Each one in plain English, with the numbers worked through for a shareholder.
11 Aug 2005material agreement● NeutralMajor
On August 10, 2005 Andy Teng, who led the company as Chairman and CEO from March 2002 until January 2004, returned as CEO and Chairman on a one-year renewing contract at $72,000 a year plus $1,000 a month. He received options on 3,000,000 shares at $0.20, the right to future options on 600,000 shares at $0.50, and the right to appoint a director. The filing says future success depends on obtaining financing and addressing existing financial obligations, with no certainty of either.
On May 4, 2005 Laurus declared events of default under the November 2004 security agreement, accelerated everything owed and demanded about $3.3 million the same day, threatening foreclosure on all assets. The company says it did not pay and does not expect to, except from proceeds of selling the assets securing the Laurus debt. This is the escalation of the April recapitalization plan.
The company announced a recapitalization plan: sell off the discontinued Northgate assets (estimated liquidation value $1.0-2.0 million, mostly pledged) to repay Laurus, to whom it owes about $2.5 million, and cut costs. It also has about $9.5 million of mostly past-due unsecured debt, which it is offering to swap for equity or settle at five cents on the dollar, but only if new equity financing is obtained. It says that if the plan fails it will likely have to cease operations and liquidate. This follows the April 7 liquidity warning and the November 2004 Laurus facility; it also says it is talking with Circuit City and its contract manufacturer about rescheduling a hip-e order to June 1, 2005.
Digital Lifestyles gave Alloy Marketing and Promotions a roughly $600,000 unsecured note, repayable on demand, in payment for Alloy's 2004 services; Alloy can convert it to stock at 75% of market value. The company also said it had about $120,000 in cash as of March 23, 2005, is seeking $15-20 million of new financing (it says $20 million is the minimum it needs), has no agreement with investors, and warned it may have to cut operations, sell assets, cease business or seek bankruptcy protection. It expects its 2004 net loss to be about $11.0 million versus about $4.8 million in 2003, and the late 10-K (flagged on April 1) awaits a goodwill impairment test on about $3.5 million of goodwill that could add to the loss.
On November 30, 2004 Digital Lifestyles closed a $7,500,000 credit facility with Laurus Master Fund: a $2,750,000 convertible minimum borrowing note and a $4,750,000 convertible revolving note, both maturing November 29, 2007 at prime plus 2%. Laurus can convert into stock at $0.39 per share and received a warrant for 3,846,154 shares at $0.44. Borrowing depends on inventory and receivables, and the loan is secured by substantially all assets other than intellectual property, with the Northgate Operating Company and hip-e Operating Company subsidiaries as guarantors. Conversion and the warrant could dilute shareholders, and a default could cost the company its assets (per the filing).
On September 29, 2004 the company amended the registration rights agreement from the September private placement, moving the filing deadline from September 30 to October 7, 2004 and the effectiveness target from November 13 to November 22, 2004 (December 13 to December 20 if the SEC reviews). Penalty warrants for outside investors still apply if the filing is missed. This continues the September placement thread and gives the company a little more time.
The company, now named Digital Lifestyles Group, Inc. and based in Austin, Texas (the filing does not explain the rename or move), raised about $5 million in a private placement completed September 14, 2004. It sold 14,450,858 common shares at $0.346 each with warrants for 7,225,426 more shares at $0.475, to 19 investors. A further 1,000,000-share warrant at $0.475 went to Westech Capital as a fee. Insiders, including CFO Theodore Muftic, CEO Kent Savage's affiliate and director Suhail Rizvi's affiliate, took part. The company must register the shares for resale, with penalty warrants for outside investors if it files late. For existing shareholders this means dilution (the filing states the share and warrant numbers).
What it means for a shareholder
14.5m new shares at $0.346 to raise about $5.0m. Shares on issue before the raise aren't in the record, so the dilution can't be worked out.
On April 28, 2004, just a week after hiring it, Northgate dismissed Ernst & Young at E&Y's request, because an administrative judge in an SEC case had suspended E&Y from taking new public clients for six months. E&Y never issued a report on the company, and Northgate re-engaged Corbin & Company that day. This reverses the April 16 switch. Kent A. Savage signed as CEO, replacing Andy Teng in that role in this filing's signature block.
On April 16, 2004 Northgate's audit committee dismissed Corbin & Company and engaged Ernst & Young on April 21, 2004. Corbin's reports for 2003 and 2002 were unqualified and there were no disagreements. The filing gives no reason for the switch.
On January 6, 2003 Northgate moved its audit to Corbin & Company LLP, a successor firm formed January 1, 2003 by principals of Corbin & Wertz, which transferred substantially all its clients to it. No disagreements are reported. This looks like a routine change of firm rather than a change of auditor personnel (inference).
On May 15, 2002 Northgate dismissed its auditor BDO Seidman, which it had proposed to ratify earlier, and hired Corbin & Wertz for fiscal 2002. BDO was dismissed (it did not resign) and the filing reports no disagreements. BDO's report for the past two years included an explanatory paragraph expressing substantial doubt about the company's ability to continue as a going concern.
The merger the earlier Mcglen filings described closed on March 20, 2002: Lan Plus became a wholly owned subsidiary of the registrant, which renamed itself Northgate Innovations, Inc. (formerly Mcglen Internet Group). Each Lan Plus common share became about 3.12828 Northgate common shares after a 1-for-10 reverse split approved on February 28, 2002. About 9,854,091 common and 1,350,000 preferred shares were issued to former Lan Plus holders, leaving about 18,961,162 common stock equivalents. Andy Teng became Chairman and CEO and Richard Shyu became President. The filing does not explain how TN-K ENERGY GROUP's name relates to this company; the issuer's filings are now under the Northgate name. Lan Plus financial statements and pro forma figures were not yet filed (to follow within 60 days).
Amendment No. 3 to the Mcglen/Lan Plus merger registration statement, filed 11 days after Amendment No. 2. The visible text keeps the same terms as Amendment No. 2 (ten-for-one reverse split contingent on closing, 75,000,000 shares registered, five proposals); no change is visible in the excerpt provided. The filing text does not state TN-K's role.
Amendment No. 2 to the Mcglen/Lan Plus merger registration statement refers to the merger agreement as amended on November 19, 2001. It replaces the authorized-share increase with a proposed ten-for-one reverse split of Mcglen common stock, contingent on the merger closing, and raises the registered shares to 75,000,000 (before the reverse split). Auditor ratification returns, for the year ending December 31, 2001, so there are again five proposals. The filing text does not state TN-K's role.
Amendment No. 1 to the Mcglen/Lan Plus merger registration statement refers to the merger agreement as amended on September 28, 2001. It drops the auditor ratification, leaving four proposals for Mcglen holders (authorized shares to 90,000,000, name change to Northgate Innovations, the stock option plan, directors). The 44,000,000-share registration is unchanged, and the filing text does not state TN-K's role.
The filing is a Form S-4 registration statement by Mcglen Internet Group, Inc., not TN-K itself, covering up to 44,000,000 Mcglen shares to be issued to Lan Plus Corporation shareholders in a proposed merger of a Mcglen subsidiary into Lan Plus. Mcglen holders are asked to vote on raising authorized shares to 90,000,000, renaming the company Northgate Innovations, Inc., a 2000 stock option plan, auditor ratification and directors. The filing text does not say how TN-K is connected to Mcglen or Lan Plus, so its effect on TN-K shareholders is not stated; the meeting dates and share counts are blank.
