are
no family relationships among any of our executive officers or directors.
Director Compensation
- ---------------------
Directors are reimbursed for reasonable out-of-pocket expenses incurred in
attending meetings of the Board of Directors and for meetings of any committees
of the Board of Directors on which they serve. Directors are also eligible to
participate in our 1999 Stock Option and Incentive Plan.
EXECUTIVE COMPENSATION
----------------------
None of our officers or directors have received any cash compensation to
date. However, our officers and directors have received options to purchase an
aggregate of 520,000 shares at an exercise price of $1.00 per share, valid for
three (3) years.
41
<PAGE>
1999 Employee Stock Option and Incentive Plan
- ---------------------------------------------
The 1999 Employee Stock Option and Incentive Plan was adopted by the Board
of Directors and approved by the stockholders in March, 1999. The Plan provides
for the issuance of up to a maximum of 600,000 shares of common stock and is
administered by the Board of Directors. As of August 31, 1999, no shares have
been allocated, granted or issued under the Plan.
Limitation of Liability and Indemnification of Officers and Directors
- ---------------------------------------------------------------------
Our Articles of Incorporation and By-Laws provide that our directors and
officers shall be indemnified by us to the fullest extent permitted by Nevada
law, as it now exists or may in the future be amended, against all expenses and
liabilities reasonably incurred in connection with their service for or on our
behalf. In addition, the Articles of Incorporation provide that our directors
will not be personally liable for monetary damages to us for breaches of their
fiduciary duty as directors, unless they violated their duty of loyalty to us or
our stockholders, acted in bad faith, knowingly or intentionally violated the
law, authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors.
TRANSACTIONS WITH AFFILIATES
----------------------------
On March 12, 1999, Wun C. Chiou, Sr. contributed organizational services,
proprietary rights and business plans, valued at $2,400, and cash in the sum of
$2,600, to the Company as consideration for the issuance of 5,000,000 shares of
restricted Common Stock, par value, $.001. On that date, he gifted 2,000,000
shares of the 5,000,000 shares to Global Village Foundation, a charitable
organization of which Dr. Chiou serves as a director. He also made gifts of an
additional 1,000,000 of the 5,000,000 shares to members of his family, the
largest gift being in the amount of 300,000 shares. Dr. Chiou presently owns
2,000,000 shares and has voting power as to the 2,000,000 shares owned by Global
Village Foundation.
Global Village Foundation also purchased 100,000 shares of common stock in
a private placement for $1.00 per share.
Dr. Chiou has no direct or indirect ownership or control over the 1,000,000
Shares he gifted to his family members.
We believe that all transactions set forth above were made on terms no less
favorable to us than would have been obtained from unaffiliated third parties.
PRINCIPAL STOCKHOLDERS
----------------------
The following table sets forth certain information known to us regarding
beneficial ownership of our common stock as of July 31, 1999 and as adjusted to
reflect the sale of the shares of common stock in this offering by:
- each person known by us to be the beneficial owner of more than 5% of our
common stock;
- each executive officer whose salary and bonus during the fiscal year ended
July 31, 1999 exceeded $100,000 for such fiscal year;
42
<PAGE>
- each of our directors; and
- all executive officers and directors as a group.
Unless otherwise indicated, to our knowledge, each stockholder possesses
sole voting and investment power over the shares listed, except for shares owned
jointly with that person's spouse.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
------------------
NAME AND ADDRESS OF BEFORE AFTER
BENEFICIAL OWNER (1) SHARES BENEFICIALLY OWNED OFFERING OFFERING
- ------------------- -------------------------- --------- --------
<S> <C> <C> <C>
Wun C. Chiou, Sr. 2,000,000 32% 22%
1619 Morgan Court
Mountain View, CA. 94043
Global Village Foundation (2) 2,100,000 34% 23%
- ------------------------- --------- ---- -----
All executive officers and 4,100,000 66% 45%
directors as a group
</TABLE>
(1) Owners have direct beneficial ownership and possess sole voting rights over
their shares.
(2) A non-profit, charitable corporation of which Dr. Chiou serves as a
director.
DESCRIPTION OF CAPITAL STOCK
----------------------------
General
- -------
Our authorized capital stock consists of 25,000,000 shares of common stock,
par value $.001 per share.
The following summary description of our capital stock is not intended to be
complete and is qualified by reference to the provisions of applicable law and
to our Certificate of Incorporation and By-laws, filed as exhibits to the
registration statement of which this prospectus is a part.
Common Stock
- ------------
As of July 31, 1999, there were 6,162,500 shares of common stock outstanding
held by 21 stockholders of record. Based upon the number of shares outstanding
as of that date and giving effect to the issuance of the 3,000,000 shares of
common stock we are offering, there will be 9,162,500 shares of common stock
outstanding upon the closing of this offering.
43
<PAGE>
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and do not have cumulative voting
rights. Directors are elected by a plurality of the votes of the shares present
in person or by proxy at the meeting and entitled to vote in such election.
Holders of common stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor, after provision has been made for any preferential dividend rights of
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
our Company, the holders of common stock are entitled to receive ratably any of
our net assets available after the payment of all of our debts and other
liabilities and after the satisfaction of the rights of any outstanding
preferred stock. Holders of our common stock have no preemptive, subscription,
redemption or conversion rights, nor are they entitled to the benefit of any
sinking fund. The outstanding shares of common stock are, and the shares offered
by us in this offering will be, when issued and paid for, validly issued, fully
paid and non-assessable. The rights, powers, preferences and privileges of
holders of common stock are subordinate to, and may be adversely affected by,
the rights of the holders of shares of any series of preferred stock which we
may designate and issue in the future.
Nevada Law and Certain Charter and By-Law Provisions
- ----------------------------------------------------
Our By-Laws provide that any action required or permitted to be taken by our
stockholders at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before the meeting and may not be taken by
written action in lieu of a meeting. Our By-laws provide that special meetings
of the stockholders may only be called by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer or our President. Our
By-laws further provide that in order for any matter to be considered "properly
brought" before a meeting, a stockholder must comply with requirements regarding
advance notice to us. The foregoing provisions could have the effect of delaying
until the next stockholders' meeting stockholder actions which are favored by
the holders of a majority of our outstanding voting securities. These provisions
may also discourage another person or entity from making a tender offer for our
common stock, because such person or entity, even if it acquired a majority of
our outstanding voting securities, would be able to take action as a
stockholder, such as electing new directors or approving a merger, only at a
duly called stockholders meeting, and not by written consent.
Transfer Agent and Registrar
- ----------------------------
The transfer agent and registrar for our common stock is Transfer Online,
227 S.W. Pine Street, Suite 300, Portland, Oregon 97204.
Shares Eligible for Future Sale
- -------------------------------
Prior to this offering, there has been no market for our common stock.
After this offering, there will still be 15,837,500 shares of our authorized,
but unissued common stock. Future sales of substantial amounts of common stock
in the public market could adversely affect prevailing market prices from time
to time. Furthermore, 6,162,500 outstanding shares will be available for sale
approximately 6 months after this offering because certain legal restrictions on
resale will lapse. Sales of substantial amounts of our common stock in the
public market after the restrictions lapse could adversely affect the prevailing
market price and our ability to raise equity capital in the future.
44
<PAGE>
Sale of Restricted Shares
- -------------------------
Based on shares outstanding at July 31, 1999, upon completion of this
offering, we will have outstanding an aggregate of 9,162,500 shares of common
stock. Of these shares, the 3,000,000 shares sold in this offering will be
freely tradable without restrictions or further registration under the
Securities Act, unless such shares are purchased by an existing affiliate of
LinuxOne as that term is defined in Rule 144 under the Securities Act.
The remaining 6,162,500 shares of common stock held by existing stockholders
are restricted shares or are restricted by the contractual provisions described
below. Restricted shares may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144, 144(k) or 701
promulgated under the Securities Act, which are summarized below. Of these
restricted shares, none of the outstanding shares will be available for resale
in the public market in reliance on Rule 144(k).
Under Rule 144 as currently in effect, a person who has beneficially owned
restricted shares for at least one year and has complied with the requirements
described below would be entitled to sell a certain number of shares within any
three-month period. That number of shares cannot exceed the greater of one
percent of the number of shares of common stock then outstanding, which will
equal approximately 9,162,500 shares immediately after this offering, or the
average weekly trading volume of the common stock on the Nasdaq National Market
during the four calendar weeks preceding the filing of a notice on Form 144
reporting such sale. Sales under Rule 144 are also restricted by certain manner
of sale provisions, notice requirements and the availability of current public
information about our Company. Rule 144 also provides that affiliates of our
Company who are selling shares of common stock that are not restricted shares
must nonetheless comply with the same restrictions applicable to restricted
shares with the exception of the holding period requirement.
Under Rule 144(k), a person who is not deemed to have been an affiliate of
ours at any time during the 90 days preceding a sale, and who has beneficially
owned the shares proposed to be sold for at least two years, is entitled to sell
such shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Accordingly, unless
otherwise restricted, these shares may therefore be sold immediately upon the
completion of this offering.
Stock Options
- -------------
Rule 701 provides that the shares of common stock acquired upon the exercise
of options or other rights granted under our stock plans may be resold by
persons, other than affiliates, beginning 90 days after the date of this
prospectus, restricted only by the manner of sale provisions of Rule 144, and by
affiliates in accordance with Rule 144, without compliance with its one-year
minimum holding period. As of July 31, 1999, no outstanding shares will be
available for resale in the public market in reliance on Rule 701.
We intend to file one or more registration statements on Form S-8 under the
Securities Act following this offering to register all shares of common stock
which are issuable upon exercise of outstanding stock options or other rights
granted under our Stock Option and Incentive Plan. These registration
statements are expected to become effective upon filing. Shares covered by these
registration statements will thereupon be eligible for sale in the public
markets.
45
<PAGE>
Effect of Sales of Shares
- --------------------------
Prior to this offering, there has been no public market for our common stock
and no predictions can be made as to the effect, if any, that market sales of
shares of common stock prevailing from time to time, or the availability of
shares for future sale, may have on the market price for the common stock,
assuming a market develops. Sales of substantial amounts of common stock, or the
perception that such sales could occur, could adversely effect prevailing market
prices, if any, for the common stock and could impair our future ability to
obtain capital through an offering of equity securities.
DETERMINATION OF OFFERING PRICE
-------------------------------
The public offering price of the shares has been determined arbitrarily by
us. The price does not bear any relationship to our assets, book value,
earnings, or other established criteria for valuing a privately held company. In
determining the number of shares to be offered and the offering price, our
capital structure, financial condition, prospects for business operations, the
computer software industry in general, and the overall condition of the
securities market were factors considered by us. Accordingly, the offering price
should not be considered an indication of the actual value of our securities.
PLAN OF DISTRIBUTION
--------------------
The shares will be offered for sale by our management for a period of 180
days, unless extended in the discretion of our Board of Directors for an
additional 90 days. No commissions will be paid to our management for any sales
they make. This is a "self-underwritten" offering.
LEGAL MATTERS
-------------
The validity of the shares of common stock to be issued in this offering
will be passed upon for us by Michael J. Morrison, Chtd., 1495 Ridgeview Drive,
Suite 220, Reno, Nevada 89509.
EXPERTS
-------
The financial statements for the period from inception to the period ended
July 31, 1999 included in this prospectus have been so included in reliance upon
the report of Mark Bailey & Co., Ltd., independent accountants, given on the
authority of said firm as experts in auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
-----------------------------------
LinuxOne has filed with the Commission a registration statement on Form SB-2
under the Securities Act registering the common stock to be sold in this
offering. As permitted by the rules and regulations of the Commission, this
prospectus omits certain information contained in the registration statement and
the exhibits and schedules filed as a part of the registration statement. For
further information concerning LinuxOne and the common stock to be sold in this
offering, you should refer to the registration statement and to the exhibits and
schedules filed as part of the registration statement. Statements contained in
this prospectus regarding the contents of any agreement or other document filed
46
<PAGE>
as an exhibit to the registration statement are not necessarily complete, and in
each instance reference is made to the copy of the agreement filed as an exhibit
to the registration statement each statement being qualified by this reference.
The registration statement, including the exhibits and schedules filed as a part
of the registration statement, may be inspected at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices located at
Seven World Trade Center, New York, New York 10007 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and copies of all or any part thereof may
be obtained from such offices upon payment of the prescribed fees. You may call
the Commission at 1-800-SEC-0330 for further information on the operation of the
public reference rooms and you can request copies of the documents upon payment
of a duplicating fee, by writing to the Commission. In addition, the Commission
maintains a web site that contains reports, proxy and information statements and
other information regarding registrants (including LinuxOne) that file
electronically with the Commission which can be accessed at http://www.sec.gov.
47
<PAGE>
LINUXONE, INC.
FINANCIAL STATEMENTS
FROM INCEPTION (MARCH 10, 1999)
THROUGH
JULY 31, 1999
WITH
AUDIT REPORT OF
CERTIFIED PUBLIC ACCOUNTANTS
48
<PAGE>
MARK BAILEY & CO. LTD.
Certified Public Accountants
Management Consultants
Office Address: Mailing Address:
1495 Ridgeview Drive, Suite 200 P.O. Box 6060
Reno, Nevada 89509-6634 Reno, Nevada 89513
Independent Auditors' Report
September 13, 1999
Board of Directors
LinuxOne, Inc.
We have audited the accompanying balance sheet of LinuxOne, Inc. (a Company in
the development stage) as of July 31, 1999 and the related statements of
operations, stockholders' equity and cash flows from inception (March 10, 1999)
through July 31, 1999. These 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 financial position of LinuxOne, Inc. (a Company in
the development stage), as of July 31, 1999 and the results of its operations
and its cash flows from inception (March 10, 1999) through July 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 1 to the
financial statements, the Company is in the development stage, and existing cash
and available credit are insufficient to fund the Company's cash flow needs for
the next year. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Mark Bailey & Co., Ltd.
Reno, Nevada
49
<PAGE>
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
BALANCE SHEET
-------------
July 31, 1999
<TABLE>
<CAPTION>
ASSETS
------
<S> <C>
CURRENT ASSETS
- --------------
Cash $ 147,336
-----------
Total current assets $ 147,336
PROPERTY AND EQUIPMENT (NOTE 1)
- -------------------------------
Computer equipment $ 5,221
Accumulated depreciation (237)
------------
Total Property and Equipment $ 4,984
-----------
OTHER ASSETS (NOTES 3)
- ----------------------
Organizational cost $ 25,076
-----------
Total Assets $ 177,396
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- --------------------
Accounts payable $ 25,737
Accrued payroll taxes 349
-----------
Total Liabilities $ 26,086
-----------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, $.001 par value, 25,000,000
authorized, 6,162,500 shares issued
and outstanding $ 6,163
Additional paid-in-capital 162,237
Deficit accumulated during the development stage (17,190)
-----------
Total stockholders' equity 151,310
-----------
Total liabilities and stockholders' equity $ 177,396
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
50
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
STATEMENT OF OPERATIONS
-----------------------
For the Period From Inception (March 10, 1999) Through July 31, 1999
<TABLE>
<CAPTION>
<S> <C>
REVENUE $ -
OTHER INCOME
Interest income (919)
COST AND EXPENSES
Operating and administrative expenses (17,872)
Depreciation expense (237)
-----------
Net loss 17,190
===========
Loss per share $.003
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
51
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
For the Period From Inception (March 10, 1999) through July 31, 1999
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained Total
Shares Amount Capital Deficit Equity
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of
Shares To
LinuxOne Inc.'s
President for
cash and
Services on
3/12/99 . . . . . 5,000,000 $5,000 $ - $ - $ 5,000
Issuance of
shares To
Unrelated
parties For
Services on
5/25/99 . . . . . 1,000,000 $1,000 $ - $ - $ 1,000
Issuance of
shares to
A related party
for cash
On 6/18/99. . . . 100,000 $ 100 $ 99,900 $ - $ 100,000
Issuance of
shares to
Unrelated parties
For Cash from
5/4/99 to
7/9/99. . . . . . 62,500 $ 63 $ 62,437 $ - $ 62,500
Net loss for the
period. . . . . . - - - $(17,190) $ (17,190)
------------------------------------------------------------
6,612,500 $6,163 $ 162,337 $(17,190) $(17,190)
=============================================================
</TABLE>
52
<PAGE>
LINUXONE, INC.
(A Company in the Development Stage)
STATEMENT OF CASH FLOWS
------------------------------------------
For the Period from Inception (March 10, 1999) through July 31, 1999
<TABLE>
<CAPTION>
Cash Flows from Operating Activities
- ------------------------------------
<S> <C>
Net Loss $ (17,190)
Adjustment to reconcile net loss to net cash
used in Operating activities:
Depreciation $ 237
Consulting service expenses paid via stock
issuance 3,400
Increase in accounts payable 690
Increase in accrued payroll liabilities 349
Net cash used in operating activities 12,514
Cash Flows from Investing Activities
- ------------------------------------
Purchase of equipment $ (5,221)
Organizational cost (29)
Net cash used in investing activities $ (5,250)
Cash Flows from Financing Activities
- ------------------------------------
Proceeds received from issuance of stock $ 165,100
Net cash provided by financing activities $ 165,100
Net increase in cash and cash equivalents (Note 1) $ 147,336
Cash and cash equivalents at March 10, 1999 $ -
----------
Cash and cash equivalents at July 31, 1999 $ 147,336
=========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements
53
<PAGE>
1. Organization and Significant Accounting Policies
The Company was incorporated in the State of Nevada on March 10, 1999. The
Company is in the development stage as its operations principally involve
research and development, market analysis, and other business planning
activities, and no revenue has been generated from its business activities. The
Company intends to create software products for the Linux operating system.
These financial statements have been prepared assuming that the Company will
continue as a going concern. The Company is currently in the development stage,
and existing cash and available credit are insufficient to fund the Company's
cash flow needs for the next year. The Company raised $165,100 through private
offerings between March 1999 and July 1999. The Company plans to raise
$16,000,000 within the next few months by offering to sell 2,000,000 shares of
its common stock pursuant to a registration statement to be filed under Form
SB-2, promulgated under the Securities Act of 1933, as amended. Management
believes that the $16,000,000 expected to be raised by the offering, combined
with the $165,100 already raised, will provide the Company sufficient funding
for its cash flow needs for the next year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
2. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
3. Organization and Significant Accounting Policies (continued) Property and
Equipment
Property and equipment are depreciated under Modified Accelerated Cost Recovery
System over the estimated useful lives of the assets. Depreciation expense from
March 10, 1999 to July 31, 1999 is $237.
4. Federal Income Taxes
The Company will be taxed under Subchapter C Corporation of the Internal Revenue
Code for its U. S. operations.
4. Other Assets
During the period ended July 31, 1999, the Company incurred a total of $25,076
in attorney fees related to the SB-2 filing ("Filing"). As of July 31, 1999, the
Filing had not yet occurred, and no proceeds had been received. The entire
amount of $25,076 incurred, therefore, was capitalized as an organizational
cost, but will be offset against proceeds received from the Filing at a future
date.
5. Related Party Transactions
On March 12, 1999, the President of the Company acquired 5,000,000 shares of the
Company's common stock at $0.001 per share for a total of $2,600 in cash and
$2,400 in services provided (see Note 6). On the same date, he gifted 3,000,000
54
<PAGE>
shares out of the 5,000,000 shares he acquired to his family members and to a
not-for-profit organization, for which he is the director. On June 18, 1999,
the same not-for-profit organization acquired 100,000 shares of the Company's
common stock at $1.00 per share for a total of $100,000 in cash.
6. Fair Value of Financial Investments
Financial Accounting Standards Board ("FASB") Statement No. 107, "Disclosure
About Fair Value of Financial Instruments" is a part of a continuing process by
the FASB to improve information on financial statements. The following methods
and assumptions were used by the Company in estimating its fair value
disclosures for such financial instruments as defined by the Statement.
The carrying amount reported in the balance sheet for cash approximates fair
value at July 31, 1999.
The carrying amount reported in the balance sheet for accounts payable
approximates fair value at July 31, 1999 as it matures in less than one year.
7. Stockholders' Equity
On March 12, 1999, the Company issued 5,000,000 shares of common stock to its
President at $0.001 per share for a total of $2,600 in cash and $2,400 in
consulting services provided (see Note 3). On the same date, the Company also
issued 1,000,000 shares of its common stock to three unrelated parties at $0.001
per share for a total of $1,000 in consulting services provided. On both
occasions, common stock was issued based on the fair market value of the
services provided. On June 18, 1999, the Company issued 100,000 shares of its
common stock to a related party at $1.00 per share for a total of $100,000 in
cash (see Note 3). In addition, the Company issued 62,500 shares of its common
stock to unrelated parties at various times from May 5, 1999 through July 9,
1999 at $1.00 per share for a total of $ 62,500 in cash.
8. Contingencies
The Company maintains amounts on deposit with financial institutions which
exceed federally insured limits. The Company has not experienced any
significant losses in such accounts, nor does the Company believe it is exposed
to any significant credit risk.
55
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses payable in connection with the sale of the common stock
in this offering are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee $ 6,672
NASD filing fee 2,900
Nasdaq National Market listing fee 14,000
Printing and engraving expenses 125,000
Legal fees and expenses 500,000
Accounting fees and expenses 25,000
Transfer agent and registrar fees and expenses 10,000
Miscellaneous.(Selling and Administrative Expenses) 319,328
-----------
Total $ 1,000,000
------------
</TABLE>
The registrant will bear all of the expenses shown above.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Nevada General Corporation Law, the registrant's charter and by-laws
provide for indemnification of the registrant's directors and officers for
liabilities and expenses that they may incur in such capacities. In general,
directors and officers are indemnified with respect to actions taken in good
faith in a manner reasonably believed to be in, or not opposed to, the best
interests of the registrant, and with respect to any criminal action or
proceeding, actions that the indemnitee had no reasonable cause to believe were
unlawful. Reference is made to the registrant's corporate charter filed as
Exhibit 3.1 and the registrant's by-laws filed as Exhibit 3.2 hereto.
The registrant intends to apply for a directors' and officers' insurance
policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In the three years preceding the filing of this registration statement, the
registrant has sold the following securities that were not registered under the
Securities Act:
On March 12, 1999, the registrant issued 5,000,000 shares of its common stock to
Dr. Wun C. Chiou, Sr., for (1) organizational/consulting services, proprietary
rights and business plans, in the amount of $2,400.00 and (2) cash in the sum of
$2,600.00. On that same date, the registrant also issued 1,000,000 to three (3)
consultants for services and expenses. These shares were issued in private
placement transactions pursuant to Sec. 4(2) of the Securities Act of 1933, as
amended. The transactions did not involve a public offering; all parties were
accredited investors; and the offering did not involve advertising or
solicitation.
56
<PAGE>
Between May 4, 1999 and July 9, 1999, the registrant issued 162,500 shares of
common stock in private placements, for $1.00 per share, to nine (9) separate
investors. One of the investors was Global Village Foundation, which purchased
100,000 shares; it is a principal shareholder and affiliate of the registrant.
None of the other 8 investors are affiliates of the registrant. The sales were
in transactions pursuant to Regulation D, Rule 506.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon the exemption provided by Section 4(2) and/or
3(b)of the Securities Act for transactions not involving a public offering
and/or Rule 701 and/or Regulation S.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
- --------- ----------------------------------------------------------
<S> <C>
3.1 Certificate of Incorporation of the registrant
3.2 By-laws of the registrant
4.1 Specimen certificate representing the common stock
5.1 Opinion of counsel, Michael J. Morrison, Chtd.
23.1 Consent of Michael J. Morrison, Chtd. (included in Exhibit 5.1)
23.2 Consent of Mark Bailey & Co., Ltd., Certified Public Accountants
27.1 Financial Data Schedule
</TABLE>
(b) FINANCIAL STATEMENTS SCHEDULES:
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, the required information is disclosed in the notes to the
financial statements or the schedules are inapplicable, and therefore have been
omitted.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
58
<PAGE>
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The registrant hereby undertakes (1) to promptly provide to the purchasers
stock certificates in such denominations and registered in such names as
required;(2) that for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and (3) that for the purpose
of determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Mountain View, California on
September 20, 1999.
LINUXONE, INC.
BY: /S/ Wun C. Chiou, Sr.
CHIEF EXECUTIVE OFFICER
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------- -------------------
<S> <C> <C>
/s/ Wun C. Chiou, Sr. Chairman and Chief September 20, 1999
(principal) Executive
Officer and Director
/s/ Stan Kawczynski Chief Financial Officer September 20, 1999
(principal financial and
accounting officer) and
Director
/s/ Robert Philips Vice-President-Marketing September 20,1999
/s/ Robert Philips
/s/ Paul Kraus Secretary and Director September 20, 1999
</TABLE>
File #C5826-99
March 10, 1999
In the Office of
Dean Heller
Secretary of State
ARTICLES OF INCORPORATION
OF
LinuxOne, Inc.
The undersigned, to form a Nevada corporation, CERTIFIES THAT:
I. NAME: The name of the corporation is: LinuxOne, Inc.
II. REGISTERED OFFICE; RESIDENT AGENT: The location of the
registered office of this corporation within the State of Nevada is 1025
Ridgeview Drive, Suite 400, Reno, Nevada 89509; this corporation may maintain an
office or offices in such other place within or without the State of Nevada as
may be from time to time designated by the Board of Directors or by the By-Laws
of the corporation; and this corporation may conduct all corporation business of
every kind or nature, including the holding of any meetings of directors or
shareholders, inside or outside the State of Nevada, as well as without the
State of Nevada.
The Resident Agent for the corpora-tion shall be Michael J. Morrison,
Esq., 1025 Ridgeview Drive, Suite 400, Reno, Nevada 89509.
III. PURPOSE: The purpose for which this corporation is formed is: To
engage in any lawful activity.
IV. AUTHORIZATION OF CAPITAL STOCK: The amount of the total
authorized capital stock of the corporation shall be Twenty-Five Thousand
Dollars ($25,000), consisting of Twenty-Five Million (25,000,000) shares of
Common Stock, par value $.001 per share.
V. INCORPORATOR: The name and post office address of the Incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
Rita S. Dickson 1025 Ridgeview Drive, Suite 400
Reno, Nevada 89509
VI. DIRECTORS: The governing board of this corporation shall be known
as directors, and the first Board shall consist of one (1) director.
The number of directors may, pursuant to the By-Laws, be increased or
decreased by the Board of Directors, provided there shall be no less than one
(1) nor more than nine (9) Directors.
The name and post office address of the directors constituting the
first Board of Directors is as follows:
NAME POST OFFICE ADDRESS
Wun C. Chiou, Sr. 210 San Antonio Circle, Suite C250
Mountain View, California 94040
VII. STOCK NON-ASSESSABLE: The capital stock, or the holders thereof,
after the amount of the subscription price has been paid in, shall not be
subject to any assessment whatsoever to pay the debts of the corporation.
VIII. TERM OF EXISTENCE: This corporation shall have perpetual
existence.
IX. CUMULATIVE VOTING: No cumulative voting shall be permitted in the
election of directors.
X. PREEMPTIVE RIGHTS: Shareholders shall not be entitled to preemptive
rights.
XI. LIMITED LIABILITY: No officer or director of the Corporation
shall be personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as an officer or director, except for
liability (i) for any breach of the officer or director's duty of loyalty to the
Corporation or its Stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, or (iii) for
any transaction from which the officer or director derived any improper personal
benefit. If the Nevada General Corporation Law is amended after the date of
incorpora-tion to authorize corporate action further eliminating or limiting the
personal liability of officers or directors, then the liability of an officer
or director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Nevada General Corporation Law, or amendments thereto.
No repeal or modification of this paragraph shall adversely affect any right or
protection of an officer or director of the Corporation existing at the time of
such repeal or modification.
XII. INDEMNIFICATION: Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
for whom he or she is the legal representative, is or was an officer or
director of the Corporation or is or was serving at the request of the
Corporation as an officer or director of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans whether the basis of such proceeding is
alleged action in an official capacity as an officer or director or in any other
capacity while serving as an officer or director shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the Nevada
General Corporation Law, as the same exists or may hereafter be amended, (but,
in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be an officer or
director and shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that except as provided herein with respect
to proceedings seeking to enforce rights to indemnification, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
The right to indemnification conferred in this Section shall be a contract right
and shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition; provided
however, that, if the Nevada General Corporation Law requires the payment of
such expenses incurred by an officer or director in his or her capacity as an
officer or director (and not in any other capacity in which service was or is
rendered by such person while an officer or director, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, payment shall be made only upon delivery to the
Corporation of an undertaking, by or on behalf of such officer or director, to
repay all amounts so advanced if it shall ultimately be determined that such
officer or director is not entitled to be indemnified under this Section or
otherwise.
If a claim hereunder is not paid in full by the Corporation within
ninety days after a written claim has been received by the Corporation, the
claimant may, at any time thereafter, bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful, in whole or in part,
the claimant shall be entitled to be paid the expense of prosecuting such claim.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in defending any proceeding in advance of
its final disposition where the required undertaking, if any, is required, has
been tendered to the Corporation) that the claimant has not met the standards of
conduct which make it permissible under the Nevada General Corporation Law for
the Corporation to indemnify the claimant for the amount claimed, but the burden
of proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Nevada General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the
Certificate of Incorporation, By-Law, agreement, vote of Stockholders or
disinterested directors or otherwise.
The Corporation may maintain insurance, at its expense, to protect
itself and any officer, director, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Nevada General Corporation Law.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification to any employee or agent of
the Corporation to the fullest extent of the provisions of this section with
respect to the indemnification and advancement of expenses of officers and
directors of the Corporation or individuals serving at the request of the
Corporation as an officer, director, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise.
THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Nevada, does make and file these Articles of Incorporation, hereby
declaring and certifying the facts herein stated are true, and, accordingly, has
hereunto set her hand this 10th day of March, 1999.
/s/ Rita S. Dickson
STATE OF NEVADA )
) ss.
COUNTY OF WASHOE )
On this 10th day of March, 1999, before me, a Notary Public, personally
appeared Rita S. Dickson, who acknowledged to me that she executed the above
instrument.
/s/ Michael J. Morrison,
Notary Public
My commission expires: August 24, 2002
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT BY RESIDENT AGENT
I, Michael J. Morrison, hereby accept the appointment as Resident Agent of
the above-entitled corporation in accordance with NRS 78.090. Furthermore, that
the mailing address for the above registered office is 1495 Ridgeview Drive,
Suite 220, Reno, Nevada 89509.
IN WITNESS WHEREOF, I hereunto set my hand this 10th day of March, 1999.
/s/ Michael J. Morrison, Resident Agent
BYLAWS
OF
LINUXONE, INC.
ARTICLE 1.
OFFICES
1.1 Business Office
The principal business office ("principal office") of the corporation
shall be located at any place either within or without the State of Nevada as
designated in the corporation's most current Annual Report filed with the Nevada
Secretary of State. The corporation may have such other offices, either within
or without the State of Nevada, as the Board of Directors may designate or as
the business of the corporation may require from time to time. The corporation
shall maintain at its principal office a copy of certain records, as specified
in Section 2.14 of Article 2.
1.2 Registered Office
The registered office of the corporation shall be located within
Nevada and may be, but need not be, identical with the principal office,
provided the principal office is located within Nevada. The address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE 2.
SHAREHOLDERS
2.1 Annual Shareholder Meeting
The annual meeting of the shareholders shall be held in March of each
year, or at a date and time fixed by the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may come
before the meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Nevada, such meeting shall be held on the next
succeeding business day.
If the election of directors shall not be held on the day designated
herein for any annual meeting of the shareholders, or at any subsequent
continuation after adjournment thereof, the Board of Directors shall cause the
election to be held at a special meeting of the shareholders as soon thereafter
as convenient.
2.2 Special Shareholder Meetings.
Special meetings of the shareholders, for any purpose or purposes
described in the notice of meeting, may be called by the President, the Chairman
of the Board of Directors, the Chief Executive Officer or the Board of
Directors, and shall be called by the President at the written request of the
holders of not less than one-third of all
outstanding shares of the corporation entitled to vote on any issue at the
meeting.
2.3 Place of Shareholder Meetings
The Board of Directors may designate any place, either within or
without the State of Nevada, as the place for any annual or any special meeting
of the shareholders, unless by written consent, which may be in the form of
waivers of notice or otherwise, all shareholders entitled to vote at the meeting
designate a different place, either within or without the State of Nevada, as
the place for the holding of such meeting. If no designation is made by either
the Board of Directors or unanimous action of the voting shareholders, the place
of meeting shall be the principal office of the corporation in the State of
Nevada.
2.4 Notice of Shareholder Meeting
(a) Required Notice. Written notice stating the place, day and hour of any
annual or special shareholder meeting shall be delivered not less than 10 nor
more than 60 days before the date of the meeting, either personally or by mail,
by or at the direction of the President, the Board of Directors, the Chairman of
the Board of Directors, or other persons calling the meeting, to each
shareholder of record entitled to vote at such meeting and to any other
shareholder entitled by the laws of the State of Nevada governing corporations
(the "Act") or the Articles of Incorporation to receive notice of the meeting.
Notice shall be deemed to be effective at the earlier of: (1) when deposited in
the United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid; (2) on the date shown on the return receipt if sent by registered or
certified mail, return receipt requested, and the receipt is signed by or on
behalf of the addressee; (3) when received; or (4) 5 days after deposit in the
United States mail, if mailed postpaid and correctly addressed to an address,
provided in writing by the shareholder, which is different from that shown in
the corporation's current record of shareholders.
(b) Adjourned Meeting. If any shareholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
and place if the new date, time, and place is announced at the meeting before
adjournment. But if a new record date for the adjourned meeting is, or must be
fixed (see Section 2.5 of this Article 2) then notice must be given pursuant to
the requirements of paragraph (a) of this Section 2.4, to those persons who are
shareholders as of the new record date.
(c) Waiver of Notice. A shareholder may waive notice of the meeting (or
any notice required by the Act, Articles of Incorporation, or Bylaws), by a
writing signed by the shareholder entitled to the notice, which is delivered to
the corporation (either before or after the date and time stated in the notice)
for inclusion in the minutes of filing with the corporate records.
A shareholder's attendance at a meeting:
(1) waives objection to lack of notice or defective notice of the
meeting unless the shareholder, at the beginning of the meeting, objects to
holding the meeting or transacting business at the meeting; and
(2) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to consideration of the matter when it is
presented.
(d) Contents of Notice. The notice of each special shareholder meeting
shall include a description of the purpose or purposes for which the meeting is
called. Except as provided in this Section 2.4(d), or as provided in the
corporation's articles, or otherwise in the Act, the notice of an annual
shareholder meeting need not include a description of the purpose or purposes
for which the meeting is called.
If a purpose of any shareholder meeting is to consider either: (1) a proposed
amendment to the Articles of Incorporation (including any restated articles
requiring shareholder approval); (2) a plan of merger or share exchange; (3)
the sale, lease, exchange or other disposition of all, or substantially all of
the corporation's property; (4) the dissolution of the corporation; or (5)
the removal of a director, the notice must so state and be accompanied by,
respectively, a copy or summary of the: (a) articles of amendment; (b) plan of
merger or share exchange; and (c) transaction for disposition of all, or
substantially all, of the corporation's property. If the proposed corporate
action creates dissenters' rights, as provided in the Act, the notice must state
that shareholders are, or may be entitled to assert dissenters' rights, and must
be accompanied by a copy of relevant provisions of the Act. If the corporation
issues, or authorizes the issuance of shares for promissory notes or for
promises to render services in the future, the corporation shall report in
writing to all the shareholders the number of shares authorized or issued, and
the consideration received with or before the notice of the next shareholder
meeting. Likewise, if the corporation indemnifies or advances expenses to an
officer or a director, this shall be reported to all the shareholders with or
before notice of the next shareholder meeting.
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(e) Shareholder Proposals. In order for any shareholder proposals to be
properly brought before any meeting of shareholders, a written notice thereof
must be given to the Board of Directors not later than thirty (30) days before
the date of the shareholder meeting.
2.5 Fixing of Record Date
For the purpose of determining shareholders of any voting group
entitled to notice of or to vote at any meeting of shareholders, or shareholders
entitled to receive payment of any distribution or dividend, or in order to make
a determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. Such record date shall
not be more than 70 days prior to the date on which the particular action
requiring such determination of shareholders entitled to notice of, or to vote
at a meeting of shareholders, or shareholders entitled to receive a share
dividend or distribution. The record date for determination of such
shareholders shall be at the close of business on:
(a) With respect to an annual shareholder meeting or any special shareholder
meeting called by the Board of Directors or any person specifically authorized
by the Board of Directors or these Bylaws to call a meeting, the day before the
first notice is given to shareholders;
(b) With respect to a special shareholder meeting demanded by the shareholders,
the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the Board of
Directors authorizes the share dividend;
(d) With respect to actions taken in writing without a meeting pursuant to
Article 2, Section 2.12), the first date any shareholder signs a consent; and
(e) With respect to a distribution to shareholders, (other than one involving a
repurchase or reacquisition of shares), the date the Board of Directors
authorizes the distribution.
When a determination of shareholders entitled to vote at any meeting
of shareholders has been made, as provided in this section, such determination
shall apply to any adjournment thereof unless the Board of Directors fixes a new
record date, which it must do if the meeting is adjourned to a date more than
120 days after the date fixed for the original meeting.
If no record date has been fixed, the record date shall be the date
the written notice of the meeting is given to shareholders.
2.6 Shareholder List
The officer or agent having charge of the stock transfer books for
shares of the corporation shall, at least ten (10) days before each meeting of
shareholders, make a complete record of the shareholders entitled to vote at
each meeting of shareholders, arranged in alphabetical order, with the address
of and the number of shares held by each. The list must be arranged by class or
series of shares. The shareholder list must be available for inspection by any
shareholder, beginning two business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting. The list
shall be available at the corporation's principal office or at a place in the
city where the meeting is to be held, as set forth in the notice of meeting. A
shareholder, his agent, or attorney is entitled, on written demand, to inspect
and, subject to the requirements of Section 2.14 of this Article 2, to copy the
list during regular business hours and at his expense, during the period it is
available for inspection. The corporation shall maintain the shareholder list
in written form or in another form capable of conversion into written form
within a reasonable time.
2.7 Shareholder Quorum and Voting Requirements
A majority of the outstanding shares of the corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting, unless a new record date is or must be set for that
adjourned meeting.
If a quorum exists, a majority vote of those shares present and voting
at a duly organized meeting shall suffice to defeat or enact any proposal unless
the Statutes of the State of Nevada, the Articles of Incorporation or these
Bylaws require a greater-than-majority vote, in which event the higher vote
shall be required for the action to constitute the action of the corporation.
2.8 Increasing Either Quorum or Voting Requirements
For purposes of this Section 2.8, a "supermajority" quorum is a
requirement that more than a majority of the votes of the voting group be
present to constitute a quorum; and a "supermajority" voting requirement is any
requirement that requires the vote of more than a majority of the affirmative
votes of a voting group at a meeting.
The shareholders, but only if specifically authorized to do so by the
Articles of Incorporation, may adopt, amend, or delete a Bylaw which fixes a
"supermajority" quorum or "supermajority" voting requirement.
The adoption or amendment of a Bylaw that adds, changes, or deletes a
"supermajority" quorum or voting requirement for shareholders must meet the same
quorum requirement and be adopted by the same vote required
to take action under the quorum and voting requirement then if effect or
proposed to be adopted, whichever is greater.
A Bylaw that fixes a supermajority quorum or voting requirement for
shareholders may not be adopted, amended, or repealed by the Board of Directors.
2.9 Proxies
At all meetings of shareholders, a shareholder may vote in person, or
vote by written proxy executed in writing by the shareholder or executed by his
duly authorized attorney-in fact. Such proxy shall be filed with the secretary
of the corporation or other person authorized to tabulate votes before or at the
time of the meeting. No proxy shall be valid after eleven (11) months from the
date of its execution unless otherwise specifically provided in the proxy or
coupled with an interest.
2.10 Voting of Shares
Unless otherwise provided in the articles, each outstanding share
entitled to vote shall be entitled to one vote upon each matter submitted to a
vote at a meeting of shareholders.
Shares held by an administrator, executor, guardian or conservator may
be voted by him, either in person or by proxy, without the transfer of such
shares into his name. Shares standing in the name of a trustee may be voted by
him, either in person or by proxy, but trustee shall be entitled to vote shares
held by him without transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority to do so
is contained in an appropriate order of the Court by which such receiver was
appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares are transferred into the name of the pledgee, and
thereafter, the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to the corporation or held by it in
a fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of outstanding shares
at any given time.
Redeemable shares are not entitled to vote after notice of redemption
is mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
2.11 Corporation's Acceptance of Votes
(a) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation, if acting in good
faith, is entitled to accept the vote, consent, waiver, or proxy appointment and
give it effect as the act of the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy appointment does
not correspond to the name of its shareholder, the corporation, if acting in
good faith, is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if:
(1) the shareholder is an entity, as defined in the Act, and the name signed
purports to be that of an officer or agent of the entity;
(2) the name signed purports to be that of an administrator, executor,
guardian or conservator representing the shareholder and, if the corporation
requests, evidence of fiduciary status acceptable to the corporation has been
presented with respect to the vote, consent, waiver, or proxy appointment;
(3) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver or proxy appointment;
(4) the name signed purports to be that of a pledgee, beneficial owner, or
attorney-in-fact of the shareholder and, if the corporation requests, evidence
acceptable to the corporation of the signatory's authority to sign for the
shareholder has been presented with respect to the vote, consent, waiver, or
proxy appointment; or
(5) the shares are held in the name of two or more persons as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all the
co-owners.
(c) The corporation is entitled to reject a vote, consent, waiver, or proxy
appointment if the secretary or other officer or agent authorized to tabulate
votes, acting in good faith, has reasonable basis for doubt about the validity
of the signature on it or about the signatory's authority to sign for the
shareholder.
(d) The corporation and its officer or agent who accepts or rejects a vote,
consent, waiver, or proxy appointment in good faith and in accordance with the
standards of this Section 2.11 are not liable in damages to the shareholder for
the consequences of the acceptance or rejection.
(e) Corporation action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
2.12 No Informal Action by Shareholders
Notwithstanding the provisions of NRS 78.320, no action required or
permitted by the shareholders may be taken by written consent.
2.13 Voting for Directors
Unless otherwise provided in the Articles of Incorporation, directors
are elected by a plurality of the votes cast by the shares entitled to vote in
the election at a meeting at which a quorum is present.
2.14 Shareholders' Rights to Inspect Corporate Records
Shareholders shall have the following rights regarding inspection of
corporate records:
(a) Minutes and Accounting Records - The corporation shall keep, as
permanent records, minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee of
the Board of Directors in place
of the Board of Directors on behalf of the corporation. The corporation shall
maintain appropriate accounting records.
(b) Absolute Inspection Rights of Records Required at Principal Office - If
a shareholder gives the corporation written notice of his demand at least five
business days before the date on which he wishes to inspect and copy, he, or his
agent or attorney, has the right to inspect and copy, during regular business
hours, any of the following records, all of which the corporation is required
to keep at its principal office:
(1) its Articles or restated Articles of Incorporation and all amendments to
them currently in effect;
(2) its Bylaws or restated Bylaws and all amendments to them currently in
effect;
(3) resolutions adopted by its Board of Directors creating one or more
classes or series of shares, and fixing their relative rights, preferences and
imitations, if shares issued pursuant to those resolutions are outstanding;
(4) the minutes of all shareholders' meetings, and records of all action
taken by shareholders without a meeting, for the past three years;
(5) all written communications to share- holders within the past three
years, including the financial statements furnished for the past three years to
the shareholders;
(6) a list of the names and business addresses of its current directors and
officers; and
(7) its most recent annual report delivered to the Nevada Secretary of
State.
(c) Conditional Inspection Right - In addition, if a shareholder gives the
corporation a written demand, made in good faith and for a proper purpose, at
least five business days before the date on which he wishes to inspect and copy,
describes with reasonable particularity his purpose and the records he desires
to inspect, and the records are directly connected to his purpose, a shareholder
of a corporation, or his duly authorized agent or attorney, is entitled to
inspect and copy, during regular business hours at a reasonable location
specified by the corporation, any of the following records of the corporation:
(1) excerpts from minutes of any meeting of the Board of Directors; records
of any action of a committee of the Board of Directors on behalf of the
corporation; minutes of any meeting of the shareholders; and records of action
taken by the shareholders or Board of Directors without a meeting, to the extent
not subject to inspection under paragraph (a) of this Section 2.14;
(2) accounting records of the corporation; and
(3 the record of shareholders (compiled no earlier than the date of the
shareholder's demand).
(d) Copy Costs - The right to copy records includes, if reasonable, the
right to receive copies made by photographic, xerographic, or other means. The
corporation may impose a reasonable charge, to be paid
by the shareholder on terms set by the corporation, covering the costs of labor
and material incurred in making copies of any documents provided to the
shareholder.
(e) "Shareholder" Includes Beneficial Owner - For purposes of this Section
2.14, the term "shareholder" shall include a beneficial owner whose shares are
held in a voting trust or by a nominee on his behalf.
2.15 Financial Statements Shall Be Furnished to the Shareholders.
(a) The corporation shall furnish its shareholders annual financial
statements, which may be consolidated or combined statements of the corporation
and one or more of its subsidiaries, as appropriate, that include a balance
sheet as of the end of the fiscal year, an income statement for that year, and a
statement of changes in shareholders' equity for the year, unless that
information appears elsewhere in the financial statements. If financial
statements are prepared for the corporation on the basis of generally accepted
accounting principles, the annual financial statements for the shareholders must
also be prepared on that basis.
(b) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(1) stating his reasonable belief that the statements were prepared on the
basis of generally accepted accounting principles and, if not, describing the
basis of preparation; and
(2) describing any respects in which the statements were not prepared on a
basis of accounting consistent with the statements prepared for the preceding
year.
(c) A corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year. Thereafter, on
written request from a shareholder who was not mailed the statements, the
corporation shall mail him the latest financial statements.
2.16 Dissenters' Rights.
Each shareholder shall have the right to dissent from and obtain
payment for his shares when so authorized by the Act, Articles of Incorporation,
these Bylaws, or a resolution of the Board of Directors.
2.17 Order of Business.
The following order of business shall be observed at all meetings of
the shareholders, as applicable and so far as practicable:
(a) Calling the roll of officers and directors present and determining
shareholder quorum requirements;
(b) Reading, correcting and approving of minutes of previous meeting;
(c) Reports of officers;
(d) Reports of Committees;
(e) Election of Directors;
(f) Unfinished business;
(g) New business; and
(h) Adjournment.
ARTICLE 3.
BOARD OF DIRECTORS
3.1 General Powers.
Unless the Articles of Incorporation have dispensed with or limited
the authority of the Board of Directors by describing who will perform some or
all of the duties of a Board of Directors, all corporate powers shall be
exercised by or under the authority of, and the business and affairs of the
corporation shall be managed under the direction of the Board of Directors.
3.2 Number, Tenure and Qualification of Directors.
Unless otherwise provided in the Articles of Incorporation, the
authorized number of directors shall be not less than 1 (minimum number) nor
more than 9 (maximum number). The initial number of directors was established in
the original Articles of Incorporation. The number of directors shall always be
within the limits specified above, and as determined by resolution adopted by
the Board of Directors. After any shares of this corporation are issued,
neither the maximum nor minimum number of directors can be changed, nor can a
fixed number be substituted for the maximum and minimum numbers, except by a
duly adopted amendment to the Articles of Incorporation duly approved by a
majority of the outstanding shares entitled to vote. Each director shall hold
office until the next annual meeting of shareholders or until removed. However,
if his term expires, he shall continue to serve until his successor shall have
been elected and qualified, or until there is a decrease in the number of
directors. Unless required by the Articles of Incorporation, directors do not
need to be residents of Nevada or shareholders of the corporation.
3.3 Regular Meetings of the Board of Directors.
A regular meeting of the Board of Directors shall be held without
other notice than this Bylaw immediately after, and at the same place as, the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution. (If permitted by Section 3.7, any
regular meeting may be held by telephone).
3.4 Special Meeting of the Board of Directors.
Special meetings of the Board of Directors may be called by or at the
request of the president or any one director. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Nevada, as the place for holding any special
meeting of the Board of Directors or, if permitted by Section 3.7, any special
meeting may be held by telephone.
3.5 Notice of, and Waiver of Notice of, Special Meetings of the Board of
Directors.
Unless the Articles of Incorporation provide for a longer or shorter
period, notice of any special meeting of the Board of Directors shall be given
at least two days prior thereto, either orally or in writing. If mailed, notice
of any director meeting shall be deemed to be effective at the earlier of: (1)
when received; (2) five days after deposited in the United States mail,
addressed to the director's business office, with postage thereon prepaid; or
(3) the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by or on behalf of the
director. Notice may also be given by facsimile and, in such event, notice shall
be deemed effective upon transmittal thereof to a facsimile number of a
compatible facsimile machine at the director's business office. Any director may
waive notice of any meeting. Except as otherwise provided herein, the waiver
must be in writing, signed by the director entitled to the notice, and filed
with the minutes or corporate records. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business and at the beginning of the meeting, or promptly
upon his arrival, objects to holding the meeting or transacting business at the
meeting, and does not thereafter vote for or assent to action taken at the
meeting. Unless required by the Articles of Incorporation or the Act, neither
the business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
3.6 Director Quorum.
A majority of the number of directors fixed, pursuant to Section 3.2
of this Article 3, shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, unless the Articles of Incorporation or
the Act require a greater number for a quorum.
Any amendment to this quorum requirement is subject to the provisions
of Section 3.8 of this Article 3.
Once a quorum has been established at a duly organized meeting, the
Board of Directors may continue to transact corporate business until
adjournment, notwithstanding the withdrawal of enough directors to leave less
than a quorum.
3.7 Actions By Directors.
The act of the majority of the directors present at a meeting at which
a quorum is present when the vote is taken shall be the act of the Board of
Directors, unless the Articles of Incorporation or the Act require a greater
percentage. Any amendment which changes the number of directors needed to take
action is subject to the provisions of Section 3.8 of this Article 3.
Unless the Articles of Incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. Minutes of
any such meeting shall be prepared and entered into the records of the
corporation. A director participating in a meeting by this means is deemed to
be present in person at the meeting.
A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed to
have assented to the action taken unless: (1) he objects at the beginning of
the meeting, or promptly upon his arrival, to holding it or transacting business
at the meeting; or (2) his dissent or abstention from the action taken is
entered in the minutes of the meeting; or (3) he delivers written notice of his
dissent or abstention to the presiding officer of the meeting before its
adjournment or to the corporation within 24 hours after adjournment of the
meeting. The right of dissent or abstention is not available to a director who
votes in favor of the action taken.
3.8 Establishing a "Supermajority" Quorum or Voting Requirement for the
Board of Directors.
For purposes of this Section 3.8, a "supermajority" quorum is a
requirement that more than a majority of the directors in office constitute a
quorum; and a "supermajority" voting requirement is one which requires the vote
of more than a majority of those directors present at a meeting at which a
quorum is present to be the act of the directors.
A Bylaw that fixes a supermajority quorum or supermajority voting
requirement may be amended or repealed:
(1) if originally adopted by the shareholders, only by the shareholders
(unless otherwise provided by the shareholders); or
(2) if originally adopted by the Board of Directors, either by the
shareholders or by the Board of Directors.
A Bylaw adopted or amended by the shareholders that fixes a
supermajority quorum or supermajority voting requirement for the Board of
Directors may provide that it may be amended or repealed only by a specified
vote of either the shareholders or the Board of Directors.
Subject to the provisions of the preceding paragraph, action by the
Board of Directors to adopt, amend, or repeal a Bylaw that changes the quorum or
voting requirement for the Board of Directors must meet the same quorum
requirement and be adopted by the same vote required to take action under the
quorum and voting requirement then in effect or proposed to be adopted,
whichever is greater.
3.9 Director Action Without a Meeting.
Unless the Articles of Incorporation provide otherwise, any action
required or permitted to be taken by the Board of Directors at a meeting may be
taken without a meeting if all the directors sign a written consent describing
the action taken. Such consents shall be filed with the records of the
corporation. Action taken by consent is effective when the last director signs
the consent, unless the consent specifies a different effective date. A signed
consent has the effect of a vote at a duly noticed and conducted meeting of the
Board of Directors and may be described as such in any document.
3.10 Removal of Directors.
The shareholders may remove one or more directors at a meeting called
for that purpose if notice has been given that a purpose of the meeting is such
removal. The removal may be with or without cause unless the Articles of
Incorporation provide that directors may only be removed for cause. If
cumulative voting is not authorized, a director may be removed only if the
number of votes cast in favor of removal exceeds the number of votes cast
against removal.
3.11 Board of Director Vacancies.
Unless the Articles of Incorporation provide otherwise, if a vacancy
occurs on the Board of Directors, excluding a vacancy resulting from an increase
in the number of directors, the director(s) remaining in office shall fill the
vacancy. If the directors remaining in office constitute fewer than a quorum of
the Board of Directors, they may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office.
If a vacancy results from an increase in the number of directors, only
the shareholders may fill the vacancy.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled by the Board of Directors
before the vacancy occurs, but the new director may not take office until the
vacancy occurs.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. However, if his term
expires, he shall continue to serve until his successor is elected and qualifies
or until there is a decrease in the number of directors.
3.12 Director Compensation.
Unless otherwise provided in the Articles of Incorporation, by
resolution of the Board of Directors, each director may be paid his expenses, if
any, of attendance at each meeting of the Board of Directors, and may be paid a
stated salary as director or a fixed sum for attendance at each meeting of the
Board of Directors, or both. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
3.13 Director Committees.
(a) Creation of Committees. Unless the Articles of Incorporation provide
otherwise, the Board of Directors may create one or more committees and appoint
members of the Board of Directors to serve on them. Each committee must have
two or more members, who serve at the pleasure of the Board of Directors.
(b) Selection of Members. The creation of a committee and appointment of
members to it must be approved by the greater of (1) a majority of all the
directors in office when the action is taken, or (2) the number of directors
required by the Articles of Incorporation to take such action.
(c) Required Procedures. Sections 3.4, 3.5, 3.6, 3.7, 3.8 and 3.9 of this
Article 3 apply to committees and their members.
<PAGE>
(d) Authority. Unless limited by the Articles of Incorporation or the Act,
each committee may exercisethose aspects of the authority of the Board of
Directors which the Board of Directors confers upon such committee
in the resolution creating the committee. Provided, however, a committee
may not:
(1) authorize distributions to shareholders;
(2) approve or propose to shareholders any action that the Act requires be
approved by shareholders;
(3) fill vacancies on the Board of Directors or on any of its committees;
(4) amend the Articles of Incorporation;
(5) adopt, amend, or repeal Bylaws;
(6) approve a plan of merger not requiring shareholder approval;
(7) authorize or approve reacquisition of shares, except according to a
formula or method prescribed by the Board of Directors; or
(8) authorize or approve the issuance or sale, or contract for sale of
shares, or determine the designation and relative rights, preferences, and
limitations of a class or series of shares; except that the Board of Directors
may authorize a committee to do so within limits specifically prescribed by the
Board of Directors.
ARTICLE 4.
OFFICERS
4.1 Designation of Officers.
The officers of the corporation shall be a president, a secretary, and
a treasurer, each of whom shall be appointed by the Board of Directors. Such
other officers and assistant officers as may be deemed necessary, including any
vice-presidents, may be appointed by the Board of Directors. The same
individual may simultaneously hold more than one office in the corporation.
4.2 Appointment and Term of Office.
The officers of the corporation shall be appointed by the Board of
Directors for a term as determined by the Board of Directors. If no term is
specified, they shall hold office until the first meeting of the directors held
after the next annual meeting of shareholders. If the appointment of officers
is not made at such meeting, such appointment shall be made as soon thereafter
as is convenient. Each officer shall hold office until his successor has been
duly appointed and qualified, until his death, or until he resigns or has been
removed in the manner provided in Section 4.3 of this Article 4.
The designation of a specified term does not grant to the officer any
contract rights, and the Board of Directors can remove the officer at any time
prior to the termination of such term.
Appointment of an officer shall not of itself create any contract
rights.
4.3 Removal of Officers.
Any officer may be removed by the Board of Directors at any time, with
or without cause. Such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
4.4 President.
The president shall be the principal executive officer of the
corporation and, subject to the control of the Board of Directors, shall
generally supervise and control all of the business and affairs of the
corporation. He shall, when present, preside at all meetings of the
shareholders. He may sign, with the secretary or any other proper officer of
the corporation thereunto duly authorized by the Board of Directors,
certificates for shares of the corporation and deeds, mortgages, bonds,
contracts, or other instruments which the Board of Directors has authorized to
be executed, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed. The president shall generally perform all duties incident
to the office of president and such other duties as may be prescribed by the
Board of Directors from time to time.
4.5 Vice-President.
If appointed, in the absence of the president or in the event of the
president's death, inability or refusal to act, the vice-president (or in the
event there be more than one vice-president, the vice-presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their appointment) shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. If there is no vice-president, then
the treasurer shall perform such duties of the president. Any vice-president
may sign, with the secretary or an assistant secretary, certificates for shares
of the corporation the issuance of which have been authorized by resolution of
the Board of Directors. A vice-president shall perform such other duties as
from time to time may be assigned to him by the president or by the Board of
Directors.
4.6 Secretary.
The secretary shall (a) keep the minutes of the proceedings of the
shareholders and of the Board of Directors in one or more books provided for
that purpose; (b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of the
corporate records and of any seal of the corporation and, if there is a seal of
the corporation, see that it is affixed to all documents, the execution of which
on behalf of the corporation under its seal is duly authorized; (d) when
requested or required, authenticate any records of the corporation; (e) keep a
register of the post office address of each shareholder, as provided to the
secretary by the shareholders; (f) sign with the president, or a vice-resident,
certificates for shares of the corporation, the issuance of which has been
authorized by resolution of the Board of Directors; (g) have general charge of
the stock transfer books of the corporation; and (h) generally perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the Board of Directors.
4.7 Treasurer.
The treasurer shall (a) have charge and custody of and be responsible
for all funds and securities of the corporation; (b) receive and give receipts
for moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies, or other depositaries as may be selected by the Board of Directors;
and (c) generally perform all of the duties incident to the office of treasurer
and such other duties as from time to time may be assigned to him by the
president or by the Board of Directors.
If required by the Board of Directors, the treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine.
4.8 Assistant Secretaries and Assistant Treasurers.
The assistant secretaries, when authorized by the Board of Directors,
may sign with the president, or a vice-president, certificates for shares of the
corporation, the issuance of which has been authorized by a resolution of the
Board of Directors. The assistant treasurers shall respectively, if required by
the Board of Directors, give bonds for the faithful discharge of their duties in
such sums and with such sureties as the Board of Directors shall determine. The
assistant secretaries and assistant treasurers, generally, shall perform such
duties as may be assigned to them by the secretary or the treasurer,
respectively, or by the president or the Board of Directors.
4.9 Salaries.
The salaries of the officers, if any, shall be fixed from time to time
by the Board of Directors.
ARTICLE 5.
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS,
AND EMPLOYEES
5.1 Indemnification of Officers, Directors, Employees and Agents.
Unless otherwise provided in the Articles of Incorporation, the
corporation shall indemnify any individual made a party to a proceeding because
he is or was an officer, director, employee or agent of the corporation against
liability incurred in the proceeding, all pursuant to and consistent with the
provisions of NRS 78.751, as amended from time to time.
5.2 Advance Expenses for Officers and Directors.
The expenses of officers and directors incurred in defending a civil
or criminal action, suit or proceeding shall be paid by the corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, but only after receipt by the corporation of an undertaking by or on
behalf of the officer or director on terms set by the Board of Directors, to
repay the expenses advanced if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation.
5.3 Scope of Indemnification.
The indemnification permitted herein is intended to be to the fullest
extent permissible under the laws of the State of Nevada, and any amendments
thereto.
ARTICLE 6.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.1 Certificates for Shares.
(a) Content
Certificates representing shares of the corporation shall at minimum, state on
their face the name of the issuing corporation; that the corporation is formed
under the laws of the State of Nevada; the name of the person to whom issued;
the certificate number; class and par value of shares; and the designation of
the series, if any, the certificate represents. The form of the certificate
shall be as determined by the Board of Directors. Such certificates shall be
signed (either manually or by facsimile) by the president or a vice-president
and by the secretary or an assistant secretary and may be sealed with a
corporate seal or a facsimile thereof. Each certificate for shares shall be
consecutively numbered or otherwise identified.
(b) Legend as to Class or Series
If the corporation is authorized to issue different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the Board of Directors to determine variations for future series) must be
summarized on the front or back of the certificate indicating that the
corporation will furnish the shareholder this information on request in writing
and without charge.
(c) Shareholder List
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the corporation.
(d) Transferring Shares
All certificates surrendered to the corporation for transfer shall be canceled
and no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except that in case
of a lost, destroyed, or mutilated certificate, a new one may be issued therefor
upon such terms as the Board of Directors may prescribe, including
indemnification of the corporation and bond requirements.
6.2 Registration of the Transfer of Shares.
Registration of the transfer of shares of the corporation shall be
made only on the stock transfer books of the corporation. In order to register
a transfer, the record owner shall surrender the share certificate to the
corporation for cancellation, properly endorsed by the appropriate person or
persons with reasonable assurances that the endorsements are genuine and
effective. Unless the corporation has established a procedure by which a
beneficial owner of shares held by a nominee is to be recognized by the
corporation as the owner, the person in whose name shares stand on the books of
the corporation shall be deemed by the corporation to be the owner thereof for
all purposes.
6.3 Restrictions on Transfer of Shares Permitted.
The Board of Directors may impose restrictions on the transfer or
registration of transfer of shares, including any security convertible into, or
carrying a right to subscribe for or acquire shares. A restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of the
restriction.
A restriction on the transfer or registration of transfer of shares
may be authorized:
(1) to maintain the corporation's status when it is dependent on the number
or identity of its shareholders;
(2) to preserve exemptions under federal or state securities law; or
(3) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(1) obligate the shareholder first to offer the corporation or other persons
(separately, consecutively, or simultaneously) an opportunity to acquire the
restricted shares;
(2) obligate the corporation or other persons (separately, consecutively, or
simultaneously)
to acquire the restricted shares;
(3) require the corporation, the holders or any class of its shares, or
another person to
approve the transfer of the restricted shares, if the requirement
is not manifestly unreasonable;
or
(4) prohibit the transfer of the restricted shares to designated persons or
classes of persons, if the prohibition is not manifestly unreasonable.
A restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this Section 6.3 and its existence is noted
conspicuously on the front or back of the certificate. Unless so noted, a
restriction is not enforceable against a person without knowledge of the
restriction.
6.4 Acquisition of Shares.
The corporation may acquire its own shares and unless otherwise
provided in the Articles of Incorporation, the shares so acquired constitute
authorized but unissued shares.
If the Articles of Incorporation prohibit the reissue of shares
acquired by the corporation, the number of authorized shares is reduced by the
number of shares acquired, effective upon amendment of the Articles of
Incorporation, which amendment shall be adopted by the shareholders, or the
Board of Directors without shareholder action (if permitted by the Act). The
amendment must be delivered to the Secretary of State and must set forth:
(1) the name of the corporation;
(2) the reduction in the number of authorized shares, itemized
by class and series; and
(3) the total number of authorized shares, itemized by class and series,
remaining after reduction of the shares.
ARTICLE 7.
DISTRIBUTIONS
7.1 Distributions.
The Board of Directors may authorize, and the corporation may make,
distributions (including dividends on its outstanding shares) in the manner and
upon the terms and conditions provided by law.
ARTICLE 8.
CORPORATE SEAL
8.1 Corporate Seal.
The Board of Directors may adopt a corporate seal which may be
circular in form and have inscribed thereon any designation, including the name
of the corporation, Nevada as the state of incorporation, and the words
"Corporate Seal."
ARTICLE 9.
EMERGENCY BYLAWS
9.1 Emergency Bylaws.
Unless the Articles of Incorporation provide otherwise, the following
provisions shall be effective during an emergency, which is defined as a time
when a quorum of the corporation's directors cannot be readily assembled because
of some catastrophic event. During such emergency:
(a) Notice of Board Meetings
Any one member of the Board of Directors or any one of the following officers:
president, any vice-president, secretary, or treasurer, may call a meeting of
the Board of Directors. Notice of such meeting need be given only to those
directors whom it is practicable to reach, and may be given in any practical
manner, including by publication and radio. Such notice shall be given at least
six hours prior to commencement of the meeting.
(b) Temporary Directors and Quorum
One or more officers of the corporation present at the emergency board meeting,
as is necessary to achieve a quorum, shall be considered to be directors for the
meeting, and shall so serve in order of rank, and within the same rank, in order
of seniority. In the event that less than a quorum (as determined by Section
3.6 of Article 3) of the directors are present (including any officers who are
to serve as directors for the meeting), those directors present (including the
officers serving as directors) shall constitute a quorum.
(c) Actions Permitted To Be Taken
The Board of Directors, as constituted in paragraph (b), and after notice as set
forth in paragraph (a), may:
(1) Officers' Powers
Prescribe emergency powers to any officer of the
corporation;
(2) Delegation of Any Power
Delegate to any officer or director, any of the powers of the Board of
Directors;
(3) Lines of Succession
Designate lines of succession of officers and agents, in the event that any of
them are unable to discharge their duties;
(4) Relocate Principal Place of Business
Relocate the principal place of business, or designate successive or
simultaneous principal places of business;
(5) All Other Action
Take any other action which is convenient, helpful, or necessary to carry on the
business of the corporation.
ARTICLE 10.
AMENDMENTS
10.1 AMENDMENTS
The Board of Directors may amend or repeal the corporation's Bylaws
unless:
(1) the Articles of Incorporation or the Act reserve this power exclusively
to the shareholders, in whole or part; or
(2) the shareholders, in adopting, amending, or repealing a particular
Bylaw, provide expressly that the Board of Directors may not amend or repeal
that Bylaw; or
(3) the Bylaw either establishes, amends or deletes a "supermajority"
shareholder quorum or voting requirement, as defined in Section 2.8 of Article
2.
Any amendment which changes the voting or quorum requirement for the
Board of Directors must comply with Section 3.8 of Article 3, and for the
shareholders, must comply with Section 2.8 of Article 2.
The corporation's shareholders may also amend or repeal the
corporation's Bylaws at any meeting held pursuant to Article 2.
CERTIFICATE OF SECRETARY
I hereby certify that I am the Secretary of LinuxOne, Inc. and that
the foregoing Bylaws, consisting of twenty-three (23) pages, constitutes the
Code of LinuxOne, Inc. as duly adopted by the Board of Directors of the
corporation on this 12th day of March, 1999.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 12th day
of March, 1999.
/s/ Wun C. Chiou, Sr., Secretary
Dr. Wun C. Chiou, Sr.
LinuxOne, Inc.
1619 Morgan Court
Mountain View, CA. 94093
RE: Form S-1
Dear Dr. Chiou:
I have acted as counsel to LinuxOne, Inc. (the "Company") in connection with
registration of the Company's securities pursuant to filing of a Form S-1
registration statement. You have requested my opinion as to certain matters in
connection with the Form SB-2 filing.
In my capacity as counsel to the Company, I have examined and am familiar with
the originals and/or copies, the authenticity of which has been established to
my satisfaction, of all documents, corporate records and other instruments which
I have deemed necessary to express the opinions hereinafter set forth.
Based upon my examination and upon consideration of applicable laws, rules and
regulations, it is my opinion that the shares to be registered by the Company
described in the Form SB-2 registration statement have been validly issued,
fully paid and non-assessable.
Further, I consent to the use of this opinion as an Exhibit to the registration
statement and to the use of my name in such registration statement and
prospectus.
Very truly yours,
/s/ Michael J. Morrison, Esq.
MJM:rsd
MARK BAILEY & CO. LTD.
Certified Public Accountants
Management Consultants
Phone: 775-332-4200
Fax: 775-332-4210
Office Address:
Mailing Address:
1495 Ridgeview Drive, Ste. 200
P.O. Box 6060
Reno, Nevada 89509-6634
Reno, Nevada 89513
E-mail:
Mark Bailey, CPA, ABV
September 13, 1999
Securities and Exchange Commission
Washington, D.C. 20549
RE: LinuxOne, Inc.
Form S-1
To whom it may concern:
We hereby authorize and consent to the use of our report, dated September 13,
1999, as an Exhibit to the above-referenced filing and to the use of our name as
it appears therein.
Sincerely,
Mark Bailey, CPA/ABV
Mark Bailey & Co., Ltd.
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