UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2001
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition Period from_______to_______
Commission file number: 000-26421
---------
MILINX BUSINESS GROUP, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 91-1954074
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1037 Yorkshire Pl.
Danville, California 94506
--------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (925) 736-7111
---------------
1001 Fourth Avenue Plaza, Suite 3827, Seattle, WA 98154
-------------------------------------------------------
(Former name or former address, if changed since last report.)
Securities registered under Section 12(b) of the Act:
Title of Class Name of exchange on which registered
None None
---------------------------------- ------------------------------------
Securities registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
----------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No _X__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
As of September 28, 2001, the aggregate market value of the voting common equity
held by non-affiliates of the registrant was $4,424,000, based on the closing
trade reported on the NASD Over the Counter Bulletin Board National Quotation
System. Shares of common stock held by each officer and director and by each
person who owns five percent or more of the outstanding common stock have been
excluded from this calculation as such persons may be considered to be
affiliated with the Company.
As of September 28, 2001, the registrant's outstanding common stock consisted of
27,010,067 shares, $0.01 par value per share.
Documents incorporated by reference: None
EXPLANATORY NOTE:
THIS AMENDMENT TO OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30,
2001, REFLECTS AN IMMATERIAL CORRECTION TO A DOLLAR AMOUNT PRESENTED IN ITEM 3
TO CONFORM TO THE FINANCIAL STATEMENT ACCRUAL. THIS AMENDMENT ALSO CORRECTS
TYPOGRAPHICAL ERRORS IN ITEMS 6 AND 10. IN ADDITION, THIS AMENDMENT CORRECTS
CERTAIN CHANGES TO THE FINANCIAL STATEMENTS IN ITEM 8, PRINCIPALLY TO REFLECT
INADVERTENT OMISSIONS CONCERNING THE EFFECT OF A DEEMED PREFERRED STOCK
DIVIDEND.
WE HAVE MADE NO FURTHER CHANGES TO THE PREVIOUSLY FILED FORM 10-K. ALL
INFORMATION IN THIS FORM 10-K/A IS AS OF JUNE 30, 2001, AND DOES NOT REFLECT,
UNLESS OTHERWISE NOTED, ANY SUBSEQUENT INFORMATION OR EVENTS OTHER THAN THE
AFOREMENTIONED CHANGES.
2
TABLE OF CONTENTS
Part Item(s) Page No.
- ---- ------- --------
I 3 Legal Proceedings .................................................. 4
II 6 Selected Financial Data ........................................... 5
8 Financial Statements and Supplementary Data ....................... 5
III 10 Directors and Officers of the Registrant .......................... 6
Signatures ........................................................ 9
3
PART I
ITEM 3: LEGAL PROCEEDINGS
- --------------------------
On April 6, 2001 Milinx Business Group and Milinx Business Services filed a Writ
of Summons in the Supreme Court of British Columbia against Sun Microsystems,
Inc., Netscape Communications Canada, Inc., Netergy Networks, Inc. Intraware
Canada, Inc. and Burntsand Inc. claiming for damages in excess of 10,000,000
Canadian dollars for misrepresentations and breach of contract. Sunrise
International Leasing Corporation (with all correspondence under the SUN
Microsystems letterhead) filed a Summons and Complaint in the State of
Minnesota, County of Hennepin against Milinx Business Group and Milinx Business
Services, for two Counts, Breach of Equipment Lease by Services: in excess of
$50,000 in damages and immediate possession of equipment and Breach of Lease
Guaranty by Group: in excess of $50,000 damages and seizure of equipment. Milinx
takes the position that this is in reaction to the Writ of Summons issued in the
Supreme Court of British Columbia and therefore the jurisdiction and claim
should be part of and in the same jurisdiction of British Columbia. These suits
have been settled pending payment of certain sums by the defendants with mutual
releases executed by all parties.
After reaching an out of court settlement with Milinx Business Services on April
18, 2001, Tantalus Communications Inc. filed a Notice of Discontinuance,
releasing Milinx Business Services from further action. Milinx Business Services
was not required to pay any more than the invoices outstanding before their
claim.
On October 4, 2000, three former employees of Milinx Business Services advanced
separate actions in the British Columbia Supreme Court against Milinx Business
Services alleging breach of their employment severance agreements and claiming
unspecified damages. One of the claimants has since discontinued the action
against Milinx Business Services and Employment Standards has dismissed a
vacation wage claim of one of the two remaining employees. The proposed plan of
reorganization will address these remaining claims.
There are numerous unsecured creditors of Milinx Business Services who have
filed suit or threatened actions against Milinx Business Services. These matters
will be resolved in the reorganization plan to be approved by the court.
On August 15, 2001, the Government of Canada, through the divisions of Revenue
Canada and Employment Standards have filed superpriority liens against the
Company and certain directors and officers for unpaid employee wages, accrued
vacation, payroll taxes and severance pay. The Company has recorded these
claims, totaling $750,000 in accrued liabilities. The amount in question is in
dispute, and the Company has filed an appeal to determine the correct amount
owing. The claims will be addressed in the pending reorganization, and it is the
intention of the Company to meet its obligations as confirmed by the plan. If
the Company cannot confirm the plan, the superpriority claim would allow the
Government to execute on its lien against the assets of the Company.
To the knowledge of the officers and directors of Milinx, there are no other
pending legal proceedings or litigation and none of its property is the subject
of a pending legal proceeding. Further, except as discussed above, Milinx's
officers and directors know of no legal proceedings against Milinx or its
property contemplated by any governmental authority.
4
PART II
ITEM 6: SELECTED FINANCIAL DATA
- --------------------------------
6 mos
Year ending ending
June 30, June 30, June 30,
2001 2000 1999
----------------------------------------
Net Sales 126,462 197,193 43,424
Loss - available to common stockholders 18,011,206 6,636,452 844,250
Loss per share - available to common stockholders 1.12 0.74 0.32
Total assets 1,184,946 8,993,249 1,107,537
Capital lease obligations, 1,588,678 1,463,868 --
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
Description Page
- ----------- ----
Independent Auditors' Report dated November 15, 2001 F-1
Consolidated Balance Sheets as of June 30, 2001 and 2000 F-2
Consolidated Statements of Operations for the years ended June 30, 2001,
2000 and the six months ended June 30, 1999 F-4
Consolidated Statement of Stockholders' Equity (deficit) for the
years ended June 30, 2001, 2000 and the six months ended June 30, 1999 F-5
Consolidated Statements of Cash Flows for the years ended June 30, 2001,
2000 and the six months ended June 30, 1999 F-7
Notes to Consolidated Financial Statements F-8
5
Report of Independent Certified Public Accountants
Board of Directors and Stockholders
Milinx Business Group, Inc.
We have audited the accompanying consolidated balance sheets of Milinx Business
Group, Inc. (a Delaware corporation) and its Subsidiaries, (the Company) as of
June 30, 2001 and 2000 and the related consolidated statements of operations,
stockholders' equity (deficit) , and cash flows for the years ended June 30,
2001 and 2000, and the six months ended June 30, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Milinx
Business Group, Inc. and its Subsidiaries, as of June 30, 2001 and 2000, and the
results of their consolidated operations and their consolidated cash flows for
the year ended June 30, 2001 and 2000, and the six months ended June 30, 1999,
in conformity with accounting principles generally accepted in the United States
of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note B to the
financial statements, the Company has incurred recurring losses from operations
and a stockholders' deficit of $3,890,318. In addition, on October 12, 2001, the
Company's operating subsidiary filed a Notice of Intention with the Office of
the Superintendent of Bankruptcy in British Columbia, Canada. These matters,
among others, raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are also
described in note B. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ GRANT THORNTON LLP
Seattle, Washington
November 15, 2001
F-1
Milinx Business Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
Year ended June 30,
ASSETS
2001 2000
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 33,680 $ 2,162,430
Receivables
Trade -- 9,334
Subscriptions -- 323,721
Goods and services tax 35,039 327,149
Employee and stockholders -- 20,692
------------ ------------
Total receivables 35,039 680,896
Due from Milinx Marketing Group -- 82,644
Security deposits 75 209,362
Prepaid rent and other 5,355 43,549
------------ ------------
Total current assets 74,149 3,178,881
PROPERTY AND EQUIPMENT - NET 1,100,226 3,572,168
OTHER ASSETS AND DEFERRED CHARGES
Licenses -- 2,036,985
Capital lease deposits 10,571 205,215
------------ ------------
$ 1,184,946 $ 8,993,249
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DECIFIT)
CURRENT LIABILITIES
Accounts payable $ 1,582,188 $ 981,233
Accrued liabilities 1,456,368 279,758
Due to Milinx Management Corporation 3,586 3,586
Capital lease obligations - current portion 1,588,678 536,061
Convertible note payable 444,444 --
Customer deposits -- 2,529
------------ ------------
Total current liabilities 5,075,264 1,803,167
CAPITAL LEASE OBLIGATIONS, net of current portion -- 927,808
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Series A 10% non-cumulative, voting convertible preferred stock - $0.001
par value, liquidation preference of $1,611,000
3,675 3,675
Series B voting convertible preferred stock - no par value,
liquidation preference of $0 and $5,043,000, respectively -- 1,681
Series C voting convertible preferred stock - no par value,
liquidation preference of $1,392,000 and $2,207,000, respectively 1,016 2,207
Common stock - $0.001 par value 23,078 9,671
Shares subscribed 10,000 --
Additional paid in capital 21,803,465 14,908,291
Unearned compensation -- (1,102,626)
Accumulated deficit (25,492,701) (7,480,702)
Cumulative translation adjustment (238,851) (79,923)
------------ ------------
(3,890,318) 6,262,274
------------ ------------
$ 1,184,946 $ 8,993,249
============ ============
The accompanying notes are an integral part of these statements.
F-2
Milinx Business Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Six months
ended June
Year ended June 30, 30,
2001 2000 1999
------------ ------------ ------------
Net sales $ 126,462 $ 197,193 $ 43,424
Cost of sales 186,112 365,449 48,112
------------ ------------ ------------
Gross loss (59,650) (168,256) (4,688)
------------ ------------ ------------
Selling, general and administrative expenses 12,133,905 6,442,914 839,192
Losses due to impairment 3,361,048 -- --
------------ ------------ ------------
Net loss from operations 15,554,603 6,611,170 843,880
Other expenses (income)
Interest 535,614 31,515 --
Miscellaneous, net 220,989 (6,233) 370
------------ ------------ ------------
756,603 25,282 370
------------ ------------ ------------
Net loss (16,311,206) $ (6,636,452) $ (844,250)
Deemed preferred stock dividend (1,700,000) - -
------------ ------------ ------------
Net loss available to common stockholders $(18,011,206) $ (6,636,452) (844,250)
NET LOSS PER COMMON SHARE AVAILABLE TO
COMMON STOCKHOLDERS - BASIC AND DILUTED $ (1.12) $ (0.74) $ (0.32)
============ ============ ============
The accompanying notes are an integral part of these statements.
F-3
Milinx Business Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
For the six months ended June 30, 1999 and the years
ended June 30, 2000 and 2001
Series A preferred stock Series B preferred stock Series C Preferred stock
Shares Amount Shares Amount Shares Amount
Balance at January 1, -- $ -- $ -- $ -- $ -- $ --
Issuances of common
stock through
series of
private -- -- -- -- -- --
placements
Issuance of Series A
preferred
stock to
officers and 2,925,000 2,925 -- -- -- --
legal counsel
Issuance of Series A
preferred
stock through
exercise of
stock options 750,000 750 -- -- -- --
by Credit
Assure
Issuance of Internal
Warrants A to
a director and
legal counsel -- -- -- -- -- --
Issuance of Class A
units to -- -- -- -- -- --
various
investors
Foreign currency
translation
adjustment -- -- -- -- -- --
Net loss for the six
months ended
June 30, 1999 -- -- -- -- -- --
Balance at June 30, 3,675,000 3,675 -- -- -- --
Issuances of common
stock in asset
purchase
transaction -- -- -- -- -- --
Issuance of common
stock as part
of reverse -- -- -- -- -- --
transaction
Issuance of Class A
units to -- -- -- -- -- --
various
investors
Issuance of class D
units to -- -- -- -- -- --
various
investors
Issuance of Series C
preferred
stock and
Class D
Warrants to
various
investors
through a -- -- -- -- 2,624,412 2,624
conversion of
Class D units
Issuance of common
stock to
investors
through a
conversion of -- -- -- -- (417,000) (417)
Series C
preferred
Issuance of common
stock to an
investor
through a
conversion of -- -- -- -- -- --
Class D
warrants
Issuance of Series B
preferred stock
and 1999 International
A warrants to
various investors
through a conversion of -- -- 1,681,250 1,681 -- --
Class A Units
Issuance of common
stock to -- -- -- -- -- --
employees
Grant of warrants for
legal services -- -- -- -- -- --
Grant of stock options
to employees -- -- -- -- -- --
Current year
amortization
of deferred -- -- -- -- -- --
compensation
Change in cumulative
translation
adjustment -- -- -- -- -- --
Net loss for the year
ended
June 30, 2000 -- -- -- -- -- --
-------------
Balance at June
30, 2000 3,675,000 3,675 1,681,250 1,681 2,207,412 2,207
Exercise of
employee
stock
options -- -- -- -- -- --
Stock options
forfeited
by employees -- -- -- -- -- --
Amortization of
deferred
compensation
net of
prior year
forfeitures , -- -- -- -- -- --
Issuance of common
stock to
employees -- -- -- -- -- --
Shares issued in
lieu of
cancellation
fees -- -- -- -- -- --
Sale of common
stock
shares at
$4.50 per
share -- -- -- -- -- --
Additional shares
issued to $4.50
subscribers
to roll
$4.50 offering
into
Millennium
offering -- -- -- -- -- --
Issuance of common
shares as
part of
Millennium
units in
consideration
for services -- -- -- -- -- --
Issuance of common
shares
through
Millennium
Units,
including
finder fees
paid in
units -- -- -- -- -- --
Issuance of Series C
preferred stock
and class D warrants
to investors
through a conversion
of Class D
Units -- -- -- -- 2,364,511 2,365
Issuance of common
stock to
investors
through a
conversion
of Series C
preferred -- -- -- -- (3,556,312) (3,556)
Issuance of common
stock to
investors
through a
conversion
of Class D
warrants -- -- -- -- -- --
Issuance of common
stock to
investors
through a
conversion
of Series B
preferred -- -- (1,681,250) (1,681) -- --
Deemed preferred stock
divided in
connection with
Millennium units
placement -- -- -- -- -- --
Change in
cumulative
translation
adjustment -- -- -- -- -- --
Net loss for the
year ended
Jun 30, 2001 -- -- -- -- -- --
Balance at June
30, 2001 3,675,000 $ 3,675 -- $ -- 1,015,611 $ 1,016
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Cumulative
Common stock Subscribed Stock Paid In Unearned Translation
Shares Amount Shares Amount Capital Compensation Adjustment
Balance at January 1, $ -- $ -- $
1999
Issuances of common
stock through
series of
private 8,470,000 8,470 -- -- 592,825 -- --
placements
Issuance of Series A
preferred
stock to
officers and -- -- -- -- -- -- --
legal counsel
Issuance of Series A
preferred
stock through
exercise of
stock options -- -- -- -- 26,250 -- --
by Credit
Assure
Issuance of Internal
Warrants A to
a director and
legal counsel -- -- -- -- 200 -- --
Issuance of Class A
units to -- -- -- -- 590,000 -- --
various
investors
Foreign currency
translation
adjustment -- -- -- -- -- -- (20,523)
Net loss for the six
months ended
June 30, 1999 -- -- -- -- -- -- --
Balance at June 30, 8,470,000 8,470 -- -- 1,209,275 -- (20,523)
1999
Issuances of common
stock in asset
purchase
transaction 425,000 425 -- -- 174,700 -- --
Issuance of common
stock as part
of reverse 250,000 250 -- -- 250 -- --
transaction
Issuance of Class A
units to -- -- -- 2,772,500 -- --
various
investors
Issuance of class D
units to -- -- -- -- 9,097,662 -- --
various
investors
Issuance of Series C
preferred
stock and
Class D
Warrants to
various
investors
through a -- -- -- -- 1 -- --
conversion of
Class D units
Issuance of common
stock to
investors
through a
conversion of 417,000 417 -- -- -- -- --
Series C
preferred
Issuance of common
stock to an
investor
through a
conversion of 37,500 38 -- -- 74,962 -- --
Class D
warrants
Issuance of Series B
preferred stock
and 1999 International
A warrants to
various investors
through a conversion of -- -- -- -- 1 -- --
Class A Units
Issuance of common
stock to 71,000 71 -- -- 35,479 -- --
employees
Grant of warrants for
legal services -- -- -- -- 122,000 -- --
Grant of stock options
to employees -- -- -- -- 1,421,461 (1,421,461) --
Current year
amortization
of deferred -- -- -- -- -- 318,835 --
compensation
Change in cumulative
translation
adjustment -- -- -- -- -- -- (59,400)
Net loss for the year
ended
June 30, 2000 -- -- -- -- -- -- --
Balance at June
30, 2000 9,670,500 9,671 -- -- 14,908,291 (1,102,626) (79,923)
-----------
Exercise of
employee
stock
options 558,500 558 -- -- 31,373 -- --
Stock options
forfeited
by employees -- -- -- -- (1,065,882) 1,065,882 --
Amortization of
deferred
compensation
net of
prior year
forfeitures , -- -- -- -- -- 36,744 --
Issuance of common
stock to
employees 1,000 1 -- -- -- -- --
Shares issued in
lieu of
cancellation
fees 50,000 50 -- -- 79,950 -- --
Sale of common
stock
shares at
$4.50 per
share 44,886 45 -- -- 181,743 -- --
Additional shares
issued to $4.50
subscribers
to roll
$4.50 offering
into
Millennium
offering 792,864 793 -- -- -- -- --
Issuance of common
shares as
part of
Millennium
units in
consideration
for services 300,000 300 -- -- 149,700 -- --
Issuance of common
shares
through
Millennium
Units,
including
finder fees
paid in
units 4,639,617 4,640 20,000 10,000 2,254,359 -- --
Issuance of Series C
preferred stock
and class D warrants
to investors
through a conversion
of Class D
Units -- -- -- -- -- -- --
Issuance of common
stock to
investors
through a
conversion
of Series C
preferred 3,556,312 3,556 -- -- -- -- --
Issuance of common
stock to
investors
through a
conversion
of Class D
warrants 1,782,857 1,783 -- -- 3,563,931 -- --
Issuance of common
stock to
investors
through a
conversion
of Series B
preferred 1,681,250 1,681 -- -- -- -- --
Deemed preferred stock
divided in
connection with
Millennium units
placement -- -- -- -- 1,700,000 -- --
Change in
cumulative
translation
adjustment -- -- -- -- -- -- (158,928)
Net loss for the
year ended
Jun 30, 2001 -- -- -- -- -- -- --
Balance at June
30, 2001 23,077,786 $ 23,078 20,000 $ 10,000 $ 21,803,465 $ -- $ (238,851)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulated
Deficit Total
Balance at January 1, $ $
1999
Issuances of common
stock through
series of
private -- 601,295
placements
Issuance of Series A
preferred
stock to
officers and -- 2,925
legal counsel
Issuance of Series A
preferred
stock through
exercise of
stock options -- 27,000
by Credit
Assure
Issuance of Internal
Warrants A to
a director and
legal counsel -- 200
Issuance of Class A
units to -- 590,000
various
investors
Foreign currency
translation
adjustment -- (20,523)
Net loss for the six
months ended
June 30, 1999 (844,250) (844,250)
Balance at June 30, (844,250) 356,647
1999
Issuances of common
stock in asset
purchase
transaction -- 175,125
Issuance of common
stock as part
of reverse -- 500
transaction
Issuance of Class A
units to 2,772,500
various
investors
Issuance of class D
units to -- 9,097,662
various
investors
Issuance of Series C
preferred
stock and
Class D
Warrants to
various
investors
through a -- 2,625
conversion of
Class D units
Issuance of common
stock to
investors
through a
conversion of -- --
Series C
preferred
Issuance of common
stock to an
investor
through a
conversion of -- 75,000
Class D
warrants
Issuance of Series B
preferred stock
and 1999 International
A warrants to
various investors
through a conversion of -- 1,682
Class A Units
Issuance of common
stock to -- 35,550
employees
Grant of warrants for
legal services -- 122,000
Grant of stock options
to employees -- --
Current year
amortization
of deferred -- 318,835
compensation
Change in cumulative
translation (59,400)
Net loss for the year
ended June 30, (6,636,452) (6,636,452)
2000
Balance at June
30, 2000 (7,480,702) 6,262,274
------------
Exercise of
employee
stock
options -- 31,931
Stock options
forfeited
by employees -- --
Amortization of
deferred
compensation
net of
prior year
forfeitures , 36,744
Issuance of common
stock to
employees -- 1
Shares issued in
lieu of
cancellation
fees -- 80,000
Sale of common
stock
shares at
$4.50 per
share -- 181,788
Additional shares
issued to $4.50
subscribers
to roll
$4.50 offering
into
Millennium
offering (793) --
Issuance of common
shares as
part of
Millennium
units in
consideratio
for servicesn -- 150,000
Issuance of common
shares
through
Millennium
Units,
including
finder fees
paid in
units -- 2,268,999
Issuance of Series C
preferred stock
and class D warrants
to investors
through a conversion
of Class D
Units -- 2,365
Issuance of common
stock to
investors
through a
conversion
of Series C
preferred -- --
Issuance of common
stock to
investors
through a
conversion
of Class D
warrants -- 3,565,714
Issuance of common
stock to
investors
through a
conversion
of Series B
preferred -- --
Deemed preferred stock
dividend in
connection with
Millennium units
placement (1,700,000) --
Change in
cumulative
translation
adjustment -- (158,928)
Net loss for the
year ended (16,311,206) (16,311,206)
June 30, 2001
Balance at June
30, 2001 $(25,492,701) $ (3,890,318)
The accompanying notes are an integral part of this statement.
F-4
Milinx Business Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
Year ended June 30,
--------------------------------------------
2001 2000 1999
------------ ------------ ------------
<s> <c> <c> <c>
Increase (Decrease) in Cash and cash equivalents
Cash flows from operating activities
Net loss $(16,311,206) $ (6,636,452) $ (844,250)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 2,566,409 450,814 42,362
Losses due to impairment 3,361,048 -- --
Losses due to abandonment and theft 169,700 -- --
Write off of license and trademark costs -- 304,500 --
Write off of related party balances 32,705 -- --
Employee stock and stock option compensation 36,744 350,835 --
Warrants issued for services -- 122,000 --
Shares issued in lieu of cancellation fees 80,000 -- --
Millennium units issued for services 150,000 -- --
Changes in assets and liabilities
Receivable 322,000 (289,349) (67,826)
Security deposits and prepaid expenses 262,039 (194,504) (34,873)
Accounts payable, accrued liabilities and customer deposits
1,997,474 447,756 496,491
Related party receivables -- (82,644) (36,282)
------------ ------------ ------------
Net cash and cash equivalents used in operating activities (7,333,087) (5,527,044) (444,378)
Cash flows from investing activities
Acquisition of fixed assets, net of disposals (648,985) (1,782,659) (677,163)
Acquisition of intangible assets (218,507) (1,843,525) (50,000)
Cash acquired through Forestay -- 500 --
Capital lease deposits -- (203,915) (24,834)
------------ ------------ ------------
Net cash and cash equivalents used in investing activities (867,492) (3,829,599) (751,997)
Cash flows from financing activities
Proceeds from issuance of common stock -- 75,000 601,295
Proceeds of Millennium placement 2,450,787 4,307 --
Proceeds from issuance of preferred stock -- -- 2,925
Proceeds from issuance of 1999 Class A Units -- 2,772,500 590,000
Proceeds from issuance of 1999 Class D Units 326,086 8,773,941 --
Proceeds from conversion of Class D Warrants 3,565,714 -- --
Proceeds from issuance of 1999 Internal Warrants A
-- -- 200
Proceeds from exercise of stock options and sale of common stock to employees
31,932 3,550 27,000
Proceeds from issuance of convertible debenture 400,000 -- --
Payments on capital lease obligations (543,762) (55,347) --
------------ ------------ ------------
Net cash provided by financing activities 6,230,757 11,573,951 1,221,420
Effect of the exchange rate changes on cash (158,928) (59,400) (20,523)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (2,128,750) 2,157,908 4,522
Cash and cash equivalents at beginning of year 2,162,430 4,522 --
------------ ------------ ------------
Cash and cash equivalents at end of year $ 33,680 $ 2,162,430 $ 4,522
============ ============ ============
Cash paid for:
Interest $ 125,000 $ 8,272 $ 1,652
Taxes $ -- $ -- $ --
Non-cash disclosures:
Additions to capital leases $ 540,516 $ 2,016,198 $ --
Note issued in connection with asset acquisition $ -- $ -- $ 65,681
The accompanying notes are an integral part of these statements.
F-5
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Milinx Business Group, Inc. (Milinx - Delaware) was incorporated on December 10,
1998 in the state of Delaware as Milinx Marketing Group, Inc. and commenced its
operations on February 10, 1999. Effective April 1, 1999, the Company formed a
wholly-owned Canadian subsidiary, 580880BC Ltd. doing business as Milinx
Business Services, Inc. (Milinx - BC)to develop and market its product in
Canada. Both companies have adopted June 30 fiscal year ends. Effective May 5,
1999, Milinx - Delaware changed its name to Milinx Business Group, Inc.
On December 9, 1999, through a transaction structured as a reverse acquisition,
Milinx - Delaware acquired Forestay Corporation, a reporting company registered
in Delaware. The Company elected successor status under Exchange Act Rule
12g-3(a) and became a reporting company effective February 15, 2000. The Company
began trading in the OTC market on June 8, 2000.
Milinx Wireless, Inc. ("Milinx Wireless"), a subsidiary of Milinx, was
incorporated in the State of Delaware on December 6, 2000. Milinx Wireless, Inc.
was structured to facilitate the advancement of proprietary technology into
global wireless development. As further discussed, the Company sold shares of
Milinx Wireless as part of its Millennium units offering ("Millennium Offering")
which resulted in immaterial amount of minority interest. Due to immateriality,
it was not separately disclosed in the accompanying financial statements. Milinx
Wireless has not yet commenced its operations.
ASP Technology One, Inc. ("ASP Techone") was incorporated in the State of Nevada
on August 4, 2000, as a wholly owned subsidiary of Milinx Business Group, Inc.
for the purposes of facilitating the sign-up of Resellers to market Milinx
products and services and to act as the Application Service Provider (ASP)
subsidiary of Milinx. ASP Techone has not yet commenced its operations.
Milinx Business Group, Inc. and its subsidiaries (collectively referred thereto
as "the Company") are developing and marketing business application products
including Unified Messaging, Virtual Office Systems, and supplying communication
productivity, and e-commerce functionality. The Company is targeting Small and
Medium Enterprises (SMEs) in the business Application Service Provider (ASP)
market in North America.
1. Principles of Consolidation
---------------------------
The financial statements include the accounts of the Milinx - Delaware and its
wholly owned Subsidiaries. All significant intercompany balances and
transactions have been eliminated.
2. Revenue Recognition
-------------------
Revenue from month-to-month subscriber contracts is recognized monthly as
earned.
3. Property and Equipment
----------------------
Property and equipment are stated at cost, less accumulated depreciation
amortization and impairment write down.
Depreciation and amortization were computed using the straight-line method over
the estimated useful life ranging as follows:
Computer hardware and telecommunication
equipment 2 - 3 years
Computer software 3 years
Furniture and fixtures 2 - 3 years
Leasehold improvements The lesser of the lease term or the
estimated useful life of the asset
F-6
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
4. Licenses
--------
The Company capitalizes costs of software licenses acquired from third party
vendors. Periodically, the Company evaluates its intangibles in accordance with
Statement of Financial Accounting Standards (SFAS) No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, to
determine potential impairment.
Amortization was computed using the ratio of current users over the estimated
total number of users during estimated useful life of each license. The
estimated useful life was determined as the lesser of the license term or
estimated life of the license and ranged from 2 to 3 years.
5. Loss per share
--------------
Basic loss per share is based on the weighted average number of common shares
outstanding during the period. The weighted average number of common shares
outstanding during the years ended June 30, 2001 and 2000, and the six months
ended June 30, 1999 was 16,013,405, 8,972,958 and 2,656,040, respectively.
Diluted loss per share includes the effect of all potentially issuable common
stock. Diluted loss per share for the years ended June 30, 2001 and 2000, and
the six months ended June 30, 1999 equaled basic loss per share due to
antidilutive effect of the potentially issuable common stock. As of June 30,
2001, there was no potentially issuable common stock.
6. Translation Adjustments
-----------------------
Milinx - BC's functional currency is the Canadian dollar. Translation
adjustments resulting from the process of translating the subsidiaries financial
statements into U.S. dollars for consolidation purposes is reported as a
separate component of stockholders' equity.
7. Comprehensive Loss
- --------------------
The Company has adopted SFAS 130, Reporting Comprehensive Income. The statement
requires inclusion of foreign currency translation adjustments, reported
separately in stockholders' equity, in other comprehensive income. The Company
had no other comprehensive loss items for the years ended June 30, 2001 and 2000
and the six months ended June 30, 1999. The Company's total comprehensive loss
for the years ended June 30, 2001 and 2000, and the six months ended June 30,
1999 were $16,237,100, $6,695,852, and $864,773, respectively.
8. Accounting Estimates
--------------------
In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
9. New Accounting Pronouncements
-----------------------------
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 (SFAS 141), Business Combinations. SFAS
141 applies to all business combinations initiated after June 30, 2001. The
Statement also applies to all business combinations accounted for using the
purchase method for which the date of acquisition is July 1, 2001, or later. The
adoption of SFAS 141 will not have an impact on the Company's financial
statements.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142 (SFAS 142), Goodwill and Other Intangible
Assets. The provisions of SFAS 142 are required to be applied starting with
fiscal years beginning after December 15, 2001 with earlier application
permitted for entities with fiscal years beginning after March 15, 2001 provided
that the first interim financial statements have not been previously issued. The
statement is required to be applied at the beginning of the entity's fiscal year
and to be applied to all goodwill and other intangible assets recognized in its
financial statements to that date. The adoption of SFAS 142 will not have an
impact on the Company's financial statements.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS 144 supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of, and APB
Opinion 30, Reporting the Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for segments of a business to be disposed of.
SFAS 144 is effective for fiscal years beginning after December 15, 2001. The
adoption of SFAS 144 will not have an impact on the Company's financial
statements.
F-7
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
10. Reclassifications
-----------------
Certain reclassifications have been made to prior period numbers to conform to
current year classifications.
NOTE B - MANAGEMENT PLANS
The accompanying consolidated financial statements are prepared on a going
concern basis which contemplates continuity of operations, realization of
assets, and liquidation of liabilities in the ordinary course of business and do
not reflect adjustments that might result if the Company is unable to continue
as a going concern.
In September 2001, the Company's current management team took over as part of a
restructuring initiative. This management team assessed the business and
financial position of the company and determined that the only viable
alternative was to attempt to reorganize through a voluntary bankruptcy filing
by its subsidiary, Milinx - BC. The proposed plan of reorganization will
ultimately need to receive the support of its secured creditors and its
unsecured creditors, who will meet to approve the plan. The plan must also be
approved by the bankruptcy court. Milinx - BC bases its initiative on obtaining
approval of a plan of reorganization, because its business model contemplates
using two material assets of Milinx - BC.
On October 12, 2001, a Notice of Intention was filed with the Office of the
Superintendent of Bankruptcy ("OSOB") in British Columbia, Canada. Milinx - BC
has until December 24, 2001, to file a plan of reorganization with the OSOB. If
the court accepts the plan of reorganization, the OSOB and Milinx - BC's
unsecured creditors are notified of a meeting to consider the plan of
reorganization. The meeting is to occur within 21 days of the filing of the plan
of reorganization. If the plan receives approval by the creditors (which occurs
if the plan receives the vote of a majority in number of the creditors filing a
proof of claim and the vote of 66% of the dollar value of the claims), then the
plan will be submitted to the court for its approval, which is to occur within
15 days. If Milinx - BC's general unsecured creditors and the court approve the
plan, it becomes a contract between Milinx - BC and its general unsecured
creditors, and the balance of debt is extinguished if Milinx - BC performs
according to the plan.
The proposal must be attractive enough to the claimants that it secures the
necessary votes for approval. The final amount of the claims that Milinx - BC
will pay to its unsecured creditors will ultimately be determined if the
creditors approve the plan of reorganization. Milinx's efforts are currently
focused on developing the plan of reorganization. The opposing constraints on
the plan are the resources available for payment of claims versus what enough
claimants will find acceptable to approve the plan. Because of the uncertainty
associated with both of these variables, Milinx cannot predict at this time the
level of payments that the plan of reorganization will ultimately propose.
During the course of the reorganization, Milinx has been and will continue to
pay continuing expenses of approximately $15,000 per month for the lease of the
data center, in addition to other general and administrative costs. If the plan
of reorganization is approved by the creditors and accepted by the court, Milinx
will need to fund the balance of the debt under the plan of reorganization.
There can be no assurance that Milinx's plan of reorganization will be approved
by the creditors or by the court or that Milinx will be able to fund the debt.
To obtain approval, Milinx will need to demonstrate to the creditors and the
court that its plan is viable. If the plan is not approved or if it is approved
and Milinx - BC does not perform according to its terms, Milinx - BC will be
forced into an involuntary bankrutpcy.
During the year ended June 30, 2001, the Company raised an approximately
$6,775,500 in equity capital and debt financing. Subsequent to June 30, 2001,
the Company raised $300,000 through a series of private placements of
convertible debentures bearing 12% interest rate. Each debenture also had five
shares of the Company's voting common stock for each dollar loaned the Company.
The Company is currently in the process of raising additional funds through
similar financing arrangements.
The Company's negative cash flow from operations is expected to continue and
could accelerate in te foreseeable future. The Company does not expect that its
existing capital resources will be adequate to satisfy the requirements of its
current and planned operations during fiscal year 2002. The Company will need to
raise substantial additional capital to fund its operations and may seek such
additional funding through public or private equity or debt financing. There can
be no assurance that such additional funding will be available on acceptable
terms, if at all. The Company's continued existence as a going concern is
ultimately dependent upon its ability to secure additional funding for
completing and marketing its technology and the success of its future
operations.
Continuing on a going concern basis is dependent upon, amongst other things,
Milinx - BC's formulation of an acceptable plan of reorganization, the Company's
success of future business operations, and the generation of sufficient cash
from operation and financing sources to meet its obligations. Other than
recognizing impairment losses of its long-lived assets, the Company's
consolidated financial statements do not reflect: (a) the realizable value if
assets on liquidation basis or their availability to satisfy liabilities;(b)
aggregate pre-petition liabilities amounts that may be allowed for claims or
contingencies, or their status and priority; (c)the effect of any changes to the
Company's capital structure or in its business operations as a result of the
proposed reorganization; or (d) adjustments to the carrying value of the assets
or liability amounts that may be necessary as the result of actions by the OSOB.
F-8
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE C - PROPERTY AND EQUIPMENT
As of June 30, the following is a composition of the Company's property and
equipment:
2001 2000
---------- -----------
Computer hardware and telecommunication equipment $ 884,694 $2,763,822
Computer software 95,646 395,461
Furniture and fixtures 6,571 259,707
Leasehold improvements 113,315 625,729
---------- ----------
1,100,226 4,044,719
Accumulated depreciation and amortization -- 472,551
---------- ----------
$1,100,226 $3,572,168
========== ==========
Continuous losses, failing business model and additional uncertainties triggered
by the general state of the economy indicated potential impairment of the
Company's property and equipment. In accordance with SFAS 121, the Company wrote
its property and equipment down to their fair value by utilizing an independent
third party appraiser who used the cost approach as the primary method in
estimating the fair market value of a 100 percent common stock interest in the
Company. The Cost approach is based on the principle that a buyer would not pay
more for the property and equipment than what it would cost to create an entity
of equivalent utility. The application of this approach involves estimating the
replacement cost of the entity. This is typically accomplished by adjusting all
assets and liabilities, tangible and intangible, to fair market value, with the
net asset value, assets minus the liabilities, serving to indicate the value of
the entity's equity. As a result of the valuation and its analysis, the Company
recorded an impairment loss of $2,042,261 at June 30, 2001.
The Company also incurred an abandonment and theft losses of $169,700 related to
abandoned and misplaced office equipment and leasehold improvements originally
located at the Company's previous corporate headquarters that it was forced to
vacate in June 2001 due to the rent delinquency.
NOTE D - RELATED PARTY TRANSACTIONS
The Company's majority stockholder and President has a controlling interest in
the following companies: Milinx Marketing Group, Inc. (Texas), Milinx Marketing
Group, Inc. (British Columbia), Milinx Management Corporation, Credit Assure
International, Inc., Assured Card Corporation (currently inactive).
Effective April 1, 1999, Milinx Marketing Group, Inc. (British Columbia) sold
all of its tangible and intangible assets to Milinx - BC, in exchange for a
$96,948 (CND) or approximately $65,900 (US) promissory note that bears interest
at 10% per annum. The full amount was repaid to Milinx Marketing Group prior to
June 30, 2000.
On February 12, 1999, the Company entered into a management agreement with
Milinx Management Corporation ("Milinx Management"). Under the terms of the
agreement Milinx Management was to provide management, administrative and
marketing services to the Company in consideration for payment of all of the
associated expenses to be incurred by the Milinx Management in connection with
providing the services, including personnel costs. In addition, Milinx
Management was entitled to a management fee equal to fifteen percent of the
expenses to be billed to the Company. Before this agreement was terminated on
April 1, 1999, the Company received services from Milinx Management, totaling
approximately $44,800. By June 30, 2000, the Company paid all but $3,586 of
these fees. The balance bears no interest and is due on demand.
On October 15, 1999 the Company acquired substantially all assets of Milinx
International, Inc. for consideration of 375,000 of the Company's common shares.
Due to unavailability of the information related to the cost of assets acquired,
the Company valued shares exchanged based on the present value of the future
payments due under the original license agreement (see note E). The value of the
consideration paid and the unamortized book value of the original license
agreement were written off at the time of acquisition.
F-9
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
On October 15, 1999, Credit Assure International, Inc. received 50,000 common
shares from Milinx Business Group in exchange for intellectual property and
trademarks. Due to unavailability of the cost information related to the
intangibles acquired, the Company valued transaction using estimated fair value
of the shares exchanged of $25,000. Acquisition costs were immediately written
off as an expense.
During the year ended June 30, 2000, Milinx - BC also incurred various expenses
on behalf of Milinx Marketing Group, Inc. (Milinx Marketing) totaling $82,644.
At June 30, 2000, the entire balance was recorded as a receivable from Milinx
Marketing.
During the year ended June 30, 2000, the Company entered into a management and
financial consulting services agreement with a company controlled by a director.
The agreement expired March 31, 2000 and required up to $1,200 in weekly
payments for services rendered by this director. The Company incurred $48,800
under this agreement during the year ended June 30, 2000. The entire balance was
paid in full prior to June 30, 2000.
NOTE E - LICENSES
The Company entered into a licensing agreement with Intraware, a partner of the
SUN/Netscape Alliance (iPlanet) on April 27, 2000. This licensing provided for
500,000 seats of SUN/Netscape Alliance software for Virtual Office and Unified
Messaging and 500,000 seats of U-Force Unified Messaging. The total cost of
$1,695,115 for this licensing was paid prior to June 30, 2000, except for two
payments of $146,730, which were included in the accounts payable at June 30,
2000. In addition, during the year ended June 30, 2000, the Company entered into
several other licensing agreements for use in its Data Center, at a total cost
of $341,870. The licensing was to be amortized based on the number of seats in
use. As of June 30, 2000, the Data Center were not fully operational and, thus,
no amortization was recognized for the year ended June 30, 2000.
Continuous losses, failing business model and additional uncertainties triggered
by the general state of the economy indicated potential impairment of the
Company's licenses. At March 31,2001 and then June 30, 2001, the Company
conducted an impairment analysis in accordance with the SFAS No. 121 and wrote
off $1,318,787, representing the remaining an unamortized balance of the
capitalized license costs.
NOTE F - ACCRUED LIABILITIES
Accrued liabilities are comprised of the following as of June 30:
2001 2000
---------- ----------
Compensation $ 512,447 $ 14,029
Legal fee 387,544 --
Employee benefits and payroll taxes 260,369 70,848
Commissions -- 135,187
Others 296,008 59,694
---------- ----------
$1,456,368 $ 279,758
========== ==========
NOTE G - CONVERTIBLE DEBENTURE
On November 9, 2000, the Company sold a $444,4444 convertible debenture to a
unrelated third party for net proceeds of $400,000. The debenture was to mature
on March 31, 2001, with 12% interest and was convertible upon demand into shares
of the Company's common stock at $3.00 per share. Based on the November 9, 2001
opening price of the Company's stock, there was no value to the beneficial
conversion feature associated with the debenture. The $44,000 premium paid on
the debenture, was amortized as an additional interest expense.
On December 29, 2000 the holder of convertible debentures called the outstanding
principal balance by providing the Company with a thirty-day notice.
The Company is currently in a default on the debenture. As of June 30, 2001, the
outstanding principal balance was $444,444. In addition, accrued interest
expenses include $35,556 of unpaid interest.
F-10
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE H - STOCKHOLDERS' EQUITY
The Company has the following types of securities authorized and outstanding:
Common Stock - $0.001 par value, 210,000,000 shares authorized.
Preferred Stock - 100,000,000 shares of preferred stock authorized and
designated into series as follows: Series A $0.001 par value, 10%
non-cumulative, voting, convertible preferred stock - 15,000,000 shares
authorized. Series A preferred stockholders are entitled to a non-cumulative 10%
cash dividend. Each share has a $.32 liquidation preference in addition to any
declared and unpaid dividends outstanding at the time of liquidation (up to $.32
of accumulated dividends per each Series A preferred share). Each preferred
stockholder is entitled to a number of votes that equals twice the number of
common shares into which said Series A preferred stock may be converted but no
less than six votes for each Series A preferred share. General conversion
provisions entitle each preferred share to be converted into three common stock
shares. The agreement also has variable conversion provisions designed to
prevent dilution of the preferred stockholders' position. No shares can be
converted during the twelve months following issuance. The agreement also
contains automatic conversion provisions at the election of the Company. At June
30, 2001 and 2000, the conversion ratio of Series A preferred stock into common
stock was 1:3.
Series B no par value voting, convertible preferred stock - 10,000,000 shares
authorized. Each share of Series B preferred stock has a $2.00 liquidation
preference. Each preferred stockholder is entitled to a number of votes that
equals the number of common shares into which said Series B preferred stock may
be converted. General conversion provisions entitle each preferred share to be
converted into one common stock share. The agreement also has variable
conversion provisions designed to prevent dilution of the preferred
stockholders' position. No shares can be converted until after December 31,
1999. The agreement also contains automatic conversion provisions at the
election of the Company. At June 30, 2000, the conversion ratio of Series B
preferred stock into common stock was 1:1. All Series B preferred shares were
converted into common shares during the year ended June 30, 2001.
F-11
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE H - STOCKHOLDERS' EQUITY - continued
Series C $0.001 par value, 10% non-cumulative, voting, convertible preferred
stock - 10,000,000 shares authorized. Series C preferred stockholders are
entitled to a non-cumulative 10% cash dividend. Each share of Series C preferred
stock has a $1.00 liquidation preference less accumulated total dividends paid
up to the time of liquidation. Each preferred stockholder is entitled to a
number of votes that equals the number of common shares into which said Series C
preferred stock may be converted. General conversion provisions entitle each
preferred share to be converted into one common stock share. The agreement also
has variable conversion provisions designed to prevent dilution of the preferred
stockholders' position. The agreement also contains automatic conversion
provisions at election of the Company. At June 30, 2001 and 2000, the conversion
ratio Series C preferred stock to common was 1:1.
In respect to the anti-dilution conversion provisions of the Series A and C
Convertible Preferred Stock triggered by the sale of Millennium units at $2.00
per share (see below), a non-cash deemed dividend of $1,700,000, to accumulated
deficit in the year ended June 30, 2001, was recognized.
Of the authorized preferred stock, 65,000,000 shares have not yet been
designated to a Series.
Warrants - As of June 30, 2001 and 2000 the Company has authorized the following
warrants:
1999 Internal Warrant A, 900,000 warrants authorized These warrants are
exchangeable for common shares at $4.50 per share until January 31, 2002.
As of June 30, 2001 and 2000, 900,000 1999 Internal Warrants A were issued
and outstanding.
1999 International Warrant A, 840,625 warrants authorized These warrants
are exchangeable for common shares at $2.00 per common share until
September 30, 2000. As of June 30, 2000 there were 840,625 1999
International Warrants A issued and outstanding. All warrants were
converted into common shares during the year ended June 30, 2001.
1999 Internal Warrant B, 650,000 warrants authorized These warrants are
exchangeable for Series A Preferred shares at $6.00 per share until March
31, 2005. At June 30, 2000, there were 650,000 1999 Internal Warrant B
issued and outstanding.
F-12
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and1999
NOTE H - STOCKHOLDERS' EQUITY - Continued
Class D Warrants, 5,000,000 warrants authorized These warrants were
exchangeable for common shares at $2.00 per common share until November 15,
2000. During the years ended June 30, 2001 and 2000, 1,182,256 and
1,312,206 Class D warrants, respectively, were issued through a conversion
of Class D units. During the years ended June 30, 2001 and 2000, 1,782,857
and 37,500, respectively of Class D warrants were converted into common
shares. The remaining warrants expired unexercised on November 15, 2000.
Units - the Company authorized the following types of hybrid securities:
1999 Class C Units, 10,000,000 authorized These units have a right to
purchase one Series B preferred share, 1/2 Class A Warrant, and 1/2
Class B Warrant at a nominal amount at $0.001002. At June 30, 2000
there were no Class C Units issued.
1999 Class D Units, 10,000,000 authorized These units have a right to
purchase one Series C preferred share and 1/2 Class D Warrant at a
nominal amount of $0.001001. At June 30, 2000, there were 2,364,511
Class D units outstanding all of which were converted during the year
ended June 30, 2001.
Millennium Units
From January through June 2001 the Company sold 1,435,213 "Millennium"
units, consisting of four common shares of Milinx Business Group, Inc.
and Milinx Wireless, Inc. at a price of $2.00 per unit. Each unit
consists of four common shares of Milinx and 8 common shares of Milinx
Wireless. For the first $7,000,000 in gross proceeds received, an
additional bonus share of Milinx Wireless was be issued to each
subscriber.
F-13
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
Warrants
On May 25, 1999, 900,000 1999 Internal Warrant A were privately issued
to a consultant and the Company's legal counsel. These warrants were
exercisable immediately at $7.50 per common share until January 31,
2003. The warrants were issued for cash proceeds of $200. On May 10,
2000, the Board authorized reduction of the warrant's exercise price to
$4.50 and amended the expiration date to January 31, 2002. In
connection with this modification, the Company recorded $108,000 in
additional consulting and legal expenses. The amount was computed using
the Black-Scholes pricing model with a risk free rate of 5.67%, 83%
volatility, 0% dividend rate and estimated remaining life of 1.6 years.
As of June 30, 2001, none of the warrants have been exercised.
On July 25, 1999, 650,000 1999 Internal Warrant B were issued to two
directors. These warrants are vested immediately and exercisable at
$6.00 per Series A preferred share until March 31, 2005. As of June 30,
2001 and 2000, no warrants have been exercised.
On December 9, 1999, a new director was awarded 90,000 common stock
warrants to be vested quarterly over a two year period and
exchangeable into common shares at an exercise price of $7.50 per
share until December 31, 2002. On May 10, 2000, the Board authorized
the reduction of the warrant's exercise price to $4.50, the increase
of the number of warrants to 180,000 and to decrease the exercise
period to January 31, 2002. Due to value of the stock declining
substantially subsequent to May 10, 2000 remeasurement, variable
accounting required under FIN 44 had no effect on the accompanying
financial statements. As of June 30, 2001 and 2000, no warrants have
been exercised.
On May 10, 2000, the Company granted 100,000 fully vested common stock
warrants, with an exercise price of $4.50 as an additional
compensation for legal services performed. The warrants expire January
31, 2001 and were valued using the Black - Scholes pricing model with
a risk free rate of 5.67%, 83% and 0% volatility and dividend rate,
respectively, and estimated life of approximately 0.7 years. In
connection with this transaction the Company recorded $14,000 in
additional legal fees. As of June 30, 2001 and 2000, no warrants have
been exercised.
As of June 30, 2001 and 2000, there were 250,000 in outstanding common stock
warrants originally issued in December 1999 in connection with the Forestay
acquisition. The warrants are exercisable at $4.00 per share and expire on
December 9, 2004.
F-14
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE I- STOCK OPTIONS
1999-7 Employee Stock Option Plan
On July 14, 1999, the Directors approved the creation of the 1999-7 Employee
Stock Option Plan (the Plan) to replace the Employee-Associates Incentive
Warrant Plan. Under this plan, the Company may grant up to 4,000,000 options
(Rule 701) to employees to acquire one common share per option of the
Subsidiaries at an exercise price of $0.002 to $2.00 per share commencing
December 31, 1999 and expiring March 31, 2005. After November 4, 1999 reverse
stock split, each option is now convertible into 1/2 share of the Company's
common stock. On November 10, 1999, the number of options under this plan was
increased to 6,000,000.
The options granted under the Plan have both time and performance vesting
components. Time vested shares vest in increments through March 31, 2001 and
have a set exercise price of $0.002 per share. Performance vested shares have a
exercise price of $2.00 and vest upon achievement of predetermined milestones
through January 1, 2001.
On December 3, 1999, the Board of Directors modified the options granted under
the Plan to time vest 60% of the original performance vested shares. The
modification had no effect on the June 30, 2000 consolidated results of
operations due to the exercise price exceeding the fair value of the underlying
common stock on the date of the modification. Upon adoption of FIN 44, modified
options will be remeasured quarterly with adjustments in value being recorded as
increase or decrease in employee compensation expense.
Due to the exercise price of the time vested options being below fair value of
the Company's stock on the date of grant, in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, the Company recorded $1,421,461 in deferred compensation. This
deferred compensation is to be amortized over the vesting period of the
underlying options. During the year ended June 30, 2000, the Company recorded
$318,835 in amortization related to the options vested through June 30, 2000.
During the year ended June 30, 2001, employees exercised 558,500 options for
total proceeds to the Company of $31,931 and forfeited all but 250,000 of the
remaining options (due to termination of all of the Company's workforce). The
net affect of APB 25 adjustments related to options vested and exercised during
the year ended June 30, 2001 and options forfeited, was $36,744.
Director and Executive Stock Option Plan
On July 25, 1999, the Directors authorized 1,000,000 options for directors and
executives. Each option would entitle its holder to acquire one share of the
Company's common stock per each option granted. These options are exercisable
for the period from July 25, 1999 to March 31, 2005.
Option prices are generally equal to the fair market value of the shares of the
Company's common stock on the date of grant. Options, generally, vest over a
three-year period and expire three to five years from the date of the grant.
F-15
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE I - STOCK OPTIONS - Continued
Summary of stock option activities
The following is a summary of the employee stock option information for the year
ended June 30, 2001 and 2000 (all option information has been adjusted for the
November 1999 reverse stock split).
Weighted Average
Shares Exercise Price
------------- -----------------
Options outstanding at June 30, 2000 4,448,250 $ -
Options granted - -
Options forfeited (3,639,750) 1.81
Options exercised (408,500) 0.66
------------- -----------------
Options outstanding at June 30, 2001 400,000 $ 2.00
Number of options available for grants 2,551,750
The weighted-average fair value of the options granted during the year ended
June 30, 2000 was $1.28.
The Company granted no employee stock options during the year ended June 30,
2001.
The following table summarizes information about options outstanding at June 30,
2000.
Options Outstanding Options Exercisable
----------------------------------------------------------- ---------------------------------------
Weighted Weighted -
Average Average
Range of Number Exercise Price Remaining Number Weighted Average
Exercise Prices Outstanding Price Contractual Life (yrs) Exercisable Exercise Price
- -------------------- --------------- ---------------- --------------------- ------------- ----------------------
$2.00 250,000 $2.00 0.58 250,000 $2.00
F-16
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE I - STOCK OPTIONS - Continued
The Company accounts for its stock-based compensation plan in accordance with
APB Opinion No. 25, under which no compensation is recognized in connection with
options granted to employees except if options are granted with a strike price
below fair value of the underlying stock. The Company adopted the disclosure
requirements SFAS No. 123, Accounting for Stock-Based Compensation. Accordingly,
the Company is required to calculate and present the pro forma effect of all
awards granted. For disclosure purposes, the fair value of each option granted
to an employee during the year ended June 30, 2000, has been estimated as of the
date of grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.67%, dividend yield 0%, volatility of
83%, and expected lives of approximately 4 to 5 years. Based on the computed
option values and the number of the options issued, had the Company recognized
compensation expense, the following would have been its effect on the Company's
net loss:
Year ended
June 30, 2000
-----------------
Net loss
- ---------------------
As reported $ 6,636,452
Pro forma 8,033,231
Loss per share
- ---------------------
As reported $ (0.74)
Pro forma (0.90)
For the year ended June 30, 2001, there was no material pro forma effect of the
stock options on the consolidated financial statements due the offsetting effect
of forfeitures.
On April 20, 1999, 200,000 options were granted (under Rule 701) to four of the
Company's non-employee sales associates permitting the purchase of common shares
at $2.00 per share effective July 15, 1999 and expiring on March 31, 2001. Using
an option valuation model, fair value of the options at the date of grant was
determined to be negligible due to low stock volatility and options being "out
of the money" at the date of grant. All options were forfeitured during the year
ended June 30, 2001.
NOTE J - INCOME TAXES
The Company accounts for income taxes on the liability method, as provided by
Statement of Financial Accounting Standards 109, Accounting for Income Taxes
(SFAS No. 109). Milinx - Delaware is primarily a United States taxpayer, while
Milinx - BC primarily files in Canada. The income tax provisions reconciled to
the tax computed at the statutory federal rate for the year ended June 30, 2001
and 2000 were:
2001 2000
--------------------- ---------------------
Tax benefit at statutory rate $ (5,545,810) $ (2,256,393)
Permanent differences 11,148 11,461
Canadian tax rate differences (1,266,500) (669,691)
Increase in valuation allowance 6,801,162 2,914,623
--------------------- ---------------------
Total $ - $ -
===================== =====================
F-17
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE J - INCOME TAXES - continued
The components of deferred taxes are as follows at June 30, 2001 and 2000:
2001 2000
--------------------- ---------------------
Deferred tax asset:
Net operating loss
carryforward $ 8,191,498 $ 3,188,633
Depreciation 626,239 (169,085)
Stock options and
warrants 12,493 149,884
Organization costs - 29,087
Impairment of fixed assets 1,094,728
Loss on theft and
abandonment of fixed assets 57,698
Other 24,485 7,460
Valuation allowance (10,007,141) (3,205,979)
--------------------- ---------------------
$ - $ -
===================== =====================
The Company has established the above valuation allowances as of June 30, 2001
and 2000 and due to uncertainty of future realization of deferred tax assets.
Total valuation allowance increased by $6,801,162 from June 30, 2000 to June 30,
2001, primarily due to current year temporary differences. At June 30, 2001, the
Company has $24,100,000 in net operating loss carryforwards for federal income
tax purposes available to offset future income which expire in 7 to 20 years.
Potential changes, if any, in the company's ownership could result in
limitations on the use of its net operating loss carryforwards.
NOTE K - COMMITMENTS AND CONTINGENCIES
1. Operating Lease
The Company has obligations under a long term, non-cancelable operating lease
for premises. This lease expires October 2004. The aggregate future minimum
payments are as follows:
Year ending June 30,
2002 $ 152,000
2003 152,000
2004 152,000
2005 51,000
-----------
Total minimum lease payments $ 507,000
===========
F-18
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE K- COMMITMENTS AND CONTINGENCIES - continued
Consolidated rent expenses for the years ended June 30, 2001 and 2000 and the
six months ended June 30, 1999, were approximately $569,000, $287,000 and
$32,000, respectively.
2. Capital Leases
In connection with the opening of its Data Center, the Company entered into
several capital lease agreements ranging in duration from two to three years. As
of June 30, 2001, the future minimum lease payments under these agreements are
as follows.
Year ending June 30,
2002 $ 1,781,093
Less: interest (at 12%) 222,415
------------------
Present value of capital lease obligations 1,558,678
Current portion of capital lease obligations 1,558,678
------------------
As of June 30, 2000, the capitalized cost of equipment under capital leases was
approximately $597,000, which represented its net realizable value computed in
accordance with SFAS 121 (see note C for additional information).
Subsequent to June 30, 2001, the Company entered into settlement agreements with
two lessors resulting in temporary deferral of principal payments on three
leases and cancellation of the other one. 23
F-19
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE K - COMMITMENTS AND CONTINGENCIES - continued
3. Employment Agreements
At June 30, 2001, the Company has employment contracts with two of its
officers/directors requiring monthly compensation payments of $17,250 in
aggregate and expiring on December 9, 2002. Total payments due are as follows.
Year ending June 30,
2002 120,000
2003 30,000
-------------
$ 150,000
=============
Total unpaid compensation under contracts as of June 30, 2001 and 2000, were
$40,000 and $ 7,590, respectively and was included in accrued liabilities in the
accompanying consolidated balance sheet.
On August 16, 2001, the Company entered into an employment agreement with its
new officer and Board member. The agreement expires on August 17, 2003 and
entitles the executive to $40,000 in compensation on or prior to October 17,
2001, and then an annual compensation of $250,000. The agreement also calls for
a $150,000 performance bonus upon achievement of specific milestones. In
addition to the aforementioned compensation, fringe benefits, and expense
reimbursement, the employee was granted 1,000,000 stock options exercisable
through August 16, 2004 at $0.10 per share. In addition, the Company granted
this new officer and Board member 500,000 stock options exercisable through
August 16, 2004 at $0.10 per share.
4. Legal
On April 6, 2001 Milinx Business Group and Milinx Business Services filed a
Writ of Summons in the Supreme Court of British Columbia against Sun
Microsystems, Inc., Netscape Communications Canada, Inc., Netergy Networks, Inc.
Intraware Canada, Inc. and Burntsand Inc. claiming for damages in excess of
$10,000,000 Canadian dollars for misrepresentations and breach of contract.
Sunrise International Leasing Corporation (with all correspondence under the SUN
Microsystems letterhead) filed a Summons and Complaint in the State of
Minnesota, County of Hennepin against Milinx Business Group and Milinx Business
Services, for two Counts, Breach of Equipment Lease by Services: in excess of
$50,000 in damages and immediate possession of equipment and Breach of Lease
Guaranty by Group: in excess of $50,000 damages and seizure of equipment. Milinx
takes the position that this is in reaction to the Writ of Summons issued in the
Supreme Court of British Columbia and therefore the jurisdiction and claim
should be part of and in the same jurisdiction of British Columbia. These suits
have been settled pending payment of certain sums by the defendants with mutual
releases executed by all parties.
After reaching an out of court settlement with Milinx Business Services on April
18, 2001, Tantalus Communications Inc. filed a Notice of Discontinuance,
releasing Milinx Business Services from further action. Milinx Business Services
was not required to pay any more than the invoices outstanding before their
claim.
On October 4, 2000, three former employees of Milinx Business Services advanced
separate actions in the British Columbia Supreme Court against Milinx Business
Services alleging breach of their employment severance agreements and claiming
unspecified damages. One of the claimants has since discontinued the action
against Milinx Business Services and Employment Standards has dismissed a
vacation wage claim of one of the two remaining employees. The proposed plan of
reorganization will address these remaining claims.
There are numerous unsecured creditors of Milinx Business Services who have
filed suit or threatened actions against Milinx Business Services. These matters
will be resolved in the reorganization plan to be approved by the court.
From December 2000 to June 2001, the Company conducted its Millenium offering.
Some of the sales may have been made in violation of the Act, creating liability
under the Act. The Company believed that the sales were exempt from registration
under the Act, but facts recently coming to its attention created uncertainty
whether the exemption was fully complied with. If a court were to determine that
the exemption had not been fully complied with, the Company's maximum possible
liability would be $306,000, plus statutory interest. The Company would
vigorously defend any assertion by investors that it had not complied with the
exemption and would seek contribution from third parties the Company believes to
be responsible for the potential violations.
F-20
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
To the knowledge of the officers and directors of Milinx, there are no other
pending legal proceedings or litigiation and none of its property is the subject
of a pending legal proceeding. Further, Milinx's officers and directors know of
no legal proceedings against Milinx or its property contemplated by any
governmental authority other than the Canadian government's claim for wages,
payroll taxes and accrued vacation discussed under note L.
From time to time, the Company is a party to various legal proceedings
incidental to its business. The Company believes that none of the other
presently pending legal proceedings will have a material adverse effect upon its
consolidated financial position, results of operations, or liquidity.
NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Year ended June 30, 2001
Quarter
1st 2nd 3rd 4th
----------- ----------- ----------- -------------
Net sales $ 87,689 $ 23,794 $ 165,031 $ 14,979
Gross profit (loss) (60,548) (105,469) 52,362 106,367
Net loss from operations (3,484,588) (3,565,444) (3,529,870) (9,028,140)
Net loss per common share - basic
and diluted $ (0.27) $ (0.21) $ (0.18)
Year ended June 30, 2000
Quarter
1st 2nd 3rd 4th
----------- ----------- ----------- -------------
Net sales $ 45,971 $ 53,839 $ 56,926 $ 40,457
Gross profit (loss) (54,686) (5,936) (56,277) (51,357)
Net loss from operations (1,126,559) (1,550,732) (1,580,343) (2,378,818)
Net loss per common share - basic
and diluted (0.13) (0.17) $ (0.17) $ (0.25)
Six months ended June 30, 1999
Quarter
1st 2nd 3rd 4th
----------- ----------- ----------- -------------
Net sales N/A N/A $ 16,740 $ 26,684
Gross profit (loss) N/A N/A (870) (3,818)
Net loss from operations N/A N/A 153,316 690,934
Net loss per common share - basic
and diluted N/A N/A $ (0.02) $ (0.08)
F-21
Milinx Business Group, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001 and 2000
NOTE M - SUBSEQUENT EVENTS
The Government of Canada through the divisions of Revenue Canada and Employment
Standards have filed superpriority liens against the Company and certain
directors and officers for unpaid employee wages, payroll taxes, accrued
vacation and severance pay. The Company has recorded these claims, totaling an
approximately $750,000, in accrued liabilities. The amount in question is in
dispute and the Company has an appeal filed to determine the correct amount
owing. The claims will be addressed in the pending reorganization and it is the
intention of the company to meet its obligations as confirmed by the plan. If
the Company cannot confirm the plan the superpriority claim would allow the
Government to execute on its lien against the assets of the Company.
On August 27, 2001, the Company approved the issuance pending a registration of
3,033,670 shares of its voting common stock to be issued to trade vendors (and
two of the Company's officers) in lieu of payments for services previously
rendered. The shares are to be issued subsequent to aplanned S-8 registration
with the Securities and Exchange Commission.
On September 19, 2001, the Company granted 2,500,000 stock options to its
president and two executive officers. Of the options granted, 1,500,000 are
exercisable at $0.10 per share for a period of three years from the respective
officers' dates of engagement, and vest as follows: 40% of each grant 60 days
from the date of engagement, and 60% equally over the next ten months. The
remaining 1,000,000 options are exercisable at $0.10 per share until August 16,
2004, and vest as follows: 200,000 options vested on October 16, 2001, and
800,000 options vest 1/12 every month beginning on October 16, 2001.
F-22
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS
- -----------------------------------------
Identification of Directors and Executive Officers
The following table contains information regarding the members of the Board of
Directors and the Executive Officers of the Company:
- --------------------------- ----- ---------------------------------------------
Name Age Position(s)
- --------------------------- ----- ---------------------------------------------
Maynard L. Dokken (1) 39 Chairman of the Board of Directors, Chief
Executive Officer
- --------------------------- ----- ---------------------------------------------
Thomas Loker (2) 46 President, Chief Operating Officer, Director
- --------------------------- ----- ---------------------------------------------
Stanley Mazor (3) 60 Director
- --------------------------- ----- ---------------------------------------------
Michael Goldstein (4) 40 Director
- --------------------------- ----- ---------------------------------------------
Steven Price (5) 50 Chief Financial Officer
- --------------------------- ----- ---------------------------------------------
(1) Mr. Dokken was appointed as Chairman of the Board of Directors on August
28, 2001. He has a three-year term as Director. Mr. Dokken assumed his
position as Chief Executive Officer on December 8, 1999.
(2) Mr. Loker was appointed as President and Chief Operating Officer and was
elected to serve on the Board of Directors on August 16, 2001, for a term
of one year.
(3) Mr. Mazor was elected to serve on the Board of Directors on September 19,
2001, for a term of one year.
(4) Mr. Goldstein was elected to serve on the Board of Directors on September
19, 2001, for a term of one year.
(5) Mr. Price was appointed to serve as Chief Financial Officer on September 4,
2001.
6
There are no arrangements or understandings between the directors and officers
of Milinx and any other person pursuant to which any director or officer was or
is to be selected as a director or officer. In addition, there are no agreements
or understandings for the officers or directors to resign at the request of any
other person and the above-named officers and directors are not acting on behalf
of nor acting at the direction of any other person.
Maynard L. Dokken, Chairman, CEO, and Corporate Director
Mr. Dokken has worked for the Company and its subsidiaries since 1998. He has
served as a director of the Company since December, 1998, its president and
chief executive officer since February, 1999, and chairman of the board since
August 2001. His duties include oversight of legal, financial and corporate
governance matters. He currently serves as director, president and chief
executive officer of Milinx Business Systems, Inc., a Nevada corporation, a
position he has held since August, 2000. He currently serves as director,
president and chief executive officer of ASP Technology One, Inc., a Nevada
corporation, a position he has held since August, 2000. He currently serves as
director, president and chief executive officer of Credit Assure Financial
(Canada) Inc., a British Columbia corporation, a position he has held since
September, 2000. He currently serves as director, president and chief executive
officer of Milinx ASP, Inc., a Delaware corporation, a position he has held
since December, 2000. He currently serves as director, president and chief
executive officer of Milinx Wireless, Inc., a Delaware corporation, a position
he has held since December, 2000. He also served as director, president and
chief executive officer of 580880 BC Ltd. (formerly Milinx Business Services,
Inc., a British Columbia corporation) from March, 1999 to June, 2001. His duties
included developing applications for internet services. From 1995 to 1998, Mr.
Dokken served as president and chief executive officer of Milinx Marketing,
Inc., the Company's predecessor. His duties included oversight of legal,
financial and corporate governance matters.
Mr. Thomas Loker, President and Chief Operational Officer and Corporate
Director.
Mr. Loker has served as President, Chief Operating Officer, Director of the
Company since August, 2001. Prior to joining the Company, Mr. Loker served as
president and chief operating officer of SyberSay Communications. Mr. Loker
joined SyberSay as chief operating officer in February of 2000 with the goal of
establishing and structuring the company. Mr. Loker took the company from an
initial staff of 9 to a team of 43 members and by July the company had
developed, manufactured and released its first products into the market. Mr.
Loker was appointed President & COO in October. During this period the company
released 4 new products. Mr. Loker spearheaded raising $7 million of additional
capital during this time frame. He successfully recruited his replacement in
July 2001. During his tenure the company raised $11 million in financing,
released 9 products to the market, introduced new technologies in the Wireless
and Wired headset market area, obtained 1 patent and filed for 9 patents and had
an additional 12 inventions in disclosure. From February, 1992 to February,
2000, Mr. Loker was an independent consultant for Thomas Loker Consulting.
Stanley Mazor, Director
Mr. Mazor has served as a director of the Company since September, 2001. He is
also presently Director of Technical Services at Numerical Technology. Since
March 1998, Mr. Mazor has served as training manager for CADABRA, a position he
still holds. From March 1997 to March 1998, Mr. Mazor served as training manager
of BEA Systems. From February 1996 to February 1997, Mr. Mazor served as the
training manager for CATS, a software company supporting investment markets with
analysis tools for fixed income securities and their derivatives. Mr. Mazor is a
Senior Member in the IEEE.
7
Michael Goldstein, Director
Mr. Goldstein has served as a director of the Company since September, 2001. He
is co-founder and co-chief executive officer of TeamSearch Inc., a national IT
and Computer Contract Consultancy firm to Fortune 500 and Fortune 1000
companies, where he has worked since 1991. He is also co-founder of Goldstein &
Company, a privately held staffing firm in the computer, electronic publishing /
multi media arena. Michael holds a Bachelor of Science degree, majoring in
Business Administration and Economics with emphasis in Computer Science,
Psychology and Philosophy from The College of Notre Dame.
Steven Price - Chief Financial Officer
Mr. Price has served as the chief financial officer of the Company since
September, 2001. Prior to joining the Company, he was self-employed as a
financial consultant. From May 1997 to August 1998, he served as the chief
financial officer of Personic Software, Inc. From June 1996 to May 1997, he
served as the chief financial officer of Orbit Network, Inc. Mr. Price has
experience in both private and public companies and has been involved in
industries ranging from software and web based systems development to
telecommunications companies and banking. Mr. Price has participated in a number
of turn-arounds, mergers and acquisitions, as well as fundraising activities.
Mr. Price has experience in debt reduction and consolidation and negotiation of
asset based credit facilities. He also has significant experience in investor
relations and SEC relationship issues.
Relationships Among Directors or Executive Officers
There are no family relationships among any of the directors or executive
officers of the Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's Directors, executive officers and persons who own more than 10% of a
registered class of the Company's securities to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and
other equity securities of the Company. Directors, executive officers and
greater-than-10% stockholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) reports they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended June 30,
2001, its Directors, Executive Officers and greater-than-10% stockholders
complied with all Section 16(a) filing requirements.
8
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MILINX BUSINESS GROUP, INC.
By: /s/ Maynard L. Dokken
----------------------------------------
Name: Maynard L. Dokken
Title: Chief Executive Officer
Dated: December 21, 2001
9