January 15, 2001

LinuxOne keeping a low profile while talking merger

Author: JT Smith

- By Grant Gross -
It started with a reader asking what the heck has happened to LinuxOne, the mysterious company that many in the Open Source community accused of trying to cash in on the Linux IPO craze of late 1999. After filing for an IPO in September of 1999, the company has all but disappeared, and it shows few signs of life.

To review the history: LinuxOne opened for business in the United States in March 1999, launched by chairman and CEO Wun Chiou, who formerly ran NetUSA, a company that trades its stock over the counter. (A separate company, Linux One Inc., launched in Korea in September 1999.) Although most people in the Linux community hadn't heard of Chiou, in early September 1999, LinuxOne announced an strategic partnership with the popular Linux distribution, MandrakeSoft, to assist the French company in opening development centers in China. As LinuxWorld said later, LinuxOne's role in the partnership was "a little unclear." Critics said LinuxOne didn't get what being an Open Source company was all about, and several commented that LinuxOne's S-1 IPO document looked strikingly similar to Red Hat's.

Later that month, LinuxOne launched its first product, the LinuxOne OS, which "easily facilitates the migration of many Linux application programs from Microsoft Windows to Linux systems," according to the LinuxOne Web site. Also in September, the company filed for its IPO, even though it had reported no revenues.

No IPO

Since then, it's almost as if LinuxOne has sailed into the Bermuda Triangle. Former LinuxOne partner MandrakeSoft, contacted this week, sent this from its PR department: "We have never worked together on any project since they appeared to be a ghost-company and ghost-everything. I've been told they have released a product based on Mandrake one year ago. Anyway we have not been in contact with them for more than one year."

Amid repeated criticism of its business plan, LinuxOne's IPO never happened. A press relations officer with the U.S. Securities and Exchange Commission says she couldn't comment on an individual company's IPO, but a search at the EDGAR-online IPO database comes up with nothing after Dec. 23, 1999, when LinuxOne named Capital West Securities as lead underwriter and estimated that the initial public offering price per share would be $8.25.

So I go looking for evidence that the company still exists. I first go to LinuxOne.com, and see a page with only a link to an email address on it. So I write Tuesday afternoon, asking what's happened to the company. I keep the wording neutral -- I'm truly curious and not planning to write another "let's run LinuxOne out of town on a rail" article.

I explore more, and find what looks like a more updated Web site at LinuxOne.net. I email info@linuxone.net and make the same request.

Sidetracked

Wednesday morning, there's a return email in my Yahoo! mailbox from "AI Info Robot" at LinuxOne.com. It says:

Hi Grant,
two points:
1) Go to http://www.linuxone.net/, these are the people you are looking for
2) it appears real strange that the managing editor of NewsForge would use a Yahoo mail account (which is limited to private use only per their TOS at http://docs.yahoo.com/info/terms/) for carrying out business, which is prohibited. I therefore copy Yahoo Abuse and NewsForge to check this out, hope you don't mind.. Yahoo may want to disable that account if there is a problem; if you are legitimate I'd suggest you'd better use a newsforge account for your business activities.
Webmaster

After clearing up that it's not a TOS violation to use my Yahoo! email as a collection point for my half-dozen email accounts, I try to engage Mr. AI Info Robot to get more details on LinuxOne, the company. Although LinuxOne.com is listed at LinuxOne.net as a company site, the webmaster there says he hasn't had contact with the company recently and declines to talk about LinuxOne.

Ghost site, no voice mail

Meanwhile, my email to info@linuxone.net has gotten no response in about 24 hours. I go to the Web site and look around a little more. Any signs of life there appear several months old. The last press release, about LinuxOne opening Taiwan offices, is dated Jan. 4, 2000. Beside the profile CEO and president Richard Kraus is a notation in red type: "Resigned!" A note later in his bio says he left the company on Aug. 11, 2000.

There are no notes that the vice presidents of marketing and sales have resigned, so I email them. Both the emails bounce back, saying "user unknown."

I call the phone number listed for LinuxOne's Fremont, Calif., headquarters. It's been changed. I call the new number at 9:15 a.m. Pacific time, but there's no answer and no voice mail. Maybe they're late risers, so I call back at 10:40 a.m. No answer after eight rings. Same story at 1:25 p.m.

The toll-free number for "sales only!" is disconnected. At the number listed as LinuxOne's Maui, Hawaii, R&D center, I do get a generic voice mail message, "the person you are calling isn't available ..." I leave a message, and wish the travel budget could support a trip to Maui to knock on the door.

I later call the contact number listed on the Global Village Foundation Web site, a company that owned a piece of LinuxOne and where Chiou is listed as chairman and president. The organization, which says it provides tele-medicine and tele-legal services for "poor people around the world," has its telephone number redirected to LinuxOne's old, disconnected phone number.

Attempts to download LinuxOne's products on its download page are met mostly with "not found" and FTP errors.

Dun and Bradstreet report

I run a Dun and Bradstreet report on LinuxOne. There's not a lot of activity in the report either, but the highlights include:

LinuxOne is at a low risk for financial stress; "firms with this classification had a failure rate of .37% (37 per 10,000), which is lower than the national average."

However, LinuxOne rated a four on a five-point scale for credit risk. "... during the previous
year, 26.2% of the firms with this classification paid one or more bills severely delinquent, which is 1.58 times higher than the national average."

As of Jan. 10, 2000, the company reported having 10 employees and leasing a 2,500-square-foot office space.

The last special events entry on the report was for Aug. 29, 2000, when a businessman was named to LinuxOne's board of directors.

On Aug. 26, 2000: "According to published reports, International Mercantile Corp (IMC), Baltimore, MD, has signed a letter of intent to merge with LinuxOne Inc, Mountain View, CA, but the parties have not settled upon terms of the merger. Should the parties agree upon the terms of a merger, it is expected that the merger would be completed within 60 days from September 25, 2000. The combined company would change its name to LinuxOne and would move its corporate headquarters to San Jose, CA. The manufacturing headquarters would be IMC's 40,000 square foot manufacturing facility in Baltimore."

Merger with white box builder?

I track down International Mercantile Corp., which is doing business under the name Micromatix.net, a "business-to-business e-commerce company that is recognized as a quality leader in the assembly of build-to-order, unbranded -- or 'white box' -- PC systems and related hardware," according to the company's press materials.

Early Wednesday afternoon, I call Micromatix.net and ask to speak to someone about the merger. The operator refers me to someone who's not there, but tells me to call back at 3 p.m. I call back, and the operator tells me she referred me to the wrong person; instead I should speak with CEO Timothy Jewell, except that he's out for the day. She sends me to his voice mail, and I leave a message.

I call back Thursday morning and ask to speak to Jewell. He's not there. "He was in and out yesterday," the operator says. "I guess he didn't return your call. I think he's traveling today, but he may be in later." She promises to tell him I've called again; I start calculating the odds of him ever calling me back.

A Google search turns up a Nov. 20, 2000, press release about Micromatix.net finding out Nov. 1 that it continues to be ISO 9002 compliant. The fourth paragraph mentions that the company "recently announced the signing of a stock exchange-merger agreement with LinuxOne Inc., a Nevada corporation. LinuxOne Inc. is a privately held developer of embedded Linux Thin Client systems."

The press release goes back to the ISO 9002 compliance announcement, then in the eighth and ninth paragraphs, gives a short history of LinuxOne. "LinuxOne's primary business is embedding
Linux into chips created with business partners. The company believes the embedded-system market has the potential for high revenues with attractive margins and rapid growth."

An Oct. 25, 2000, press release announces that the stock exchange/merger agreement is final, although the closing of the transaction was subject to various closing conditions, including an audit of LinuxOne's financial statements. "... Of course, it cannot be assured that this transaction will close," the press release says.

Jewell was expected to be the president of the merged company, according to the press release, and Dr. Leo C. Liao Sr., who served as a senior advisor to LinuxOne, was expected to be named chief executive officer. However, the operator I talk to at Micromatix.net calls Jewell the CEO.

"Our goal is to create a company that can evolve as a major player in the Linux and Windows markets," Jewell is quoted in the press release. "Our new company will have access to a state of the art operating system (LinuxOne) and a substantial manufacturing capacity (IMC) as well as the combined management expertise of both companies. We believe these factors will enable us to move quickly to develop a presence in our targeted market."

That's the extent of the merger explanation. A search for press releases after Nov. 20 comes up empty.

Currently negotiating

Now going on 48 hours with no response from info@linuxone.net, I'm running out of places to look. I look up Michael J. Morrison, a Reno, Nev., lawyer listed as LinuxOne's lawyer in various documents. I call and leave a message for him just before 9 a.m. Pacific time Thursday, and I also write him at the email address his secretary provides me.

He responds by email with a one-line note: "The company is currently in merger discussions."

I write back: "Hi, Mr. Morrison. Can you give me more information than that? Do you know when the merger with IMC should be completed? What's the business plan after the merger? And, is LinuxOne still selling a product? I can't find evidence that it's doing so."

His answer: "I can't give you any more info."

Former CFO speaks

Later Thursday, a co-worker notices that Stan Kawczynski, listed as LinuxOne's chief financial officer in early documents, has the same name as a former Republican mayor of Sunnyvale, Calif. We track him down, and yes, it's the same guy.

Kawczynski, now a financial planner/consultant in Silicon Valley, is happy to return my phone call. He says he left the company in December 1999, and ended up suing LinuxOne for promised stock and partial salary. The case was settled late last year, he says.

A check with the Santa Clara, Calif., clerk of courts office confirms that Kawczynski did file a breach of contract lawsuit against LinuxOne in February 2000. The company responded by saying the paperwork in the case wasn't filed correctly. The case was dismissed on Dec. 6, 2000, before going before a judge, but a settlement could have been the cause of the dismissal, according to the clerk of courts office.

Since he left, Kawczynski hasn't heard much of LinuxOne. "What they're doing now, I have no bloody idea," he says.

Asked about the company's IPO, he says: "They kept postponing it." Was there a reason? "None that was ever given to me."

On Friday, shortly after 10 a.m., I try Jewell at Micromatix.net again. He's out of the office and probably won't be in until Monday. I tell the operator I've already left two messages. "Is this the reporter?" she asks. "I even spoke to him about your call. I guess he just hasn't had a chance to return your call."

I'm starting to get an impression Jewell doesn't want to talk to me.

As luck would have it, I live in the same area Micromatix.net calls home, and I want to make sure the company's not running out of someone's basement. I do a whois search on the name, and find an address in an industrial park just southwest of Baltimore. Indeed, there is a large warehouse with a "Micromatix" sign on the front.

At 11 a.m. Friday, there are about 20 vehicles in the parking lot, a dozen more if I count the cars parked by the back of the building, which has a separate address. A "for lease" sign sits on the Micrometix side of the property.

Micrometix's November 2000 quarterly report (filed under parent name International Mercantile Corp.) lists total sales of $5.59
million for the first nine months of 2000, with a break-even point of $2 million a month, assuming a gross margin of 12 percent. The company launched Sept. 2, 1999.

"Management believes that this sales revenue is achievable," the document says. "Our growth is projected to result from an increase in sales equal to or greater than 50% each quarter, which would annualize to approximately $18 million in sales, if adequate capitalization is achieved. Potentially, should all of the contracts that we are currently negotiating materialize, annual sales could exceed $40 million for the calendar year 2001." The company reported a sales force of six people.

On the downside, the document acknowledges some risks for the company: "The white box PC industry is highly competitive ... Many of our competitors are larger, more established, and have greater name recognition and financial and marketing resources than our Company ... We are considered a start-up company and have no significant operating history as Micromatix.net. We have not generated significant revenue to date to support operations on an ongoing basis ... Our viability, profitability and growth depend upon our meeting our sales goals and our attaining sufficient financing to purchase inventory at competitive prices."

At 9:20 a.m. Pacific time Friday, I make call No. 4 to LinuxOne.net's Fremont, Calif., number. Still no answer.

I'm curious about who'll be there to staff LinuxOne's booth at the LinuxWorld Conference and Expo, Jan. 30 to Feb. 2 in New York City. LinuxOne has a booth reserved, with a link to the one-page LinuxOne.com Web site on the LinuxWorld exhibitor page. Booth No. 2057 should be worth a stop.

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