April 20, 2004 1:30 PM PDT

Lindows opens door for IPO

Embattled Linux software maker Lindows announced Tuesday that it has filed a registration statement with the Securities and Exchange Commission for an initial public offering of common stock.

The company reported that it plans to offer the shares in an IPO underwritten by San Francisco-based investment firm WR Hambrecht, but did not give any time frame for the undertaking. Lindows markets Linux-based operating system software and services designed specifically for desktop and laptop computers.

The IPO is expected to be for as much as $57.5 million in common stock, according to the SEC filing. The San Diego-based company would trade on the Nasdaq under the symbol LINE.


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According to the filing, at least a fifth of the IPO proceeds would be used to repay Lindows founder Michael Robertson for the $10.4 million he has invested in the company.

The S-1 statement filed with the SEC also gives the first indication of Lindows' finances. For 2003, the company reported a net loss of $4.08 million on net revenue of $2.07 million. In 2002, the company had a net loss of $6.68 million on net revenue of about $63,000. The company currently lists $934,000 in total assets, including about $250,000 in cash, and total indebtedness of $4.7 million.

"It will be interesting to see how the market receives a company with only $2 million in revenue and a $4 million loss," said Katherine Egbert, a securities analyst with Jeffries & Co. But the company likely sees an opportunity in Linux investors, she added: "It is likely Lindows is looking to capitalize on the high valuations of Red Hat and Novell, which are driven in part by the scarcity of public Linux investments."

The S-1 filing also notes that in a recent report, an independent auditor hired by Lindows expressed doubts about the company's viability, concluding that "our historical losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern." Proceeds from the IPO will allow the company to "continue as a going concern," according to the report.

The announcement comes at a tempestuous time for Lindows, which last week renamed its namesake operating system to Linspire as a result of continued legal battles with rival Microsoft. The change had been expected, following recent court rulings in Europe regarding Microsoft's claim that the Lindows name infringes on the software giant's trademark for its Windows operating system.

Lindows adopted the Linspire moniker for Europe and other foreign markets. In the United States, however, where the Linux company has had more interim success in its legal battles, the term Lindows will still be used in certain instances and as the corporate name.

The S-1 filing reveals several other lawsuits pending against Lindows. The company's general liability insurer, St. Paul Fire & Marine Insurance, sued the company in U.S. District Court for Central California two years ago, seeking a ruling that the insurer is not responsible for legal costs or damages associated with the Microsoft trademark dispute. The court ruled in Lindows' favor on the main issues, but the companies are still awaiting judgment on other claims, including Lindows' countersuit.

The filing also reveals that Lindows is suing Xandros, which sells a competing desktop Linux package based on products developed by Corel, over a $750,000 loan that Lindows alleges Xandros defaulted on. That case is still in the discovery phase, according to the filing.

The Linux software maker is the latest in a string of companies to move forward with IPO plans, including antispam software maker Brightmail, comparison shopping engine Shopping.com and hosted business applications provider Salesforce.com. Despite facing some regulatory hurdles, the Salesforce.com IPO is expected to rekindle investor interest in technology IPOs unseen since the late-1990s stock market boom.

Search king Google is rumored to be heading toward its own highly anticipated IPO later this year.

CNET News.com's David Becker and Stephen Shankland contributed to this report.

 

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