UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Filed at
Washington D. C. 20549
FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12 (b)
or 12 (g) of the Securities Act of 1934
TENSLEEP TECHNOLOGIES, INC.
(Name of Small Business Issuer in its charter)
COLORADO 33-0789960
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2201 N. LAMAR BLVD., SUITE 205, AUSTIN, TEXAS 78705
(Address of Principal Executive offices, Zip Code)
(512) 236-1840
(Issuer's Telephone Number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None
None
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
Class B Warrants
(Title of Class)
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is an Internet and Communications technologies development
company based in Austin, Texas. It is in the development stage of two product
lines of Internet appliances.
One appliance product line is a series of Internet controllers which are
application specific modular computers ("CyberServer"s). It serves as a "thin
Internet server platform" ("TISP") in an estimated $2 Billion dollar market by
2001. The CyberServer allows an original equipment manufacturer to connect
their equipment to the Internet or Corporate Intranet. The equipment is then
able to transmit data anywhere in the world. CyberServer uses the Company's
T7001 integrated circuit, which combines the modem, Internet protocol and
controller device functions into a single chip.
The other appliance product line consists of a series of Internet
communicators which are a combination of a traditional telephone and e-mail
sending and receiving device ("CyberCommunicator"). The CyberCommunicator
enables the non-computer literate person to purchase and use a single device
which allows the user to send and receive e-mail and to make traditional phone
calls over the phone lines. The CyberCommunicator will require no downloading
or uploading of software or knowledge of how to use a computer. The
CyberCommunicator will make use of one of the Company's Internet controllers
plus and Intel X86 microprocessor.
The Company was founded in October 1997 under the laws of the state of
Colorado under the name Tensleep Design, Inc, and changed its name in April 1999
to Tensleep Technologies, Inc. (the "Company"), and formed a wholly owned
subsidiary using the name of Tensleep Design, Inc. ("Tensleep"). The Company
in addition to the CyberServer and CyberCommunicator, designs, develops and
markets and sells signal processing integrated circuits primarily for the
Internet, communications and computer products.
The Company recently reorganized itself into two segments conducting
business through subsidiary corporations. The Tensleep segment is divided into
two divisions. One division designs, develops, markets, and sells integrated
circuits ("IC"s) to original equipment manufacturers. The second division will
design, develop and market communication products and sell them to original
equipment manufacturers through a network of independent sales
representatives.
The second segment's business will be conducted in a subsidiary corporation to
be formed and will distribute communications products to consumers via the
internet and retail outlets through a network of independent sales
representatives, this network is separate from that of the Tensleep segment.
The Company plans within the next 12 months to complete the development of
its Internet controller ("CyberServer"), Internet communicator
("CyberCommunicator"), and to set up a network of independent sales
representatives for selling its facsimile modem chip, licensed from Samsung
Electronics, Inc., of Korea, and CyberServers. Also during this time, the
Company plans to form or acquire an internet Sales Co and establish sales of
communications products through the Internet and independent sales
representatives. The Company believes that during this period it will receive
revenues from Internet sales of communications products, the sale of integrated
circuit design services, and possibly the wholesale distribution of
communications products, sales of non-exclusive licenses to its DSC core
technologies and sales of integrated circuits.
The Company's digital signal integrated circuit products are directed to
1) original equipment manufacturers ("OEM"s) of multi-media communication
products, personal computers. office equipment, production equipment, testing
equipment and other devices and appliances ; 2) personal computer ("PC") and PC
board-level product manufacturers that design the Company's IC products into
their board, box or system level products; and 3) facsimile machine
manufacturers. The targeted individuals in these companies will be product
planners, program managers, and product designers.
The Company's potential customers for its consumer products distribution
business segment are those who purchase such products through the Internet and
retail electronic outlets serviced by the independent sales representatives, but
its communications devises will be directed to original equipment manufactures
through independent sales representatives.
Targeted OEM companies will include those developing and providing "thin
internet server platforms" ("TISP"s) which link their devices via the Internet,
those developing facsimile-related products and who require the high degree of
integration provided by the Company's ICs, and those who are building
telecommunications products that bridge the analog and digital transmission gap.
In these cases the solutions are provided by the Company's highly integrated
mixed-signal processing and micro-controller ICs. There are only a half dozen
manufacturers that currently have a true monolithic IC for high-speed fax modem
products.
The Company in order to enhance its business is seeking strategic
relationship with other companies in consumer internet and communications
products. In addition, the Company will seek to acquire new technologies.
BACKGROUND OF COMPANY
The Company was established with the specific goal of developing and
marketing application-specific DSP based products targeted at the computer,
communications and graphics markets. The Company originally licensed its
technology from Sundance Design, Inc. (the "Licensor"), formerly Tensleep
Design, Inc., a Texas corporation. The technology evolved from (1) generating
digital signal designs for customers under contract with the Licensor, (2)
through developing custom chips for customers of the Licensor, and (3)
developing a DSP core library and products based on this library. These design
efforts yielded three distinct DSP core architectures, as well as three modem
products.
A key element in the early growth of the Company's technology was the
successful development of long term strategic relationships with major
international semiconductor manufacturers, such as Kawasaki and LG Semicon .
These relationships provided the Licensor with over $6.0 million dollars to fund
the design of leading edge communications technologies, and the Licensor
retained rights to the technology for its own products.
The Licensor pioneered the design and development of products using mixed-
signal hardware technology coupled with signal processing algorithms,
integrating all into one IC in a cost effective manner. The one-IC designs can
replace competitive IC sets (which contain two to four integrated circuits), and
eliminate 30 to 40 other electrical components, resulting in approximate cost
savings of $7.00 to $15.00 in the manufactured cost of a typical $100 modem card
or box. The Company has identified specific segments of the communications and
computer markets to which it can supply a superior product. By operating in
selected segments of the marketplace (facsimile machines, Global Positioning,
and non-multimedia modems) the Company believes it will have fewer competitors
and many potential high volume clients to which it can supply a superior
product.
Digital signal processing is a technology in which analog signals are
manipulated/analyzed/modified by first converting the signal to digital form,
mathematically processing the data, and using this data and/or converting it
back into analog signals. Effective implementation of the technology depends on
both hardware and software. The hardware typically consists of Analog-to-
Digital (A/D) and Digital-to-Analog (D/A) converters and a Digital Signal
Processor (DSP). This DSP is a specialized computer designed to execute
specific algorithms, primarily filters, more effectively than a general purpose
microprocessor. The software consists of algorithms (and code) capable of
emulating, in the DSP, the transmitting and receiving of fax and data, voice and
speech processing and compression, audio and video compression, and wireless
communications.
HISTORY OF COMPANY AND COMPANY'S TECHNOLOGY
The Company was incorporated in the state of Colorado on October 23, 1997
by R Tucker & Associates, Inc. ("R Tucker"), and its principal shareholder,
Ronald S. Tucker, an officer, director, shareholder and promoter of the
Company.
R Tucker, a corporate financial consulting firm, for many months before October
1997 had been negotiating with the Licensor to acquire its technology or to
participate in its capital reorganization. In October Mr. Tucker received
authorization to use the name "Tensleep Design, Inc." for a corporation he was
forming in the State of Colorado. In December 1997 the Company acquired a non-
exclusive perpetual license to the technology and modem products develop by the
Licensor. Then in January 1998, the Company entered into a definitive agreement
to acquire all the ownership rights to the Technology and other assets of the
Licensor.
The Licensor was a Texas corporation formed and founded in 1987 by Dennis
Kaliher, who was the president, chief executive officer, director and majority
shareholder.
The Licensor since 1987, with strategic partners like Kawasaki Steel and
LG Semicon (formerly Lucky Goldstar) of Korea, has developed Technology and
three products as follows:
Technology
A/DSC321 Digital Signal Controller
A/DSC421 Dual Processor Controller
A/DSC521 Dual Processor Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
The development costs of the Technology and Products exceeded $6,000,000.
The Licensor's business from 1987 to 1996 was providing engineering
services through strategic relationships. This allowed it to develop good and
valuable technology and products. Then in 1996 the Licensor made a decision to
develop and market its own products and stop providing engineering services to
others; however, to accomplish this, it required funding. It entered an
agreement with a Texas broker/dealer to do a best efforts underwriting and
expended over $200,000 in legal and accounting fees for that purpose. It filed
a Form SB-2 with the Denver Office of the Securities And Exchange Commission,
but the registration was never completed. The underwriting never took place and
for over one year the Licensor had no revenues, depleted its capital and was
unable to market its products and was unable to raise capital to advance its
business. The employees, save Mr. Kaliher, were transferred to Zilog, Inc., or
found other employment. Since completing the development contracts with
Kawasaki and LG Semicon in 1996, the Licensor had been exclusively engaged in
attempting to obtaining funding to exploit its technology and products. About
January 1, 1998, the Licensor stopped any further efforts to exploit the
technology or raise funds.
On June 18, 1998, the Company acquired technology and equipment/software
to support integrated circuit design from LS Squared , Inc. ("LS2") valued at
$100,000 and Mr. Tucker acquired all the issued and outstanding common stock of
LS2. This technology and equipment and integrated circuit design software was
received by the Company as consideration in the exercise of 100,000 Class A
Warrants for 100,000 shares of common stock. LS2 was engaged in doing custom
integrated circuit design services for various international semiconductor
manufacturers. LS2 was a privately-held California corporation and the sale was
prompted by significant health problems of its sole owner and president, an un
affiliated person. In this purchase the Company acquired technology complements
to the Company's technology; the major elements are listed below:
Non-volatile memories
Volatile memories
Phase locked loop circuits
CMOS and BiCMOS cell libraries
In addition to the technology, the Company acquired design workstations
and software design tools which had been purchased for approximately $1,800,000
(per paid invoices) and were carried on the books of LS2 at approximately
$120,000 at the time acquired.
The Company on March 1, 1999, entered into a distributor agreement with
Samsung Electronics Co., Ltd., to distribute Samsung stand-alone fax modem
products in the United States of American and Japan. The Company will be able
to put its name on these products and its own part number and will be
responsible for all product support. The agreement is for a term of one year
with four automatic renewals of one year. The fax modem products covered by the
agreement include the following:
T2903 9600bps FAX Modem with Caller ID
T1703 14400 bps FAX Modem with Caller ID
T2930 9600 bps FAX Modem Super 1- Chip (Modem + MPU)
T3403 33600 bps FAX Modem with Caller ID
The T2930, T1703, and T2903 have the same footprint as the Rockwell
Semiconductor fax modem chips and are believed to be of better quality. The
fact that the Samsung fax modem chips are of the same footprint means that the
facsimile machine manufactures would be able to substitute that chip for the
Rockwell chip without any board changes. The next generation fax modem chip,
T3403, will be able to be used in the same circuit boards now in use, while
Rockwell's will require circuit board revision. The Company believes that many
manufacturers would prefer not to redesign their board because of the cost to do
so. The Company believes that this provides it with a unique window of
opportunity. These fax modem products were developed by Samsung and are not
based on the Company's technology.
The Company has commenced the development of its CyberServer and
CyberCommunicator Internet appliance product lines. The CyberServer is a series
of controllers that are application specific modular computers. This product
allows an original equipment manufacturer to connect their equipment to the
Internet or Corporate Intranet. The equipment is then able to transmit data
anywhere in the world. The CyberServer sues the Company's T1701 integrated
circuit, which combines the modem, Internet protocol's and controller device
functions into a single chip.
The CyberCommunicator is a combination of a traditional telephone and an
e-mail sending and receiving device. It enables the consumer to purchase a
single device, which allows the user to send and receive e-mail and to make
traditional phone calls. It requires no downloading or uploading of software or
computer knowledge. It will use an Internet controller plus an x86
microprocessor.
The CyberServers and CyberCommunicators are not general purpose. They are
application-specific devices designed to do one or a few things well. Merrill
Lynch has defined appliances as "specialized, single, or limited function
devices that are inexpensive and reasonably intuitive.
The Company is currently planning to generate revenues in the short run by
seeking licenses for its core technologies to be included in other electronic
products, providing integrated circuit design services, leasing or renting
equipment and integrated circuit design software, conducting Internet sales of
communication products, and distributing communications products through a
network of independent sales representatives. In the long run the company will
generate revenues from marketing and selling its CyberServer, CyberCommunicator,
T1703 and T3403 FAX Modems, and its DSP products and systems on a chip devices.
TECHNOLOGY AND PRODUCTS
The Company's mixed-signal Digital Signal Controllers (DSCs) are designed
to be used as engines for DSP-based application-specific integrated circuits,
enabling system-level integrated solutions which require analog conversion,
signal processing and data processing or control. The Company's mixed-signal
DSPs enable system-level integrated solutions for high value, low-power, and
high-speed data transmission. Because of the high level of integration, the
DSCs are true systems-on-a-chip solutions for many problems. Three different
versions of the DSC have been designed: the A/DSC321, which has been used to
implement a 14,400 bps fax modem, the A/DSC421, which combines a DSP, an Analog
Front End ("AFE") and an 8-bit microprocessor on one chip, and the A/DSC521,
which is a smaller, faster version of the A/DSC421 in a smaller process.
LS2 developed a wide variety of designs resulting in a design library that
complements the DSC systems-on-a chip. The library includes non-volatile and
volatile memories, phase-locked loop circuits, and microcontrollers. These
designs enhance the Company's ability to build a variety of integrated circuits
quickly and economically.
TECHNOLOGY- DIGITAL SIGNAL CONTROLLERS
A/DSC321
MIXED SIGNAL DSP AND ANALOG FRONT END.
The A/DSC321 is a highly integrated single-chip device which contains a
12.5 MHz 16-bit, fixed point DSP and a sigma-delta AFE. The DSP performs a
single-cycle multiply-accumulate function which is key to top performance. The
AFE converts analog signals to digital equivalents (and vice-versa) for
processing by the DSP. The sigma-delta design technique provides exceptional
immunity to noise from the high-speed digital circuits in the DSP and allows the
processing of low-level signals with improved fidelity. This design is ideally
suited to telecommunications applications such as high-speed facsimile machines
and medium speed imbedded modems; to voice applications such as voice processing
for digital answering machines, and other applications where space, performance,
and low power are key requirements. It provides capability equivalent to
competitive products that require two to three chips. It has been used in the
Company's T1701 Fax Datapump.
The design is implemented in a 1.25 micron CMOS process and has become too
costly to produce competitively. It is scheduled to be re-targeted into the
newer 0.5 and 0.35 micron processes that should reduce the cost to less than 25%
of the present cost.
A/DSC421
DUAL PROCESSOR WITH ANALOG FRONT END
The A/DSC421 single-chip includes a DSP similar to and compatible with the
A/DSC321, an 8-bit microcontroller compatible with a popular microprocessor
family, an AFE, and a comprehensive set of peripheral interfaces. The DSP is
improved to operate at 25 MHz, enlarging the set of problems that can be
addressed in the market. The 8-bit microcontroller is compatible with the Zilog
Z80 instruction set and operates at 9 MHz. The Z80 compatibility allows the use
of industry standard development tools, and makes available a large set of
existing software solutions. The AFE contains 16-bit sigma-delta analog-to-
digital (A/D) and digital-to-analog (D/A) converters which allow the processing
of larger (and smaller) signals than the A/DSC321. The A/DSC421 also includes
on-chip interfaces for direct connection to the high-speed internal PC bus and
for connection to a PC using the external serial bus; a 16-bit general purpose
I/O to connect to relays, light-emitting diodes, sensors and other unspecified
devices; a high speed serial bus compatible with the industry standard consumer
peripheral bus; and a Z80 compatible external memory and peripheral bus
providing connection to external program and data memory and to other Z80
compatible peripheral ICs. This is a very versatile chip, and can address a
large variety of applications in the data and telecommunications market,
navigation and surveying markets, motor control markets, and embedded systems.
The A/DSC421 has been programmed as a 14,400 bps PC data modem providing the
signal conversion, data compression, error correction and protocol control
functions usually allocated to three or more integrated circuits in competing
products.
The technology is implemented using Kawasaki's 1.0 micron CMOS process
and must be re-targeted into a newer 0.5 micron process to enhance its
marketability.
A/DSC521
DUAL PROCESSOR WITH ANALOG FRONT END
The A/DSC521 is virtually identical to the A/DSC421 but with improved
interrupt capability and a 33 MHz clock for the DSP module and 15 MHz clock for
the MCU. The higher clock rates again expand the type of applications the chip
can address.
The A/DSCx21 technology can be applied to a great many applications where
the solution requires analog, digital signal processing and data processing.
Initially, the Company will be concentrating in 3 major areas- high-speed
facsimile machines, medium-speed modems, and GPS receivers. All products are
based upon the A/DSCx21 hardware technology; the primary difference in the
actual products is in the software executed in the DSP and MCU modules.
In addition to using the technology for the Company's own products, the
DSP designs will be licensed to companies needing a DSP for embedded
applications where the application is not competitive. The architecture is ideal
for embedded applications as it is compact, fast and economical.
TECHNOLOGY - NON-VOLATILE MEMORIES
These memories are used primarily for program storage for the DSC and MCU
processors. The library includes Read Only Memories (ROM), Electrically Erasable
Programmable ROM (EEPROM), Erasable Programmable ROM (EPROM), and Flash Memory.
The library provides the DSC and MCU processors with a wide selection of program
memories to accommodate a variety of applications.
TECHNOLOGY - VOLATILE MEMORIES
Volatile memories are used primarily to provide a temporary store for data
that the processors are working on. The library includes a large selection of
Static Random Access Memories (SRAMs) with word lengths from 8-bit to 27-bit and
total storage from 32-word to 32K-words. All are implemented in contemporary 0.5
micron CMOS processes.
TECHNOLOGY - PHASE-LOCKED LOOP CIRCUITS
Phase-locked loops (PLL) are required for the new high-speed processors;
the internal clock rates are usually higher than clock rates readily available
from inexpensive oscillators. A PLL will step up the oscillator clock, typically
from 50-80MHz to that required by the microprocessor, now exceeding 600MHz. The
library includes PLLs in 5 volt processes, and in the newer 3.3 volt and 3.0
volt processes, with output frequencies from 14MHz to 350MHz.
TECHNOLOGY - STANDARD CELL LIBRARY
The standard cell library includes a large set of the basic logic blocks
necessary to implement any integrated circuit. These cells are available in CMOS
and BiCMOS.
PRODUCTS - QUICK RESPONSE INTERNET MODEM/CONTROLLER (CYBERSERVER)
This product is designed to be used in TISP servers which efficiently and
cost effectively link people with devices or appliances in real-time via the
Internet. The Internet is a viable cost alternative to the dial-up network. It
is now possible to combine the modem function, Internet protocol function and
the device controller in one chip, the T7001, for use in TISP's.
The T7001 has a 16-bit Digital Signal Processor core with a set of on-chip
peripherals. The DSC peripheral set includes the following:
Serial Interface (SI), high speed
DSP Interrupt Encoder (DSPIE)
External Memory Bus
DSP/MCU Interface (:DSPIF)
The High Speed Serial Interface (SI) operates at rates up to 500kHz. It
is primarily used to connect to external analog codecs. The DSP Interrupt
Encoder (DSPIE) monitors interrupts coming into the DSP and handles them based
on their priority and mask status. The DSP microcontroller interface (DSPIF)
interface is the communication link between the DSP engine and the micro
controller. It consists of a set of register and interrupt generation logic.
The registers are for exchanging data, control and status information and echo
canceling data. Interrupts are generated to the processors when there is a
change of data in their respective registers. The External Memory Bus (BIU)
provides an external interface for connection to external memory (RAM, ROM,
EPROM, etc) and to compatible peripherals. It contains the wait state generator
(WSG), and the programmable chip select generator ("PCSG). The Bus provides
addressing capability up to 64K words. The BIU provides 8-bit or 160bit address
and 8-bit or 16-bit data buses. Separate chip select, read, and write signals
keep the address strobe timing simple.
The T7001 also has a resident microprocessor and an associated set of
peripherals. The microprocessor is Z80-compatible, with a clock speed in excess
of 30 Mhz. The set of peripherals include a V.24 compatible serial bus,
external memory interface, ethernet controller, 8-bit timer, watchdog timer, and
the MCU/DSP interface. The ethernet controller allows connection to sensors
and monitoring equipment via a local ethernet bus. The V.24 serial interface
connects to the Internet via an analog modem. The external memory bus allows
connection to up to 1 Mbyte of external memory, RAM, ROM or EEPROM for program
data storage.
PRODUCTS - INTERNET COMMUNICATOR (CYBERCOMMUNICATOR)
The Internet Communicator allows one to search the Internet, send/receive
e-mail, participate in chat rooms, eventually use the Internet for voice
communications, and also allow for conventional voice communications. The basic
unit consists of a color monitor, computer motherboard and a keyboard. All
programs are contained in ROM or EEPROM, so there are no programs to load. 16
Mbytes of RAM storage are provided for the temporary storage of downloaded data.
The motherboard may be housed within the monitor so there is only the cable to
the keyboard and the power cable to worry about. There is no setup to be done by
the user other than a telephone number and a password- the unit comes loaded
from the factory with the operating system, e-mail and browser software.
With these minimal features, the user can take advantage of all that is
available on the Internet. However, in the basic system there is no long-term
storage for data, nor is there any print capability. However, these and other
features can be added at any time. A port for hard disc, floppy disc and CD-ROM
is a standard feature, as is a printer port. The user can buy the unit as a pure
Internet communications terminal and expand it into a full-blown Windows 98
computer with off-the-shelf components from their local computer store, if
desired.
PRODUCTS - HIGH-SPEED FACSIMILE MODEM
The main elements in a typical facsimile (fax) machine consist of a
controller, a modem, a page scanner and a printer. The fax modem has evolved
from a low-speed (2400 bps) to today's standard of 14,400 bps. A new standard
for 28,800 bps fax transmission was released in 1998.
The Company has a designs for 14,400 bps, the T1701 and T1703 Fax Modems,
but we expect that the newer 28,800 bps, T3403, will become the next
generation.
The new 28,800 standard is currently under development and is expected to be
available by the end of 1999. It will provide half-duplex transmission at data
rates up to 33600 bps in agreement with the ITU V.34 recommendation. It will
use the existing design for the T1703 but will include a larger program memory
and will be designed for a smaller process with reduced cost. The T3404 will be
fabricated by Samsung.
PRODUCTS - MEDIUM-SPEED MODEMS
Medium-speed modems are found in products where the data communication
function is key but not very visible such as ATMs, gasoline pumps, credit card
verification machines, etc. The total data sent is small, the data rates are
typically slower than those for a PC modem, and there is no need for multi-media
capability. Each of these applications have a microcontroller as well as a
modem; the Company's technology is ideally suited to combining these functions
into one economical solution.
T2424
FAST RESPONSE MODEM/CONTROLLER
The T2424 Fast Response Modem/Controller is a highly integrated single-
chip device combining a full-duplex DSP-based modem with a Z-80 compatible 8-bit
microcontroller. It is specifically designed for use in embedded applications
where connection to the Internet and where space, performance and low power are
key requirements. It is ideally suited for applications coupling telemetry
capability with machine control as it contains both a modem and microcontroller
and allied peripherals that give it the capability of directly controlling
machine functions. It could be the only integrated circuit required in many
applications.
The T2424 meets the CCITT recommendations and is fully compatible with
existing modems and industry standard chip sets.
All of the modulation, demodulation, filtering, analog-to-digital and
digital-to-analog conversion functions for transmit and receive are provided on-
chip. Automatic selectable and programmable compromise equalizers are included
to optimize performance.
The 8-bit Controller, with its external bus and GPIO, can interface with
most electronic and electro-mechanical devices and is targeted to such equipment
as vending machines, ATMs, power line monitors, smart appliances, and other
applications where low-cost communication and control are required. Embedded
programs include the Internet Protocol, the AT Command Set, and the Supervisor.
The protocol and command set enable communications over both the dial-up network
and the Internet; the supervisor provides the operating system enabling the
integration of the embedded programs and customer-provided machine control
programs.
T3203
14,400 BPS MODEM/CONTROLLER
It is essentially a higher-speed version of the T2424 and offers a faster
microcontroller to address more complex applications.
ENGINEERING DESIGN SERVICES
The Company solicits design contracts in its LS2 division that increase
the depth and breadth of the Company's intellectual property as well as augment
income. The Company's design capability ranges from initial concept and system
design/analysis through logic/circuit design, logic simulation, circuit layout,
circuit verification, cell test and final test design.
To advertise the design capability and the supporting intellectual
property, the Company is supporting a web-site at LS2.com and the services of
representatives such as Technical Data Freeway. In addition, the Company
continues to solicit business from companies that have used the Licensor's and
LS2's services in the past and companies with which they have had other
relationships.
The design activity is maintained on more than 10 SPARC-compatible
workstations running the Cadence suite of design and layout tools, supported by
Synopsis for logic synthesis, HSPICE for circuit analysis and TimeMill for
timing analysis.
To support its design activity, the Company has a large library of
integrated circuit designs, ranging from simple logic circuits to complex
digital signal processors and microprocessors. Designs are available in the
categories listed below:
16 - bit digital signal processors
8 - and 16 - bit microcontrollers
Sigma - delta A- to - D and D - to - A converters
Non - volatile memories
SRAM memories
Phase locked loops
Cache controllers
Standard cell libraries in CMOS and BiCMOS
This library of standard cells and megacells forms the base from which the
Company has developed and will continue to design and develop proprietary
products for sale under the Company's label. However, many of the elements of
the library have value in themselves and can be marketed to other companies
engaged in the design of integrated circuits or used in designs contracted with
the Company. Elements of the library have been sold to LG Semicon, Zilog and
Kawasaki in the past.
Due in part to the increasing complexity of today's integrated circuits,
and partly to increased time-to-market pressure, more companies are purchasing
designs rather than developing them, especially when the expertise is lacking
in-house. These purchases range from outright sales and licensing of sample
descriptions of the logic or schematics to contracts for complete chip design,
layout and test
The Company can supply the above listed elements in a variety of formats,
as follows:
High - level logic descriptions in Verilog
Complete schematics and logic diagrams
Logic circuit net lists in Cadence or EDIF formats
Sample circuit layouts
Finished, complete chip designs ready for production in the
customer's selected process and foundry
In addition, the Company can supply the logic simulation vectors for
design verification and test suites for final test of the completed product.
PATENTS AND PROPRIETARY RIGHTS.
The Licensor has endeavored to protect and maintain its competitive
position by protecting its intellectual property, including its inventions,
trade secrets and technical know-how. The Company, when appropriate, plans to
file patent applications for key patentable designs, innovations and inventions
that it believes are most relevant to its product line and most valuable in
terms of cost and technological advantages. The Company also plans steps to
prevent the loss to competitors of valuable proprietary information such as
trade secrets and technical know-how.
The Company requires employees, consultants, and independent contractors
to execute confidentiality and invention/copyright assignment agreements prior
to engaging in any service to the Company. The Company further requires,
whenever possible, that companies engaged in sensitive discussions with the
Company, involving its proprietary technologies, execute non-disclosure
agreements. These agreements are intended to protect the Company's trade
secrets, technical know-how, and patentable and copyrightable subject matter by
restricting disclosure of such information. No assurance can be made, however,
that such contracts will provide the Company with adequate protection in the
event that such agreements are breached through the unauthorized disclosure or
use of such intellectual property.
The Company has unlimited rights to the T1701 developed with Kawasaki
Steel Corporation and derivatives thereof. The Company shares unlimited rights
to the T3217 and embodied technology with LG Semicon, and has exclusive rights
to the embodied technology for the T3401 and T3417.
MARKETS AND CUSTOMERS
Once confined for use by the military for radar and sonar processing,
Digital Signal Processing technology is now being implemented in a wide variety
of applications, including modems, cellular telephones, compact disc and
digital stereo systems, hard and optical disk drives, and video games. The DSP
market is expected to show phenomenal growth; the Average Annual Growth Rate
(AAGR) for the total market is projected to be in the range of 31.8% from 1997
through 2002.
Worldwide DSP Market
($ millions)
<TABLE>
<CAPTION>
Device Type 1997 1998 1999 2000 2001 2002 CAGR
<S> <C> <C> <C> <C> <C> <C> <C>
Programmable DSPs $3,215 $3,858 $5,093 $7,028 $9,698 $13,384 33.0%
FASICs $4,600 $5,980 $7,834 $10,341 $13,753 $18,292 31.8%
Building Blocks $86 $87 $89 $97 $117 $155 12.5%
MPUs/MCUs $189 $189 $226 $256 $288 $362 13.9%
Total DSP IC market $8,090 $10,114 $13,241 $17,725 $23,857 $32,192 31.8%
</TABLE>
Source: Forward Concepts, DSP Strategies 2002, August 1998.
Programmable (general purpose) DSPs constitute the best-known segment of
the DSP chip market. They are un-programmed devices sold to OEMs that design
their own programs. FASICs are Functional and Algorithm Specific Integrated
Circuits which are programmed by the IC manufacturer to address specific
applications such as modems. This is the market that the Company's products
address.
Modems represent the largest single dollar market for DSP chips and are
projected to dominate DSP market sales through 2002. Worldwide sales of
modems are expected to increase from 77.5 million units in 1997 to 124.5 million
units in 2002, for an average annual growth rate of 9.9 percent. Today, modems
are incorporated into personal computers, telephones, office automation
equipment, and several industrial embedded applications. The Company's DSC and
modem designs have distinct technological and cost advantages over its
competitors in the development and integration of certain of these modem
products.
QUICK RESPONSE INTERNET MODEM/CONTROLLER (CYBERSERVER)
Dataquest estimates that the information appliance or thin server market
will exceed $16 billion by 2002 and represents an estimated 9 million units
sold annually. The thin server market has seven segments which include the
following: Enterprise, Departmental, Workgroup, Industrial, Small office,
Device, and Consumer/Home. A Merrill Lynch research report projects that
Internet appliances will exceed the personal computer in sales and revenues by
2005. Merrill Lynch says that the next wave of demand will be for information
and real-time data access and the next product category will be appliances.
Appliances have been defined as "specialized, single, or limited function
devices that are inexpensive and reasonably intuitive. The Company's
CyberServer is to be marketed in the Industrial and Device market segments.
Thin Server Market
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
Units (M) 1.5 3.0 5.0 7.0 8.0 13.5
Revenue ($B) $1.0 $2.0 $3.0 $6.0 $10.0 $17.0
Avg unit Price $667 $667 $600 $857 $1,250 $1,222
</TABLE>
Source: Dataquest, Tensleep Technologies, Inc.
Sales will be driven by the universal need for information and the desire
to control that which up to now has been uncontrollable.
Industrial Thin Server Market
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
Measurement $750 $800 $900 $1,100 $1,250 $1,400
Automation $550 $600 $700 $700 $1,350 $1,800
Revenue ($B) $1.3 $1.4 $1.6 $1.82 $2.6 $3.2
</TABLE>
Source: Dataquest, Tensleep Technology, Inc.
Possible applications include, but are not limited to, Gasoline Pumps,
Security Systems, Smart Appliances, Automated Teller Machines, Oil Well
Monitoring Stations, Credit card verification, and Electric meter reading. Of
these, the credit card verification segment is the largest. In addition to these
applications, there is a growing desire to collect data via modem from vending
machines, arcade machines and other machines dispensing products and/or services
INTERNET COMMUNICATOR (CYBERCOMMUNICATOR)
The Internet is emerging as the communications media of choice from among
the many available, especially for data communications. It is cheap, and its
cost is insensitive to either distance or duration. The only drawback at present
is that it takes a PC to connect to it.
This problem is not unrecognized in the industry; a number of solutions
have been proposed. These come from two broad groups- the PC-oriented group and
the TV oriented group. The PC group is by and large happy with the present
situation- one can purchase a usable PC for $700. The TV group is implementing a
solution based around the "set-top box" that connects the TV to the cable
system.
In our view, neither solution is optimum. Both burden the Internet access
capability with excess hardware and cost and neither is focused tightly on
communications- the PC is primarily driven by computation, and the TV by
entertainment. And when either is being employed in its primary function, it is
unavailable for any other use.
We propose a communications-oriented solution Our end target markets are
customers that are uncomfortable using a PC, or who have a PC but don't want to
wrestle with conflicts in usage, and those who just don't need or want a
computer but want use e-mail and/or to surf the net. Our intermediate market
will be the ISPs themselves. We will encourage them to lease the terminals to
their customers as part of a monthly rate or provide it at no cost. To make this
attractive to the ISPs, we will offer lease terms as well as outright sales -
those that are chronically short of capital should find the lease option very
attractive. We will augment this distribution path by offering the terminals for
sale via the Internet and telephone. Service/support for the leased units will
be on an exchange basis- ship us the bad unit plus a small fee and we will ship
a replacement.
The basic selling points are the low initial cost, plus the ease of
installation and use. It can be thought of as closer to an appliance than a
computer. The price of the basic unit is targeted at 60-70% of that of the
minimal PC. Because there is no rotating machinery (no discs) and no loadable
software, the maintenance will be markedly less than that of the typical PC.
Because of the low selling price, we must also keep the direct marketing costs
low.
However, as there will be customers that are debating the choice between
the Internet Communicator or a PC, we have the capability of upgrading the unit
with the disc storage and memory needed to convert the unit to a full-blown PC
FACSIMILE MODEMS
An attractive sub-market of the modem segment is the facsimile modem
market. The unit volume of these modems is growing but the price is expected to
decline, as the following tables illustrate:
Facsimile Modem Market
<TABLE>
<CAPTION>
Sub-Market 1997 1998 1999 2000 2001 2002 CAGR
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ($ millions) $155 $152 $150 $148 $146 $144 -1.4%
Units (in millions) 14.1 14.9 15.8 16.7 17.7 18.8 6.0%
</TABLE>
Source: Forward Concepts, DSP Strategies 2002, August 1998.
The facsimile modem market in 1997 reached 14.1 million modems. The
Company will address this market with the T2930, and T3403 Facsimile Modems.
Customers in three segments are targeted:
1) Manufacturers of facsimile machines for sale to end users, such as
Xerox, Jetfax, Omnifax, and Hewlett Packard.
2) Manufacturers of facsimile servers for network application solutions,
such as Brooktrout, Access, and Dialogic.
3) Manufacturers of Computer Telephone Interface (CTI) products such as
Dialogic, Gamma Link and other companies which provide board level CTI
solutions.
There are approximately 35 manufacturers of fax machines worldwide with
the majority concentrated in Japan. At present Rockwell Semiconductor (soon to
be an independent corporation) has approximately 70% of this market, with
captive products by Ricoh, Matsushita and Toshiba accounting for the balance.
The Company is currently initiating active efforts to market the T1703 and
T2903 through a network of sales representatives.
MEDIUM-SPEED MODEMS
This market is difficult to quantify as it has garnered little interest on
the part of the consultant community. However, there are only two companies
addressing the market, Rockwell Semiconductor and TDK Semiconductor. Revenues
and volume are expected to decline through 2002 with the price per unit holding
steady at $5 per unit.
<TABLE>
<CAPTION>
Medium-Speed Modems 1997 1998 1999 2000 2001 2002
<S> <C> <C> <C> <C> <C> <C>
Units (millions) 9 8 7 6 5 4
Sales ($M) $45 $40 $35 $30 $25 $20
</TABLE>
Source: Forward Concepts, DSP Strategies 2002, August 1998.
SALES AND DISTRIBUTION
The Company uses independent manufacturer's representatives as the sales
channel to address the U.S. customers, except for fax modem/controller
products. The manufacturer's representatives are selected based on Mr.
Kaliher's previous relationships with these sales organizations. At present,
we have three representatives; two in California and one in Japan. The
Company believes that these few reps cover the bulk of the customer base,
however, additional reps will be added as funds permit.
For the facsimile market, the Company will utilize management's
relationships with overseas distributors and fax manufacturers to penetrate the
volume customers in Japan and other Pacific Rim countries. The Company intends
to establish relationships with U.S. manufacturers who are currently using
chipsets provided by competitors. The lower cost, smaller space requirements
and design flexibility of the T3401 is very attractive to these manufacturers.
Jetfax in the U.S. and Ricoh in Japan are among the companies targeted for early
shipments. Fax sales in the U.S. and Europe will be conducted through the field
representatives supplemented with the close relationships between Management and
selected customers.
The basic Company product is a combination of technology and service. All
products need firmware to execute any useful function. Applications support to
help the customer define its problem will be provided initially by headquarters
staff; when volume dictates the establishment of remote sales or design offices,
the Company will staff these offices with applications and quality control
engineers. Custom product sales will be supported with direct sales staff
strategically located in the U.S.
To sell and distribute consumer products the Company will use Internet
Sales and a network of independent manufacturer's representatives which service
retail outlets.
COMPETITION
The Internet Appliances are a shift to Internet computing where
specialized devices are connected by the Internet and supported by a
sophisticated infrastructure. Internet appliances are the next wave of demand
for information and real-time data access, and three existing vendor groups will
compete for the appliance market: computer makers, consumer appliance companies,
and mobile telecom vendors. The Company believes that there will be room for
new appliance companies to thrive. Market sizes will be limited due to specific
applications and not general purpose usage, resulting in many successful
companies and no dominant one.
The Company faces substantial competition from international and national
competitors, many of which are well established and have substantially greater
marketing, financial and other resources than the Company. Furthermore, the
Licensor has granted the following rights to principal strategic partners:
(i) Kawasaki is the owner of certain technology developed by the
Company and has the express rights to manufacture, modify, sell and
sublicense such technology;
(ii) LG Semicon has an unrestricted license to use certain
intellectual property that is jointly developed by the Company and LG
Semicon; and
(iii) Zilog has the right to sell, modify, manufacture and
establish certain products developed by the Company. For a complete
description of such agreements, see "Business - Key Agreements".
In the event any of these companies perceive economic opportunities, they
may elect to use such technology to manufacture products that may be competitive
with the Company's products.
In addition to the potential from the licensees, the Company expects
competition from (1), companies providing general purpose signal processors,
such as Texas Instruments, programmed by the using companies or by third party
suppliers; and (2), from semiconductor manufacturers of similar algorithm-
specific ICs such as Rockwell International, TDK Semiconductor, and Philips.
The Company's primary advantage is a higher degree of integration which results
in fewer components, lower power requirements and less board space for the
system or board developer (OEM). This translates directly into lower costs for
the customer. The Company believes the cost savings, along with the Company's
willingness and ability to add custom features, will provide a competitive edge
over its competitors.
The fax modem chip market is served by Application-Specific Standard
Product (ASSP) designs, with Rockwell Semiconductor presently holding the
commanding position with a 2-chip, all CMOS version, packaged in a single, 2-
cavity package. The present unit price for the competitive product is between
$7.00 and $11.00 to the largest Japanese customers but the product requires an
additional $5.00 to $7.00 worth of parts not required with the Company's T3401
Fax Modem/Controller. Rockwell's success in the Japanese market can be
attributed to early market entry into the major customer base in Japan, and the
inability of other modem/IC manufacturers to compete against Rockwell's
technological lead-time advantage. However, economic conditions in Japan are
causing a change in this market, and fax manufacturing is shifting from Japan to
other Asian countries and to the U.S.
The Company believes this market change provides it with a window of
opportunity to capture several fax customers with a superior, more highly
integrated product in the T3401. It is smaller, fewer external components, less
board area and power, and requires less external "glue logic" than Rockwell's
products, resulting in a $5.00 to $7.00 cost savings over Rockwell.
The competition for medium-speed modems comes from Rockwell and TDK using
legacy products that have been in production for some time in older
technologies. The Company believes it can capture market share from this
competition based on the technological advantages of the T2202 and T3202; a
competitive price, and strong customer support. Both the T2202 and T3202 are
highly integrated single-chip solutions incorporating both a modem and a
microcontroller which results in smaller board space, lower power consumption,
and lower cost than the competition. The units lend themselves better to
satisfying proprietary demands by allowing programming by the customer.
EMPLOYEES
As of May, 1999, the Company had five employees, two in product
development, engineering, and marketing, one in sales and marketing and two in
finance and administration. The Company is currently negotiating for
engineering, marketing, and other services. Not all of the Company's employees
are full time, none is represented by a labor union and the Company has never
experienced a work stoppage. The Company considers its employee relations to be
good.
ENVIRONMENTAL COMPLIANCE
The Company does not anticipate any material expenditures to effect
compliance with environmental laws.
GOVERNMENTAL REGULATION
The business operations of the Company are not subject to any material
governmental regulation. The Company's products are not subject to governmental
approval.
INVESTMENT POLICIES
It is not the Company policy to acquire assets primarily for possible
capital gain or income. It is not the policy of the Company to invest in real
estate, real estate mortgages, or securities of persons primarily engaged in
real estate activities.
LICENSOR'S FINANCIAL DISCLOSURE
Licensor, at the end of September 1997, ceased doing business and closed
down it operations. The Licensor in early 1996 changed its business strategy
from preforming DSP engineering services to producing and selling DSP
products.
For more than two years revenues were non existent and management was seeking
investment capital to continue operating. In order to finance its new business
strategy, the Licensor attempted to register a public offering with a small
broker dealer on a "best efforts" basis. The offering never took place and the
Licensor used up its limited available cash to pay for the costs of the
offering. For more than one and one-half years several of the Licensor's
officers and key personal accrued their compensation and went unpaid.
The Licensor's total liabilities as of December 31, 1997 were
approximately $1,655,000, of that amount approximately 21% is owed to the
Licensor's bank, 34% is accrued but unpaid compensation to officers, directors
and others, 16% is due to shareholders, and 29% is owed to other creditors. The
total number of creditors is approximately 50 and the Licensor has approximately
17 common stock and 12 preferred stock shareholders. The Company is not subject
to any of the Licensor's liabilities and has not assumed any of Licensor's
obligations.
The Licensor's bank was secured with a perfected security interest on
certain equipment and software of the Licensor. In September of 1997, the
Licensor in default to its bank and its bank took possession of its
collateral.
In the middle part of 1998, the bank conducted a sale of its collateral. The
bank, unable to satisfy its note from the sale of the collateral, filed a suit
in the Texas State Court to collect the deficient amount due on the note against
the Licensor and Mr. Kaliher, a personal guarantor. Mr. Kaliher was the
founder, president and chief executive officer and a director of the Licensor.
The amount of the deficiency is believed to consist of principal of
approximately $322,000, accrued but unpaid interest, and legal fees. The bank
has become an unsecured creditor to the extent of the deficiency. The Company
is not a party to the suit nor subject to Licensor's obligation to the Bank.
In late August 1997, Mr. Kaliher, at the insistence of the Licensor's
chief financial officer ("CFO"), Mr. Richard Gravett, executed two promissory
notes. Each note represented the accumulation of accrued but unpaid
compensation for more than one and one-half years to Mr. Kaliher and Mr.
Gravett. Each note contained a provision that "(t)he secured property includes"
the "intellectual property" of the Licensor and "all proceeds from the
utilization of such property." In spite of this provision, neither note
expressly grants a security interest in any property nor does it define
"intellectual property." The Licensor and the Company are of the opinion that
no security interest was granted in any property because (1) the Licensor's
board of directors never authorized the granting of a security interest to
either Mr. Kaliher or Mr. Gravett; (2) no security interest was ever expressly
granted in any specifically identified property of the Licensor; (3) the
security interest, if granted, was never perfected; (4) any grant of a security
interest for accrued but unpaid compensation would be a preference against other
unsecured creditors and voidable; (5) a grant of a security interest, in such
circumstance, would constitute a fraudulent conveyance for the purpose to
defraud Licensor's creditors; and (6) the accrued but unpaid compensation of
officers, directors and other persons after the company no longer had the
ability to pay its debts should be disallowed or subordinated to all other
creditors and preferred shareholders.
The Company was informed by Mr. Gravett, subsequent to June 1998, that he
claims a security interest in the Technology and that the transfer of the
Technology requires his approval. The Company believes the second claim is
without merit, that there is no security interest, as stated in the preceding
paragraph, and that the term "intellectual property" does not include the
Technology and Products acquired from the Licensor. However, in order to avoid
any liability to Mr. Gravett or any other creditor, the Company will place any
and all securities to be issued to Licensor, pursuant to and as described in
this Offering, with an escrow agent. The escrow agent will be instructed to
deliver the shares as agreed to by the Claimant and Tensleep of Texas, or
pursuant to an order of a court exercising jurisdiction over this matter or
interplead the shares with any court taking jurisdiction for the purpose of
determining to whom the shares are to be distributed.
The Licensor has considered filing for protection under the Bankruptcy
Laws of the United States. It has withheld doing so under the belief that it
could effect the same outcome without being subject to the administration and
expense of those proceedings. However, without the cooperation of its bank and
Mr. Gravett, the Licensor may be required to look for help from the bankruptcy
court. The Licensor's assets consist of 500,000 shares of the Company's common
stock issued for the License and the right to 300,000 Units offered pursuant to
this Offering. It is Licensor's intent to evaluate each of the 50 creditors and
the obligation due him/her or it and each of the approximately 12 preferred and
17 common shareholders and develop a plan for distributing the Company's common
stock issued to Licensor in accordance with the Bankruptcy Code. However, this
requires the approval, consent and/or acquiescence of all the creditors and
shareholders. If the bank and Mr. Gravett and any other creditors or
shareholders fail to approve, consent or acquiesce the plan, the Licensor may be
required to proceed with a state or federal debtor proceeding to avoid
liability.
If the Licensor commences bankruptcy or state debtor proceedings, the
proceedings and/or distribution of the Company's securities may have a direct
effect on purchaser's of Units pursuant to this Offering. Such effects may
included, but not be limited to, causing problems with timing and voting on
important issues of the Company, and a trustee in bankruptcy or other person may
disrupt the market for the Company's common stock, if and when developed, by
liquidating the Licensor's shares of the Company's common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company was founded in October 1997 as fab-less semiconductor company
based in Austin, Texas. The Company was reorganized and restructured into an
Internet and communications technologies development company.
The Company recently commenced the development of its Internet controller
and Internet communications device and completed the acquisition of its digital
signal processor ("DSP") technology (the "Technology"). The Technology consists
of the design of digital signal controllers for high speed modem applications.
The Company has three distinct digital signal controller ("DSC") core
architectures. Management believes the Company is the only U.S. firm that has
a true single integrated circuit solution for high-speed fax modem product.
The Company is organized into two business segments and has changed its
name to Tensleep Technologies, Inc. The first business segment distributes
communications products to consumers through the internet and retail outlets
through a network of independent sales representatives. The second segment is
divided into two divisions. One division designs, develops and markets
communications products and sells them to original equipment manufacturers. The
second division designs, develops, markets, and sells integrated circuits to
original equipment manufacturers.
The Company plans, within the next twelve months, to complete the
development of its internet controller, internet communications device,
establish sales of communications products through the Internet and independent
sales representatives, and to set up a network of independent sales
representatives for selling its facsimile modem chip, fabricated by Samsung
Electronics, Inc., of Korea, and other integrated circuits. During the next
twelve months the Company believes it will receive revenues from providing
design services, Internet sales of communications products, the wholesale
distribution of communications products, the sale of integrated circuit design
services, sales of licenses of its DSC core technologies and sales of integrated
circuits, and rental of integrated circuit design equipment and software.
PLAN OF OPERATION
The Company's business plan for the next 12 months is directed toward
developing revenues and a foundation for growth. The plan provides a series of
steps, as follows: contracting for engineering chip design services and software
development services, acquiring or establishing an Internet sales company,
acquiring or establishing a network for wholesale distribution of communications
products, establishing a network for the distribution of the its FAX Modem
products, leasing or renting the excess integrated circuit design workstations,
acquiring or establishing a company to provide integrated circuit design
services, synthesizing and licensing DSP core technologies, completing the
development of the Internet controller, CyberServer, and communicator
(CyberCommunicator), and developing other specialty modems.
DESIGNING SERVICES
The Company is presently negotiating with a company to provide it with
engineering chip design services. This designing firm will also be responsible
for designing and developing the Company's new products and technology.
INTERNET SALES
The Company is presently negotiating with a company currently selling
communications products over the Internet. In the event the Company is unable
to acquire this company, it will seek another or establish its own Internet
sales company. In the event the negotiations are successful, the acquired
company will be generating $400,000 to $500,000 annual sales with the
expectation that they will double in the current year. There is no assurance
that the Company will be able to acquire this prospect or any other or that it
will be successful in commencing an Internet sales company.
DISTRIBUTION OF COMMUNICATIONS PRODUCTS
The Company is currently negotiating for the rights to distribute a
cordless telephone and the network of independent sales representatives which
distributes this product. In 1998 the prospect had sales of approximately $2.5
million and is expected to reach $5 million this year. It may not be possible
for the Company to acquire this product or the sales organization.
CORE LICENSING
The Company's A/DSC521 DSC technology contains a number of major elements
that have potential to be licensed and be incorporated in chip designs of other
manufacturers. The Company's technology must be re-packaged into an easily
abstracted form. The Company will perform this formatting in conjunction with
re-targeting its technology into a new foundry. No additional equipment or
Workstations are required for this effort.
The Company is planning to commence marketing its A/DSC521 core
technology to manufacturers of proprietary chip products which require a DSP
core. The Company believes it will be able to market its cores on a non-
exclusive license basis to these potential customers for a one time license fee
estimated to be $700,000 dollars, a fee for support over a period of time and a
royalty on each unit sold by the customer of its product in which the core
technology is included or imbedded.
The Company has contracted with an independent third party to synthesize
the Company's intellectual property to develop its core technology into soft
cores. This will make its core technology more saleable to equipment
manufacturers and system designers. This is expected to be completed within
three to six months.
PRODUCT DEVELOPMENT AND NEW FABRICATION PROCESSES
The Company plans to move the A/DSC321 and A/DSC521 designs into a new
foundry with a 0.5 micron technology. The foundry selection will depend upon
cost, capability, availability and the degree of cooperation that can be
established with it. Technologies smaller than 0.5 micron are available but
cannot support the mixed analog/digital design as of this date. This effort to
reduce the technology will be paralleled by the development of the 28,800 bps
firmware that will be embedded in the A/DSC321 to create the T3401 Fax Modem.
This firmware design will be followed by firmware for the T2202 and T3202
Embedded Modem/Controllers. Modem algorithms for 28,800 bps will be purchased
from a consultant and converted to A/DSC321 code.
PRODUCT MARKETING
The Company does not believe its modem products, CyberServer, or
CyberCommunicator will be able to be sold in the next ten months. The Company
will commence marketing and selling its FAX modem products in September 1999.
STRATEGIC RELATIONSHIPS AND NEW TECHNOLOGY
The Company is seeking strategic relationship with other companies in
consumer internet and communications consumer products. In addition, the
Company will seek to acquire new technologies. The development of strategic
relationship and acquisition of new technologies if for the purpose of
exploiting and enhancing the Company's business.
ITEM 3. DESCRIPTION OF PROPERTY
The Company's principal administrative, sales and marketing, research and
development facility in located in an office of approximately 500 square feet of
office in Austin, Texas. This facility is leased from an independent third
party. The Company intends to lease additional facilities as required.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The Company, as of April 30, 1999, had 3,191,016 shares of its Common
stock, 808,960 Class A Warrants, and 500,000 Class B Warrants to purchase common
stock issued and outstanding with 200,000 options issued. The following
schedule tabulates holders of Common Stock of the Company by each person who
holds or record or is known by Management of the Company to own beneficially
more than five percent (5%) of the Common Stock outstanding, and, in addition,
by all Officers and Directors of the Company Individually, and as a group. The
Shareholders listed below have sole voting and investment power.
Ownership over 5%
<TABLE>
<CAPTION>
Number of Percent of
Class of Securities Name Shares Outstanding
<S> <C> <C> <C>
Common Stock R Tucker & 4,277,960 52.17%
Associate, Inc.1
Common Stock Corporate Finance 621,428 7.58%
Company
Common Stock Dennis Kaliher 1,500,000 18.29%
Common Stock Sundance Design, 800,000 9.76%
Inc.2
Total 7,199,388 87.8%
<FN>
1 Ronald S. and Leticia I. Tucker are the majority shareholders of both R
Tucker & Associates, Inc. and Corporate Finance Company. These shares
include 465,000 Class B Warrants and 608,960 Class A Warrants in name
of R Tucker and Associates, Inc.
2 Dennis Kaliher is the majority stockholder of Tensleep Design, Inc.,
Texas, now named Sundance Design, Inc.
</TABLE>
Management
<TABLE>
<CAPTION>
Number of Percent of
Class of Securities Name Shares Outstanding
<S> <C> <C> <C>
Common Stock Ronald S Tucker1 5,203,838 63.46%
Common Stock Leticia I Tucker1 5,103,838 62.24%
Common Stock Dennis Kaliher2 2,400,000 29.27%
Common Stock All Directors &
Officers As a Group 7,603,838 92.73%
<FN>
1 These shares include 4,450 shares in their names as joint tenants,
3,204,000 shares by R Tucker & Associates, 621,428 shares by
Corporate Finance Company, 100,000 options and 200,000 Class A
Warrants held by Ronald S. Tucker, 608,960 Class A Warrants and
465,000 Class B Warrants held by R Tucker & Associates, Inc.
2 These shares include 1,500,000 in the name of Dennis Kaliher and
800,000 in the name of Tensleep Design, Inc. and now name Sundance
Design, Incl, a Texas corporation, and 100,000 options in the name
of Dennis Kaliher.
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS.
The following are the Officers, Directors, and Key Management of the
Company.
Name Position
Ronald S. Tucker Director and Chief Executive Officer and
Chief Financial Officer
Dennis Kaliher Director and Chief Operating Officer
Leticia I. Tucker Director and Secretary
Ronald S. Tucker, 60, President, Chief Executive Officer, Chief
Financial Officer and Director, is the founder of the Company. In 1996
Mr. Tucker founded and now is the President of Corporate Finance Company
and since 1990 to present, Mr. Tucker was the founder and has been the
President and director of TextBase Imaging Corp. ("TBI") (now called "R Tucker
& Associates, Inc."), a software development company. Prior to forming TBI
Mr. Tucker for a period of seven months was a director of 3CI, Inc., a public
company, and for a period of three months was the President of that
Company. Prior to becoming involved with 3CI, Mr. Tucker has been owner and
manager of several business ventures and has been engaged in the private
practice of law. In 1986 and 1987 Mr. Tucker was a special counsel and
consultant to an originator of manufacturing housing installment sales
contracts. Mr. Tucker is a graduate of the University of California at Los
Angeles where he received a Bachelor of Science while majoring in finance and
accounting. Mr. Tucker is also a graduate of the Loyola University School of
Law. Mr. Tucker is a member of the California and Texas Bar Associations. In
1994 Mr. Tucker and his wife filed for protection under the bankruptcy laws of
the United States.
Dennis E. Kaliher, age 62, Director and Chief Executive Officer of the
Company, founded Tensleep of Texas in 1987 and has served as its President and
Director since its inception. He has thirty years of experience in
telecommunications and semiconductor product design, and engineering, marketing
and corporate management with Collins Radio Co., Rockwell International, and
Advanced Micro Devices as well as founding the Company. From 1963 to 1986, Mr.
Kaliher's experience at Collins and Rockwell ranged from developing and
marketing communications switching systems to managing the development and
growth of large and very large IC components; data modems, fax modems and other
communications devices for the telecommunications industry. Mr. Kaliher
received his BEE from the University of Minnesota.
Leticia I. Tucker, 57, Director and Treasurer, is the wife of Ronald S.
Tucker, and for more than ten years has provided accounting and financial
services for various small businesses. During that time she has been
responsible for providing office management, accounting services and managing
construction loans for builder and developer clients. In 1994 Mr. Tucker and
his wife filed for protection under the bankruptcy laws of the United States.
Each director serves for a term of one year and is subject to reelection
at the annual meeting of shareholders.
ITEM 6. EXECUTIVE COMPENSATION.
The Company's officers and directors, during this time, in order to
conserve capital, have agreed to work for little or no compensation but
reimbursement of business expenses, out of pocket costs and limited consulting
fees. At the end of the Company's fiscal year the Board of Directors will
establish a bonus for the officers in consideration for their services during
this time. Then at a time when the Board deems appropriate, the Company will
enter into employment agreements with the officers and establish compensation
for the directors. The Company, as of the year end authorized the accrual of a
consulting fee of $120,000 to R Tucker & Associates for the services of Ronald
S. Tucker valued at $80,000 and Dennis Kaliher valued at $40,000 for the year
ending September 30, 1998. In December 1998 R Tucker & Associates accepted
common stock in cancellation of the indebtedness on the bases of $5 per share
and assigned the shares as authorized and designated by Ronald S. Tucker and
Dennis Kaliher.
QUALIFIED AND NON QUALIFIED STOCK OPTIONS
The board of directors and shareholders for the Company have adopted a
Qualified and Non Qualified Stock Option Plan pursuant to Sections 421-424 of
the Internal Revenue Code. The Plan authorizes the granting of up to 500,000
and 800,000 options to purchase Company common stock under the Qualified and Non
Qualified Plan, respectively. The Plan is administered by the Board of
Directors or by a committee appointed by the Board. As of the date of this
document Non Qualified Options exercisable over five years have been granted as
follows:
Ronald S. Tucker 100,000 @ $0.50 per share
Dennis Kaliher 100,000 @ $0.50 per share
EMPLOYMENT AGREEMENTS
The Company at this time has not entered into an employment agreement with
any of the officers or directors. The management does not believe that an
agreement will be entered into until after September of 1999.
SALES COMMISSIONS
Sales are made either through manufacturer's representatives or internal
sales personnel. The Company has a policy of awarding sales commissions ranging
from three to ten percent, depending upon the type and size of sales
transaction.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In October 1997, during negotiations for the acquisition of the Licensor's
technology, Mr. Kaliher agreed and authorize Mr. Tucker to use the name
"Tensleep Design, Inc." for a Colorado corporation. Mr. Tucker was to form the
Company for the purpose of acquiring either a non-exclusive license or all the
ownership rights.
The Company through Mr. Tucker and the Licensor through Mr. Kaliher
executed the license agreement on December 23, 1997. The license agreement,
negotiated at arms length, granted a non exclusive perpetual license to the
"Licensed Technology". The licensed Technology included Licensor's Previous
Results, Firmware, Services, Technical Information, and Products, including the
DSP Core (a/DSC321, a/DSC421, a/DSC521 technology), and any and all items
related thereto, and any and all derivatives, improvements, revisions, versions,
and/or modifications of the Licensed Technology owned by Licensor. At the time
of entering the license agreement, Mr. Kaliher was not associated or affiliated
with the Company and there was no agreement, understanding, or commitment that
Mr. Kaliher would become affiliated with or become an officer, director or
shareholder of the Company. The value of the license was agreed to be $250,000
and was payable by the issuance of 500,000 shares of the Company's common
stock. The transaction, the value of the license and the consideration was
approved by the board of directors of both companies. The license was valued
at slightly more than 1/5 of the license fee paid by Zilog for a similar
license from the Licensor approximately two years earlier. In addition to the
license fee the Company was to pay a royalty based on the gross revenues of
the Company from sales of the Licensed products.
The Company and the Licensor executed the "Purchase Agreement" on January
23, 1998. Mr. Tucker negotiated this agreement with Mr. Kaliher. The Licensor
agreed to sell to the Company all it's rights, title and ownership interests in
its technology including all Research and Development Property, equipment and
software listed on its balance sheet as of the year end for 1996, all contracts
re sales of licenses and Products or engineering services, all molds,
prototypes, tooling and/or dies, production credits, subject to existing
licenses, and the release of the royalties provided for in the License
Agreement. The value for all the described assets was placed at $1,500,000 and
the Purchase Agreement provided that the purchase price would be paid with the
issuance of 300,000 investment units of the Company's securities issued pursuant
to a qualified Regulation A offering under the Securities Act of 1933, as
amended (the "Act"). The transaction, the value of the assets and the
consideration was approved by the board of directors of both companies. At the
time of entering the Purchase Agreement, Mr. Kaliher was not associated or
affiliated with the Company and there was no agreement, understanding, or
commitment that Mr. Kaliher would become affiliated with or an officer, director
or shareholder of the Company. The total development cost of the Licensor's
technology was in excess of $7,000,000 and the cost of the Licensor's, equipment
and integrated circuit design software was in excess of $500,000. The value
of
$1,500,000 was agreement to by taking in to consideration the development costs
of the technology, the cost of the equipment and design software, and the
license fee of $1,200,000 paid by Zilog, Inc.
On January 30, 1998, the Licensor executed and delivered to the Company a
Bill of Sale pursuant to the Purchase Agreement and issued an invoice in the
aggregate of $1,500,000 which was apportioned among the assets purchased
pursuant to the Purchase Agreement.
On January 31, 1998, Mr. Tucker asked Mr. Kaliher to become the President,
chief executive officer and a director of the Company, which Mr. Kaliher
accepted.
The Company, as of the year end authorized the accrual of a consulting fee
of $120,000 to R Tucker & Associates for the services of Ronald S. Tucker valued
at $80,000 and Dennis Kaliher valued at $40,000 for the year ending September
30, 1998. In December 1998 R Tucker & Associates accepted common stock in
cancellation of the indebtedness on the bases of $5 per share and assigned the
shares as authorized and designated by Ronald S. Tucker and Dennis Kaliher. The
shares were issued for the cancellation of indebtedness pursuant to the
Regulation A Offering which became effective November 6, 1998.
R Tucker & Associates, Inc., and Dennis Kaliher, for himself and on behalf
of Sundance Design, Inc., as April 30, 1999, agreed to return a total of
3,500,000 shares of the Company's common stock to be canceled and included in
the authorized but unissued common stock.
ITEM 8. LEGAL PROCEEDINGS.
The Company is not involved in any litigation incidental to its business
or material to the business activities or financial performance of the Company.
The Company is informed that the former Chief Financial Officer of
Sundance Design, Inc., formerly Tensleep of Texas (the "Claimant") claims a
security interest in the Technology, for accrued but unpaid salaries, and that
the transfer of the Technology requires Claimant's approval. The Company
believes the second claim is without merit. In order to avoid liability to
Claimant, the Company is holding any and all securities to be issued to Sundance
Design, Inc. The escrow agent will deliver the shares as agreed to by the
Claimant and Sundance Design or an order of a court exercising jurisdiction over
this matter.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
Market Information. There is no principle market pr established public
trading market. There are 250,000 options issued and outstanding, 808,960 Class
A Warrants issued and outstanding, and 500,000 Class B Warrants issued and
outstanding. There are no shares that could be sold pursuant to Rule 144 under
the Securities Act or under any agreement to register under the Securities Act
for sale by security holders. The Company is not publicly offering equity
securities and does not intend to do so which could have a material effect on
the market price of the Company's common equity.
Holders. The Company has approximately 219 holders of record of its
common stock.
Dividends. The Company has not paid any dividends on its capital stock
since its inception. The Company currently anticipates that it will retain any
available funds for use in the operation of its business and does not intend to
pay any cash dividends on its Common Stock in the foreseeable future. Any future
payment of cash dividends is subject to the discretion of the Board of Directors
of the Company and will depend upon the Company's earnings, financial condition,
capital requirements and other related factors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company on or about November 10, 1997 issued 4,500,000 shares of
Common Stock at a stated value of $.01 per share to the R Tucker & Associates in
exchange for $45,000 cash which was invested in liquid securities as of November
1, 1997. These securities are carried at book value. These shares were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and are
"restricted" shares pursuant to Rule 144. R Tucker & Associates, Inc., is a
corporate financial consulting firm with the principal shareholders being Ronald
S. Tucker and Leticia I. Tucker, who are also the officers and directors. It is
a private company.
The issuer, on or about December 23, 1997 acquired a non-exclusive license
to develop, use, enhance, sale, and market the modem chip technology of Sundance
Design, Inc., a Texas Corporation, formerly Tensleep Design, Inc., in an arms
length transaction, for $250,000 and a royalty to be paid on all revenues. In
exchange for the license, Tensleep of Texas agreed to accept 500,000 shares of
the Company's common stock valued at $250,000 in lieu of $250,000 in cash.
These shares were issued pursuant to Section 4(2) of the Securities Act of 1933,
as amended, and are "restricted" shares pursuant to Rule 144. Dennis Kaliher is
the president, chief executive officer, and chairman of the board, and a major
shareholder of Sundance Design, Inc. At the time the two company's entered
into the two agreements, Dennis Kaliher was not an officer, director,
shareholder or promoter of the Company and there was no agreement, commitment or
understanding that he become an officer, director, shareholder or promoter of
the Company. Subsequent to executing the acquisition agreement, the Company
reached an agreement with Dennis Kaliher to become the president and director of
the Company. The two agreements were entered into at arms length.
The issuer on or about November 10, 1997 issued 1,000,000 investment units
to Corporate Finance Company ("CFC") in exchange for 80,000 shares of Corporate
Finance Company common stock valued at $2.50 per share. The value of CFC common
stock was based on sales of stock for cash and non-cash consideration to
unaffiliated third persons during the preceding six months at $2.50 per share.
Each investment unit of the Company consists of one share of its common stock
and one Class A Warrant to purchase one share of its common stock. The first
500,000 Class A Warrants have an exercise price of $.40 per share and the last
500,000 Class A Warrants may be exercised at $.80 per share. The Company's
shares and warrants were issued pursuant to Regulation D, Rule 504 under the
Securities Act of 1933. The Company was organized by R Tucker & Associates,
Inc., and Ronald S. Tucker to engage in the specific business of developing
digital signal process technology, marketing it, and selling it through the
acquisition of either a non-exclusive perpetual license or acquisition of
ownership rights to the technology of Tensleep of Texas (Rule 504 (a)(3)).
Corporate Finance Company is a specialty finance company. It provides financing
to small companies with the expectation they will become publicly trading
companies. The primary shareholders of CFC and R Tucker & Associates are Ronald
S. and Leticia I. Tucker. They are also officers and directors. Corporate
Finance Company and R Tucker & Associates are affiliates of the Company and the
securities received by CFC are "control" securities as the term is defined in
Rule 144.
R Tucker & Associates, Inc., and Dennis Kaliher, for himself and on behalf
of Sundance Design, Inc., as April 30, 1999, agreed to return a total of
3,500,000 shares of the Company's common stock to be canceled and included in
the authorized but unissued common stock.
ITEM 11. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of 50,000,000
authorized shares of common stock, with no par value per share ("Common Stock"),
and 10,000,000 shares of preferred stock, with no par value per share
("Preferred Stock").
Common Stock
The holders of shares of Common Stock have no preemptive rights to
maintain their respective percentage ownership interests in the Company or other
subscription rights for other securities of the Company. Shares of Common Stock
are not redeemable or subject to further calls or assessments. All of the
outstanding shares of Common Stock are fully paid and nonassessable and the
shares of Common Stock to be outstanding after this offering will be fully paid
and non-assessable. The holders of shares of Common Stock are entitled to share
pro rata in such dividends, if any, as may be declared by the Board of Directors
of the Company out of funds legally available therefor. Subject to the prior
rights of holders of shares of Preferred Stock, if any, upon liquidation,
dissolution and winding up of the Company, holders of shares of Common Stock are
entitled to share ratably in the net assets available for distributions to such
holders.
Holders of Common Stock are entitled to vote upon all matters submitted to
a vote of the stockholders of the Company and shall be entitled to one vote per
share held, except in the election of directors where the holder shall be
entitled to one vote per share held times the number of directors to be
elected. Generally, the vote of the majority of the shares represented at a
meeting of the stockholders and entitled to vote is sufficient for actions that
require a vote of the stockholders.
Preferred Stock
The Board of Directors is authorized, without any further action by the
shareholders, to issue Preferred Stock from time to time in such series, in such
a number of shares and with such dividend, redemption, liquidation, voting,
conversion, sinking fund and other rights as the Board shall establish. The
Company has no present intention, commitment or understanding to issue preferred
securities of any type or kind.
The Transfer Agent and Registrar for the Common Stock is the Executive
Registrar & Transfer Agency, Inc., located at 3145 W. Lewis Ave., Suite 200,
Phoenix, AZ 85009 Its telephone number is (602) 415-1273.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide that the Company will indemnify its Directors
and officers to the fullest extent permitted by law against certain losses which
may be incurred in connection with any proceeding which arises by reason of the
fact that such person is or was an agent of the Company. The Company believes
that indemnification under the Bylaws covers at least negligence and gross
negligence by an indemnified party, and permits the Company to advance
litigation expenses in the case of stockholder derivative actions or other
actions, against an undertaking by the indemnified party to repay those advances
if it is ultimately determined that the indemnified party is not entitled to
indemnification.
In addition, the Company's Articles of Incorporation provide that,
pursuant to Colorado law, its Directors shall not be liable to the Company or
its stockholders for monetary damages for and act or omission in the Director's
capacity as a Director. This provision does not eliminate or limit the
liability of a Director to the extent the Director is found liable for a breach
of the Director's duty to loyalty to the Company, for acts or omissions not in
good faith or involving intentional misconduct, or a knowing violation of the
law, for actions leading to improper personal benefit to the Director and for an
act or omission for which the liability of the Director is explicitly provided
by applicable statute. The provision also does not affect a Director's
responsibilities under any other law, such as federal securities laws or state
and federal environmental laws.
ITEM 13. FINANCIAL STATEMENTS.
Attached as Exhibits.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.*
The following is a list of all financial statements filed as a part of
this Report:
1. Audited Balance Sheet - September 30, 1998 from inception.
2. Audited Statement of Operations for year ending September 30, 1998
from inception.
a. Audited Statement of Stockholders' Equity for the year
ended September 30, 1998 from inception.
b. Audited Statement of Cash Flows for the year ended September
30, 1998 from inception.
c. Notes to Financial Statements - September 30, 1998 from
inception.
3. Unaudited Balance Sheet - March 31, 1999.
4. Unaudited Statement of Operations for period six months ending March
31, 1999.
a. Unaudited Statement of Stockholders' Equity for the six months
ended March 31, 1991.
b. Unaudited Statement of Cash Flows for the six months ended
March 31, 1999.
c. Notes to Financial Statements - March 31, 1999.
(b) Exhibits.
Exhibit No. Description Method of Filing
3. Charter and By-laws
3.1 Articles of Incorporation A
3.1.1 Amended Articles for change of Name *
3.2 Bylaws A
10. Material Contracts
10.1 License Agreement with Tensleep Design, Inc.,
a Texas corporation A
10.2 Purchase Agreement and Bill of Sale with
Tensleep Design, Inc., a Texas corporation A
10.3 Warrant Agreement for Class A Warrants A
10.4 Warrant Agreement for Class B Warrants A
10.5 Stock Option Plan A
(11) Statement re: Computation of Per Share Earnings **
(21) Subsidiaries of the Registrant *
(27) Financial Data Schedule *
(99) Additional Exhibits
99.1 Audited Financial Statement for the
Company date December 31, 1997 A
* Filed herewith.
** Contained in Financial Statements included herewith.
A Incorporated by reference to the Company's Form 1 - A Registration
Statement No. 24-3960.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Tensleep Design, Inc.
(Registrant)
Signature Title Date
Ronald S. Tucker President, CEO and CFO May 15 , 1999
Ronald S. Tucker
Leticia I. Tucker Director, Secretary May 15 , 1999
Leticia I. Tucker
Dennis Kaliher Director, COO May 15 , 1999
Dennis Kaliher
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tensleep Design, Inc.
We have audited the accompanying balance sheet of Tensleep Design, Inc. (a
Colorado Corporation), a development stage company, as of September 30, 1998,
and the related statements of operation, changes in stockholders equity
(deficit), and cash flows for the period from inception (October 23, 1997)
through September 30, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance as to whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tensleep Design, Inc. as of
September 30, 1998 and the results of its operation, changes in stockholders
equity (deficit) and its cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has been in the development stage since its
inception on October 23, 1997. Realization of a major portion of the assets is
dependent upon the Company's ability to meet its future financing requirements,
and the success of capital funding and future operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
March 31, 1999.
Brabo, Carlsen & Cahill
1
<PAGE>
a.1.
TENSLEEP DESIGN, INC.
(A Development Stage Company)
Balance Sheet
September 30, 1998
ASSETS
CURRENT ASSETS:
Cash $ 382
Investment in Pooled Account, (See note 1) 22,693
------------
Total Current Assets 23,075
------------
PROPERTY AND EQUIPMENT:
Machines & Equipment 102,014
Software 172,371
------------
274,385
Less accumulated Depreciation and amortization 45,732
------------
Net Property & Equipment 228,653
------------
OTHER ASSETS:
Investment in Corporate Finance
Company (See note 2) 198,000
------------
Total Other Assets 198,000
------------
TOTAL ASSETS $ 449,728
============
2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Loan Payable to Corporate Finance
Company (See Note 4) $ 14,442
Accrued Consulting fees (See note 9 and 15) 120,000
Convertible note payable (See note 10 and 15) 1,500,000
------------
Total Current Liabilities 1,634,442
------------
TOTAL LIABILITIES; 1,634,442
------------
STOCKHOLDERS' EQUITY (DEFICIT:
Preferred stock, no stated value, 10,000,000
shares authorized, no shares issued and
outstanding -
Common stock, $0.01 stated value, 50,000,000
shares authorized, 6,103,040 shares
issued and outstanding 61,030
Additional paid-in capital 535,186
Net Loss (Deficit accumulated during the
development stage ( 1,780,930)
-------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 1,184,714)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 449,728
=============
3
<PAGE>
a.2.
TENSLEEP DESIGN, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the period from inception (October 23, 1997) through September 30, 1998
REVENUES:
Lease Income (See note 12) $ 5.350
Other Income 2,150
--------------
Total Revenues 7,500
OPERATING EXPENSES:
Advertising 5,113
Automobile expense 2,308
Bank service charges 107
Depreciation and Amortization 45,732
Dues and Subscriptions 3,975
Filing fees 2,250
Insurance 10
License & Permits 5,910
Other expenses 899
Outside services 7,629
Postage & delivery 864
Printing and reproduction 1,343
Professional fees 2,250
Rent 5,400
Repairs 194
Telephone 4,298
Travel & Entertainment 2,075
Utilities 280
--------------
Total Operating Expenses 91,373
--------------
RESEARCH AND DEVELOPMENT COSTS
Research and development costs (See note 13) 1,697,052
--------------
Total Research and Development Costs 1,697,052
--------------
Total Operating & Research and
Development Costs 1,788,430
--------------
NET LOSS (DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE) $ (1,780,930)
===============
EARNINGS PER COMMON SHARE (See Note 14) $ (0.31)
===============
4
<PAGE>
a.2.a.
<TABLE>
<CAPTION>
TENSLEEP DESIGN, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from Inception (October 23, 1997) through September 30, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued 5A 11/10/97 4,500,000 Non-cash $ -0- $ -0- $ -0- $
45,000
Stock issued 5B 11/10/97 1,000,000 Non-cash 10,000 190,000 -0-
200,000
Stock issued 5C 12/23/97 500,000 Non-cash 5,000 245,000 -0-
250,000
Exercise Class 5D 4/1/98 400 Non-cash 4 156 -0- 160
A Warrants
Exercise Class 5D 4/1/98 400 Non-cash 4 156 -0- 160
A Warrants
Exercise Class 5D 5/27/9 82,000 Non-cash 20 780 -0- 800
A Warrants
Exercise Class 5E 6/2/98 200 Cash 2 78 -0- 80
A Warrants
Exercise Class 5D 6/17/98 40 Non-Cash -0- 16 -0- 16
A Warrants
Exercise Class 5F 6/23/98 100,000 Non-Cash 1,000 99,000 -0-
100,000
A Warrants
Net Loss (Deficit
accumulated during the (1,780,930) (1,780,930)
development stage)
Balance, September 30, 6,103,040 $ 61,030 $ 535,186 $(1,780,930)
$(1,184,714)
1998
5
<PAGE>
a.2.b.
TENSLEEP DESIGN, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the period from inception (October 23, 1997) through September 30, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (Deficit accumulated during the
development stage) ($ 1,780,930)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 45,732
Expenses incurred in exchange for common stock 250,000
Non cash expense for accrued consulting fees 120,000
Non cash expense for purchase of technology, products,
goodwill, and cancellation of royalties ( 1,327,052)
--------------
Net cash used by operating Activities ( 38,146)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 1,437)
Proceeds from Pooled Investment Account 22,307
---------------
Net cash used by investing activities 20,870
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Corporate Finance Company 17,578
Proceeds from sale of stock warrants 80
--------------
Net cash provided by financing activities 17,658
--------------
NET INCREASE IN CASH 382
CASH, beginning of period -
--------------
CASH, end of year $ 382
==============
6
<PAGE>
a.2.c.
TENSLEEP DESIGN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tensleep Design, Inc. (A Colorado Corporation) is a development stage
company (The Company) in the business of designing, developing, and marketing
integrated circuits with a specific focus on digital signal processors. The
Company is located in Austin, Texas. It is expected that the Company's primary
customers will be original equipment manufacturers located in California and
Japan for inclusion into their products.
Development Stage Company
The Company is currently in its development stage, and has not generated
any income from operations. The Company was incorporated in October 1997, and
is currently obtaining funding to proceed with development and marketing of its
technologies. The Company's success is dependent on obtaining additional
funding and the ultimate successful sales of its products. There is no
assurance that funding will be obtained or that the Company can ever operate
profitably. Success in also dependent on many other factors, such as management
and distribution. Some of these factors may be beyond the Company's control.
Cash and Cash Equivalents
For the purposes of financial statement reporting, the Company considers
all highly liquid investments with maturity of 3 months or less to be considered
cash equivalents.
Concentration of Credit Risk
The Company maintains its operating cash account at a commercial bank in
Orange County, California. The account at the bank is guaranteed by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank.
Property and Equipment, Depreciation and Amortization
Property and equipment obtained in exchange for stock is carried at the
fair market value of the equipment on the date of exchange, if purchased it
is carried at cost as of the date of purchase.
Depreciation and amortization is computed using the straight-line method
over the assets' expected useful lives. The useful lives of property and
equipment for purposes of computing depreciation and amortization are:
Machinery & Equipment 3 years
Software 3 years
Repairs and maintenance are charged to operations when incurred. Cost of
betterments which materially extend the useful lives of the asset are
capitalized. Gains and losses from sales or disposition of assets are
included in the statement of operation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Fair Value of Financial Instruments
For most of the Company's financial instruments, the carrying value is
considered to approximate the fair value. Cash, most accounts receivable and
accounts payable are settled so close to the balance sheet date that fair
value does not differ significantly from the stated amounts.
Income Taxes
The Company has not generated any taxable income and therefore a provision for
income taxes is not necessary. Similarly, a provision for deferred taxes is not
necessary. The Company has available at September 30, 1998, unused operating
loss carryforwards that may be applied against future taxable income and that
expire as follows:
Amount of Unused Operating Expiration During Year
Loss Carryforwards Ended September 30:
State -
Federal Colorado Federal State
---------- ---------- ------- ------
$1,780,930 $1,780,930 2018 2013
Adjustments
In the opinion of management the data reflects all adjustments necessary
for a fair statement of results for this period. All adjustments are of a
normal and recurring nature.
Advertising
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of direct-
response advertising, if any, are capitalized and amortized over the period
during which future benefits are expected to be received.
NOTE 1: INVESTMENT IN POOLED EQUITY ACCOUNT
The Company owns a $22,693 interest in a personal brokerage account held by
a shareholder. Originally, the Company received a $45,000 interest in the
account which was obtained in exchange for 4.5 million shares of common stock,
as described in Note 3. The Company has received $22,307 from the shareholder.
NOTE 2: INVESTMENT IN CORPORATE FINANCE COMPANY
In 1997 the Company acquired 80,000 shares of Corporate Finance Company
("CFC") common stock. CFC is an affiliate company. Shares acquired represent
approximately a 4.4% ownership in CFC. A major shareholder of the Company is
also a major shareholder of CFC. Based on the 4.4% ownership interest in CFC,
the Company has accounted for the investment under the cost method. The shares
were obtained in the cash-free exchange described in Note 3 and were valued at
$2.50 per share, which represents the sale price of CFC shares in transactions
during the six to twelve months prior to the date of the exchange. The
valuation of the shares obtained was an agreed-upon value as of the date of the
exchange and will be carried on the books of the Company at cost. In 1998 the
Company sold 800 shares of CFC common stock. The proceeds from the sale were
given directly to CFC to reduce the Company's loan payable to CFC (See note 4).
NOTE 3: NON CASH TRANSACTIONS
As explained in Note 1, 4.5 million shares of common stock were sold for
$45,000. In lieu of cash, a $45,000 shared interest in a personally held
brokerage account was granted. The account has been funded by a shareholder
with cash payments totaling $77,000.
As explained in Note 2, the investment of 80,000 shares of Corporate
Finance Company was obtained in exchange for 1 million investment units. Each
unit is composed of one share of common stock and one warrant to purchase one
share of common stock at a specified price (see note 7).
As explained in Note 5C, the Company obtained its licensing agreement
in exchange for 500,000 shares of common stock. The common stock was valued at
the agreed-upon price of $250,000, or 50 cents per share.
As explained in Note 5F and Note 11, the Company acquired from LS2
equipment and software in exchange for 100,000 shares of common stock.
NOTE 4: LOAN PAYABLE TO CORPORATE FINANCE COMPANY
CFC has loaned the Company certain funds to cover operating expenses. The
balance due on the loan from CFC as of September 30, 1998 in the amount of
$14,442 is covered by a non-interest bearing demand note.
5: CAPITAL FUNDING
The Company has resolved to authorize private offerings pursuant to
Regulation S, Section 3 (b) and/or 4(2) of the Securities Act of 1933, as
amended, and/or Rule 504 of Regulation D promulgated thereunder. These
offerings can be composed of common stock and/or warrants. Such offerings
could result in dilution to Company stockholders prior to each offering.
Additionally, dilution could also result from the exercising of warrants,
incentive stock options, and non-incentive stock options. Stock option plans
are described in Note 6. The following summarizes the various stock and
warrant transactions as reported in the accompanying Statement of Changes in
Stockholders' equity (deficit):
Note A - 4.5 million shares of common stock were sold for $45,000. In lieu
of cash, a $45,000 shared interest in a personally held brokerage account was
granted. The account had been originally funded by the shareholder with cash
payments totaling $77,000.
Note B - 1 million investment units were exchanged for 80,000 shares of
Corporate Finance Company. Each investment unit is composed of ane share of
common stock and one warrant to purchase one share of common stock at a
specified price (See note 7). The valuation of the shares obtained was an
agreed upon value as of the date of exchange.
Note C - The Company obtained a technology licensing agreement in exchange
for 500,000 shares of common stock. The common stock was valued at the agreed
upon price of $250,000, or 50 cents per share. The original agreement
made in 1997 required a royalty be paid to the licensor based upon sales. In
1998 the Company acquired from the licensor machinery and equipment, software,
technology, goodwill and cancellation of royalties (See note 10).
Note D - 2840 warrants were exercised. The cash from these warrants was
given to CFC to reduce the Company's loan payable to CFC.
Note E - 200 warrants were exercised. The cash from these warrants was
deposited in the Company's checking account.
Note F - In exchange for 100,000 warrants the Company acquired testing
equipment, design software, hardware, and intellectual property from LS
Squared, Inc., a California corporation, valued at $100,000 and appearing on
LS2 books and records at approximately $120,000. The common stock was
valued at $100,000, the agreed upon value of the property received from LS
Squared, Inc.
NOTE 6: STOCK OPTION PLANS
The Company has a stock option plan pursuant to Section 422A of the
Internal Revenue Code. The plan has yet to be defined other than the reserving
of 500,000 shares of common stock for such a plan.
The Company has also adopted a non-incentive stock option plan. This plan
grants options that can be exercised at a specified price. The Company has
resolved that 800,000 shares of common stock be reserved for this plan. As of
April 30, 1998, the options to purchase 250,000 shares at 50 cents per share
(same as the then current market price) had been granted to the majority and
controlling shareholders and an independent consultant. These options expire
December 1, 2002.
NOTE 7: WARRANTS
As part of its funding activities, the Company has issued warrants for the
purchase of common stock. Additional warrants may be issued in the future
during additional offerings. As of June 30, 1998, the following warrants were
outstanding:
Class A - one warrant can purchase one common share
Tucker Family Trust - 200,000 warrants at 40 cents per share
Corporate Finance Company 196,960 warrants at 40 cents per share
Corporate Finance Company 500,000 warrants at 80 cents per share
The warrants expire July 31, 1999.
NOTE 8: RISKS AND UNCERTAINTIES
As discussed in "Organization and Summary of Significant Accounting
Policies", the Company has been in the development stage since its inception
on October 23, 1997. Realization of a major portion of the assets is dependent
upon the Company's ability to meet its future financing requirements, and the
success of capital funding and future operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The investment in the pooled equity account are held available-for-sale.
As of September 30, 1998, the account consists of 4,000 shares of Torch Energy
Royalty Trust, listed on the New York Exchange, symbol "TRU", with a value of
$5 15/16 per share, bid price, 2000 shares Karzco Realty Trust, listed on the
New York Exchange, symbol "KRT", with a value of $16 11/16 per share, 500
shares of Cross Timbers Royalty Trust, listed on the New York Exchange, symbol
"CRT", with a value of $11 5/8 per share, 60 shares of Alliance Pharmaceutical
Corp., listed on the New York Exchange, symbol "ALLP", with a value of
$3.04688 per share, 4,000 shares Amtech Systems, Inc. listed on the NASDAQ
smallcap, with a value of $27/32 per share, and 1,000 Amylin Pharmaceuticals,
Inc. listed on NASDAQ national market, with a value of $3 3/32 per share, and
$4,531 in cash. The aggregate value of the account is $57,213 as of September
30, 1998.
The investment in the pooled equity account is subject to the hazards of
trading equities on the open market. The account will experience growth and loss
in varying amounts depending on the performance of the securities traded. All of
the Company's $22,693 interest in the account is at risk and subject to loss. The
sum of $22,693 will be paid to the Company as required to pay its costs and
expenses as incurred until revenues are sufficient to pay such costs and
expenses. Any unpaid balance, at the time revenues are sufficient to pay monthly
costs and expenses, will be repaid pursuant to a plan to be made at that time.
NOTE 9: RELATED PARTY TRANSACTIONS
A director of the Company is also a director and major shareholder of R
Tucker & Associates and Corporate Finance Company. Transactions between the
Company and these entities above have been described in Notes 2, 3 and 4.
The accrued consulting fee is payable to Dennis Kaliher and Ronald S.
Tucker, the president and vice president of the Company, respectively, for
consulting services rendered. This liability was canceled December 15, 1998 in
exchange for 24,000 shares of common stock (See note 15).
In conjunction with the purchase of LS Squared, Inc. equipment by the
Company, Ronald S. Tucker, a major shareholder of the Company, also purchased LS
Squared, Inc. individually (See note 11).
NOTE 10: PURCHASE OF TECHNOLOGY
On January 30, 1998 the Company acquired from the Licensor, pursuant to an
agreement dated January 23, 1998, the following items valued as follows:
Machines & Equipment $ 40,577.00
Software 132,371.00
Technology
A/dsc321 Digital Signal Controller
A/dsc421 Dual Processor Controller
A/dsc 521 Digital Signal Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
Total Technology & Products 1,200,000.00
Goodwill and cancellation of Royalties 127,052.00
------------
Total $ 1,500,000.00
The Licensor received a non-interest bearing note from the Company for
specified items in the amount of $1,500,000.00. The amount representing
Technology, Products, Goodwill and cancellation of Royalties was charged to
research and development costs (See note 13) in the development stage period
as required by generally accepted accounting principles. The convertible
note payable was reported under current liabilities in the accompanying
balance sheet since the Licensor has agreed to accept the Company's
securities in cancellation of the indebtedness. The Licensor has agreed to
accept 300,000 tradable Units at $5 per unit, if qualified by July 31, 1998
or 500,000 restricted shares of common stock if not qualified by July 31,
1998. The date for qualifying the tradable Units was extended until
December 31, 1998. This note was canceled December 15, 1998 in exchange for
300,000 shares of common stock (See note 15).
NOTE 11: PURCHASE OF EQUIPMENT AND DESIGN SOFTWARE
On June 19, 1998, the Company acquired testing equipment, design software,
hardware, and intellectual property from LS Squared, Inc., (LS2) a California
corporation, valued at $100,000 and appearing on LS2 books and records with a
book value of an approximate amount. LS2 was an independent third party and a
non-affiliate of the Company and none of its officers and directors were or are
affiliated with the Company at the time of the equipment acquisition. The terms
of the agreement provided that the Company receive the assets in exchange for
100,000 shares of the Company's common stock through the exercise of 100,000
Class A Warrants. In July 1998 Ronald S. Tucker, a major shareholder of the
Company purchased LS2 as an individual. At the time of purchase, LS2 was a
California Corporation with no assets or liabilities.
NOTE 12: LEASE INCOME
The Company received an agreed upon partial payment in the amount of
$5,350 from Silicon Resources, Inc. on a lease agreement originally dated
August 21,1998. The original agreement had the following terms:
18 months
$8500 per month if all the workstations are installed
Silcon Resources, Inc. was to bill the Company for office space rental at
$1.50 square foot per month and engineering services at a rate of $104.05 per
hour or $18,000 per month.
The above lease agreement was amended on October 22, 1998 to provide for the
following terms:
$9,650 per month for five work stations less $1,000 credit for office
space. The remainder of the credit will be used to employ Silicon Resources, Inc.
engineering personnel on the Company's projects at a rate of $104 per hour
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and Development costs are charged to operations when incurred
and are reported separately in the accompanying Statement of Operations. The
components of research and development costs consist of the following:
Technology license $ 250,000
Consulting Services 120,000
Purchase of technology, products,
goodwill, and cancellation of royalties 1,327,052
------------
$ 1,697,052
============
NOTE 14: EARNINGS PER SHARE
As of September 30, 1998 The Company had 6,103,040 common shares
outstanding and no preferred shares outstanding. The earnings per share amount
is based on the weighted average number of shares actually outstanding. The
number of shares used in the computation for September 30, 1998 was
5,653,300 shares.
NOTE 15: SUBSEQUENT EVENTS
The following equity transactions have taken place subsequent to September
30, 1998 and through the date of the audit report.
</TABLE>
<TABLE>
<CAPTION>
Reported in Statement
of Changes in
Stockholders' Equity Additional
Balance, September 30, See Nunber of Considera- Common Paid-in
1998 Note Date Shares tion Stock Capital Total
<S> <C> <C> <C> <C> <C> <C> <C>
Stock issued 15A 12/15/98 35,000 Cash/Note 350 174,650 175,000
Stock issued 15B 12/15/98 8,000 Non-Cash 80 39,920 40,000
Stock issued 15C 12/15/98 300,000 Non-Cash 3,000 1,497,000 1,500,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15D 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15E 12/15/98 137,000 Non-Cash 1,370 683,630 685,000
Exercise Class A 15E 12/15/98 88,000 Non-Cash 880 34,320 35,200
Warrants
Balance, March 31
1999 6,691,040 $ 66,910 $ 3,064,506 $ 1,304,344
</TABLE>
A The Company received $25,000 in cash and promissory notes in the
amount of $155,000. One of the promissory notes for $50,000 was
transferred to Ron Tucker (see note E).
B 24,000 shares of common stock were issued for $120,000 in exchange
for accrued consulting fees, which was expensed as Research &
development (see note 14)
C 300,000 shares of common stock were issued for $1,500,000 to pay off the
convertible note, which was issued in exchange for fixed assets of $173,948
and Research & Development expenses of $1,327,052 (see note 14)
D 4000 shares of common stock were issued for $20,000 in exchange for
advertising in 1999.
E 137,000 shares of common stock were issued for $685,000 and 88,000 warrants
exercised in exchange for $765,200 note secured by 200,000 shares of common
stock. Included in the $765,200 note is a $50,000 promissory note from a
prior stock transaction (see note A)
Had the above additional stock issuance taken place on September 30, 1998,
earnings per common share would not have changed.
<PAGE>
Managements Report
a.3.
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Balance Sheet As Of
March 31, 1999
(unaudited)
ASSETS
Current assets:
Cash $ 1,130
Investment in Pooled Account, (Note 7) 18,544
------------
Total Current Assets 19,674
Fixed assets:
Machines & Equipment 102,105
Software 172,371
Accumulated Depreciation ( 91,464)
------------
Total Fixed Assets 183,012
Other Assets:
Credits for Engineering Services (Note 12) 51,900
Secured Note Receivable (Note 5) 665,400
Securities held for sale (Note 2) 398,000
------------
Total Other Assets 1,115,300
------------
Total Assets $ 1,317,986
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loan Payable (Note 4) $ 14,442
Accrued Expenses 4,000
------------
Total Liabilities 18,442
------------
Stockholders' Equity:
Preferred stock, no stated value, 10,000,000
shares authorized, no shares issued and
outstanding -0-
Common stock, $0.01 stated value, 50,000,000
shares authorized, 6,691,016 shares
issued and outstanding 66,910
Additional paid-in capital 3,059,706
Retained earnings ( 1,780,930)
Net Income (Loss) For Period ( 46,142)
-------------
Total Stockholders Equity 1,299,544
------------
Total Liabilities & Stockholders' Equity $ 1,317,986
<PAGE>
a.4.
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Statement of Operations
October 1, 1998 to March 31, 1999
(unaudited)
Income
Equipment Rental $ 57,900
Equipment Sales 12,000
--------------
Net Income 69,900
--------------
Operating Expenses:
Operating Expenses 118,764
--------------
Net Operating Income (Loss) ( 48,864)
--------------
Other Income (Expenses) 2,722
--------------
Net Loss Before Income Taxes ( 46,142)
--------------
Income Taxes -0-
--------------
Net Loss After Taxes $( 46,142)
==============
Loss Per Common Share (Note 14) $( $0.0072)
==============
<PAGE>
a.4.a.
<TABLE>
<CAPTION>
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from Inception (October 23, 1997) through September 30, 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued 5A 11/10/97 4,500,000 Non-cash $ -0- $ -0- $ -0- $
45,000
Stock issued 5B 11/10/97 1,000,000 Non-cash 10,000 190,000 -0-
200,000
Stock issued 5C 12/23/97 500,000 Non-cash 5,000 245,000 -0-
250,000
Exercise Class 5D 4/1/98 400 Non-cash 4 156 -0- 160
A Warrants
Exercise Class 5D 4/1/98 400 Non-cash 4 156 -0- 160
A Warrants
Exercise Class 5D 5/27/9 82,000 Non-cash 20 780 -0- 800
A Warrants
Exercise Class 5E 6/2/98 200 Cash 2 78 -0- 80
A Warrants
Exercise Class 5D 6/17/98 40 Non-Cash -0- 16 -0- 16
A Warrants
Exercise Class 5F 6/23/98 100,000 Non-Cash 1,000 99,000 -0-
100,000
A Warrants
Net Loss (Deficit
accumulated during the (1,780,930) (1,780,930)
development stage)
Balance, September 30, 6,103,040 $ 61,030 535,186 (1,780,930)
(1,184,714)
1998
Stock issued 5G 12/15/98 35,000 Cash/Note 350 174,650 -0-
175,000
Stock issued 5H 12/15/98 8,000 Non-Cash 80 39,920 -0- 40,000
Stock issued 5I 12/15/98 300,000 Non-Cash 3,000 1,497,000 -0-
1,500,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5J 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5K 12/15/98 137,000 Non-Cash 1,370 683,630 -0-
685,000
Exercise Class A 5K 12/15/98 88,000 Non-Cash 880 34,320 -0-
35,200
Warrants
Net Loss (Deficit
accumulated from 10/1/98
to 3/31/99) -0- -0- -0- (46,142) (46,142)
Balance,
March 31, 1999 6,691,040 $ 66,910 $3,064,506 $(1,827,072) $
1,304,344
</TABLE>
<PAGE>
a.4.b.
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Statement of Cash Flows
For the Six Months
October 1, 1998 to March 31, 1999
(Unaudited)
Cash flows from operating activities:
Net income ($ 46,142)
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 45,732
Expenses incurred in exchange for common stock 20,000
Non cash expense for accrued consulting fees 4,000
Accrued Equipment Rental ( 51,900)
------------
Net cash used by operating Activities ( 28,310)
Cash flows from investing activities:
Purchase of property and equipment ( 92)
Proceeds from Pooled Investment Account 4,150
------------
Net cash provided by (used in) investing activities 4,058
Cash flows from financing activities:
Net Proceeds from Sale of Securities 25,000
------------
Net cash provided by (used in) financing activities 25,000
------------
Net increase (decrease) in cash and cash equivalents 748
Cash and cash equivalents, beginning of period 382
------------
Cash and cash equivalents, end of period $ 1,130
============
<PAGE>
a.4.c.
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Organization
Tensleep Design, Inc. (A Colorado Corporation) is a development stage
company (The Company) in the business of designing, developing, and marketing
Internet Appliances and other integrated circuits with a specific focus on
digital signal processors. The Company is located in Austin, Texas. It is
expected that the Company's primary customers will be original equipment
manufacturers located in California and Japan for inclusion into their
products.
Development Stage Company
The Company is currently in its development stage, and has not generated
any income from operations. The Company was incorporated in October 1997, and
is currently obtaining funding to proceed with development and marketing of its
products and technologies. The Company's success is dependent on obtaining
additional funding and the ultimate successful sales of its products. There
is no assurance that funding will be obtained or that the Company can ever
operate profitably. Success in also dependent on many other factors, such as
management and distribution. Some of these factors may be beyond the
Company's control.
Cash and Cash Equivalents
For the purposes of financial statement reporting, the Company considers
all highly liquid investments with maturity of 3 months or less to be considered
cash equivalents.
Concentration of Credit Risk
The Company maintains its operating cash account at a commercial bank in
Orange County, California. The account at the bank is guaranteed by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank.
Property and Equipment, Depreciation and Amortization
Property and equipment obtained in exchange for stock is carried at the
fair market value of the equipment on the date of exchange, if purchased it is
carried at cost as of the date of purchase.
Depreciation and amortization is computed using the straight-line method
over the assets' expected useful lives. The useful lives of property and
equipment for purposes of computing depreciation and amortization are:
Machinery & Equipment 3 years
Software 3 years
Repairs and maintenance are charged to operations when incurred. Cost of
betterments which materially extend the useful lives of the asset are
capitalized. Gains and losses from sales or disposition of assets are
included in the statement of operation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Fair Value of Financial Instruments
For most of the Company's financial instruments, the carrying value is
considered to approximate the fair value. Cash, most accounts receivable and
accounts payable are settled so close to the balance sheet date that fair
value does not differ significantly from the stated amounts.
Income Taxes
The Company has not generated any taxable income and therefore a
provision for income taxes is not necessary. Similarly, a provision for
deferred taxes is not necessary. The Company has available at September 30,
1998, unused operating loss carryforwards that may be applied against future
taxable income and that expire as follows:
Amount of Unused Operating Expiration During Year
Loss Carryforwards Ended September 30:
State -
Federal Colorado Federal State
---------- ---------- ------- ------
$1,780,930 $1,780,930 2018 2013
Adjustments
In the opinion of management the data reflects all adjustments necessary
for a fair statement of results for this period. All adjustments are of a
normal and recurring nature.
Advertising
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of direct-
response advertising, if any, are capitalized and amortized over the period
during which future benefits are expected to be received.
NOTE 1: INVESTMENT IN POOLED EQUITY ACCOUNT
The Company owns a $18,544 interest in a personal brokerage account held
by a shareholder. Originally, the Company received a $45,000 interest in the
account which was obtained in exchange for 4.5 million shares of common stock,
as described in Note 3. The Company has received $26,456 from the shareholder.
NOTE 2: INVESTMENT IN CORPORATE FINANCE COMPANY
In 1997 the Company acquired 80,000 shares of Corporate Finance Company
("CFC") common stock and in March 1999 an additional 80,000 shares. CFC is an
affiliate company. Shares acquired represent approximately a 7.61% ownership
in CFC. A major shareholder of the Company is also a major shareholder of
CFC. Based on the 7.61% ownership interest in CFC, the Company has accounted
for the investment under the cost method. The shares were obtained in the
cash-free exchange described in Note 3 and were valued at $2.50 per share,
which represents the sale price of CFC shares in transactions during the six
to twelve months prior to the date of the exchange. The valuation of the
shares obtained was an agreed-upon value as of the date of the exchange and
will be carried on the books of the Company at cost. In 1998 the Company sold
800 shares of CFC common stock. The proceeds from the sale were given
directly to CFC to reduce the Company's loan payable to CFC (See note 4). In
March 1999 the Company received 80,000 shares valued at $2.50 as payment of
$200,000 on a promissory note of R Tucker & Associates.
NOTE 3: NON CASH TRANSACTIONS
As explained in Note 1, 4.5 million shares of common stock were sold for
$45,000. In lieu of cash, a $45,000 shared interest in a personally held
brokerage account was granted. The account has been funded by a shareholder
with cash payments totaling $77,000.
As explained in Note 2, the investment of 80,000 shares of Corporate
Finance Company was obtained in exchange for 1 million investment units. Each
unit is composed of one share of common stock and one warrant to purchase one
share of common stock at a specified price (see note 7).
As explained in Note 5C, the Company obtained its licensing agreement in
exchange for 500,000 shares of common stock. The common stock was valued at
the a greed-upon price of $250,000, or 50 cents per share.
As explained in Note 5F and Note 11, the Company acquired from LS2
equipment and software in exchange for 100,000 shares of common stock.
NOTE 4: LOAN PAYABLE TO CORPORATE FINANCE COMPANY
CFC has loaned the Company certain funds to cover operating expenses. The
balance due on the loan from CFC as of September 30, 1998 in the amount of
$14,442 is covered by a non-interest bearing demand note. In January 1999 CFC
assigned the note to R Tucker & Associates.
5: CAPITAL FUNDING
The Company has resolved to authorize private offerings pursuant to
Regulation S, Section 3 (b) and/or 4(2) of the Securities Act of 1933, as
amended, and/or Rule 504 of Regulation D promulgated thereunder. These
offerings can be composed of common stock and/or warrants. Such offerings
could result in dilution to Company stockholders prior to each offering.
Additionally, dilution could also result from the exercising of warrants,
incentive stock options, and non-incentive stock options. Stock option plans
are described in Note 6. The following summarizes the various stock and
warrant transactions as reported in the accompanying Statement of Changes in
Stockholders' equity (deficit):
Note A - 4.5 million shares of common stock were sold for $45,000. In Lieu
of cash, a $45,000 shared interest in a personally held brokerage account was
granted. The account had been originally funded by the shareholder with cash
payments totaling $77,000.
Note B - 1 million investment units were exchanged for 80,000 shares of
Corporate Finance Company. Each investment unit is composed of one share of
common stock and one warrant to purchase one share of common stock at a
specified price (See note 7). The valuation of the shares obtained was an
agreed-upon value as of the date of exchange.
Note C - The Company obtained a technology licensing agreement in exchange
for 500,000 shares of common stock. The common stock was valued at the agreed
upon price of $250,000, or 50 cents per share. The original agreement
made in 1997 required a royalty be paid to the licensor based upon sales. In
1998 the Company acquired from the licensor machinery and equipment, software,
technology, goodwill and cancellation of royalties (See note 10).
Note D - 2840 warrants were exercised. The cash from these warrants was
given to CFC to reduce the Company's loan payable to CFC.
Note E - 200 warrants were exercised. The cash from these warrants was
deposited in the Company's checking account.
Note F - In exchange for 100,000 warrants the Company acquired testing
equipment, design software, hardware, and intellectual property from LS
Squared, Inc., a California corporation, valued at $100,000 and appearing on
LS2 books and records at approximately $120,000. The common stock was
valued at $100,000, the agreed upon value of the property received from LS
Squared, Inc.
Note G - The Company received $25,000 in cash and promissory notes in the
amount of $155,000. One of the promissory notes for $50,000 was transferred
to Ron Tucker (see note K).
Note H - 24,000 shares of common stock were issued for $120,000 in exchange
for accrued consulting fees, which was expensed as Research & development (see
note 14)
Note I - 300,000 shares of common stock were issued for $1,500,000 to pay
off the convertible note, which was issued in exchange for fixed assets of
$173,948 and Research & Development expenses of $1,327,052 (see note 14)
Note J - 4000 shares of common stock were issued for $20,000 in exchange
for advertising in 1999.
Note K - 137,000 shares of common stock were issued for $685,000 and 88,000
warrants exercised in exchange for $765,200 note secured by 200,000 shares of
common stock. Included in the $765,200 note is a $50,000 promissory note from
a prior stock transaction (see note G)
NOTE 6: STOCK OPTION PLANS
The Company has a stock option plan pursuant to Section 422A of the
Internal Revenue Code. The plan has yet to be defined other than the reserving
of 500,000 shares of common stock for such a plan.
The Company has also adopted a non-incentive stock option plan. This plan
grants options that can be exercised at a specified price. The Company has
resolved that 800,000 shares of common stock be reserved for this plan. As of
March 31, 1999, the options to purchase 200,000 shares at 50 cents per share
(same as the then current market price) had been granted to the majority and
controlling shareholders and an independent consultant. These options expire
December 1, 2002.
NOTE 7: WARRANTS
As part of its funding activities, the Company has issued warrants for the
purchase of common stock. Additional warrants may be issued in the future
during additional offerings. As of June 30, 1998, the following warrants were
outstanding:
Class A - one warrant can purchase on common share
Ronald S. Tucker - 200,000 warrants at 40 cents per share
R Tucker & Associates, Inc. - 108,960 warrants at 40 cents per share
R Tucker & Associates, Inc. - 500,000 warrants at 80 cents per share
The warrants expiration dated has been extended from July 31, 1999,
to March 31, 2000.
Class B - one warrant can purchase one common share
George N. Haddad - 35,000 warrants at $4.50 per share
R Tucker & Associates, Inc. - 465,000 warrants at $4.50 per share.
NOTE 8: RISKS AND UNCERTAINTIES
As discussed in "Organization and Summary of Significant Accounting
Policies", the Company has been in the development stage since its inception on
October 23, 1997. Realization of a major portion of the assets is dependent
upon the Company's ability to meet its future financing requirements, and the
success of capital funding and future operations. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
The investments in the pooled equity account are held available-for-sale.
As of March 26, 1999, the account consists of 1,000 shares of Torch Energy
Royalty Trust, listed on the New York Exchange, symbol "TRU", with a value of
$4 13/16 per share, bid price, 6500 shares Karzco Realty Trust, listed on the
New York Exchange, symbol "KRT", with a value of $11 9/16 per share, 100
shares of Kla-Tencor Corp, listed on the NASDAQ national market, symbol
"KLAC", with a value of $49 15/32 per share, 100 shares of Novellus Systems,
Inc., listed on the NASDAQ national market, symbol "NVLS", with a value of $53
7/16 per share, short 100 shares ATMI, Inc. listed on the NASDAQ national
market, symbol "AMTI", with a value of $18 9/16 per share, and short 500
Gasonics Intl Corp., listed on NASDAQ national market, with a value of $10
5/16 per share, and short Sabine Royalty Trust, listed on the New York
Exchange, symbol "SBR", with a value of $13.00 per share. The aggregate value
of the account is $77,748 as of March 26, 1999.
The investment in the pooled equity account is subject to the hazards of
trading equities on the open market. The account will experience growth and
loss in varying amounts depending on the performance of the securities traded.
All of the Company's $22,693 interest in the account is at risk and subject to
loss. The sum of $22,693 will be paid to the Company as required to pay its
costs and expenses as incurred until revenues are sufficient to pay such costs
and expenses. Any unpaid balance, at the time revenues are sufficient to pay
monthly costs and expenses, will be repaid pursuant to a plan to be made at
that time.
NOTE 9: RELATED PARTY TRANSACTIONS
A director of the Company is also a director and major shareholder of R
Tucker & Associates and Corporate Finance Company. Transactions between the
Company and these entities above have been described in Notes 2, 3 and 4.
In conjunction with the purchase of LS Squared, Inc. equipment by the
Company, Ronald S. Tucker, a major shareholder of the Company, also purchased
LS Squared, Inc. individually (See note 11).
NOTE 10: PURCHASE OF TECHNOLOGY
On January 30, 1998 the Company acquired from the Licensor, pursuant to
an agreement dated January 23, 1998, the following items valued as follows:
Machines & Equipment $ 40,577.00
Software 132,371.00
Technology
A/dsc321 Digital Signal Controller
A/dsc421 Dual Processor Controller
A/dsc 521 Digital Signal Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
Total Technology & Products 1,200,000.00
Goodwill and cancellation of Royalties 127,052.00
------------
Total $ 1,500,000.00
The Licensor received a non-interest bearing note from the Company for
specified items in the amount of $1,500,000.00. The amount representing
Technology, Products, Goodwill and cancellation of Royalties was charged to
research and development costs (See note 13) in the development stage period
as required by generally accepted accounting principles. The convertible note
payable was reported under current liabilities in the accompanying balance
sheet since the Licensor has agreed to accept the Company's securities in
cancellation of the indebtedness. The Licensor had agreed to accept 300,000
tradable Units at $5 per unit, if qualified by July 31, 1998 or 500,000
restricted shares of common stock if not qualified by July 31, 1998. The date
for qualifying the tradable Units was extended until December 31, 1998. This
note was canceled December 15, 1998 in exchange for 300,000 shares of common
stock (See note 5).
NOTE 11: PURCHASE OF EQUIPMENT AND DESIGN SOFTWARE
On June 19, 1998, the Company acquired testing equipment, design
software, hardware, and intellectual property from LS Squared, Inc., (LS2) a
California corporation, valued at $100,000 and appearing on LS2 books and
records with a book value of an approximate amount. LS2 was an independent
third party and a non-affiliate of the Company and none of its officers and
directors were or are affiliated with the Company at the time of the equipment
acquisition. The terms of the agreement provided that the Company receive the
assets in exchange for 100,000 shares of the Company's common stock through the
exercise of 100,000 Class A Warrants. In July 1998 Ronald S. Tucker, a major
shareholder of the Company purchased LS2 as an individual. At the time of
purchase, LS2 was a California Corporation with no assets or liabilities.
NOTE 12: LEASE INCOME
The Company received an agreed upon partial payment in the amount of $5,350
from Silicon Resources, Inc. on a lease agreement originally dated August
21,1998. The original agreement had the following terms:
18 months
$8500 per month if all the workstations are installed
Silcon Resources, Inc. was to bill the Company for office space rental at
$1.50 square foot per month and engineering services at a rate of $104.05 per
hour or $18,000 per month.
The above lease agreement was amended on October 22, 1998 to provide for the
following terms:
$9,650 per month for five work stations less $1,000 credit for office space.
The remainder of the credit will be used to employ Silicon Resources, Inc.
engineering personnel on the Company's projects at a rate of $104 per hour
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and Development costs are charged to operations when incurred
and are reported separately in the accompanying Statement of Operations. The
components of research and development costs consist of the following:
Technology license $ 250,000
Consulting Services 120,000
Purchase of technology, products,
goodwill, and cancellation of royalties 1,327,052
-----------
$ 1,697,052
===========
NOTE 14: EARNINGS PER SHARE
As of March 31, 1999 The Company had 6,691,016 common shares outstanding
and no preferred shares outstanding. The earnings per share amount is based
on the weighted average number of shares actually outstanding. The number of
shares used in the computation for March 31, 1998 was 6,397,016 shares.
Mail to: Secretary of State Corporations Section
1560 Broadway, Suite 200 for office use only
Denver, CO 80202
(303) 894-2251
Fax (303) 894-2242
MUST BE TYPED
FILING FEE: $25.00
MUST SUBMIT TWO COPIES
ARTICLES OF AMENDMENT
Please include a typed TO THE
self-addressed envelope ARTICLES OF INCORPORATION
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the corporation is TENSLEEP DESIGN, INC.
SECOND: The following amendment to the Articles of Incorporation was adopted
on April 23, 1999, as prescribed by the Colorado Business Corporation
Act, in the manner marked with an X below:
_____ No shares have been issued or Directors elected - Action by
Incorporators.
_____ No shares have been issued but Directors elected - Action by
Directors.
_____ Such amendment was adopted by the board of directors where shares
have been issued.
_X__ Such amendment was adopted by a vote of the shareholders. The number
of shares voted for the amendment was sufficient for approval.
The name of the Corporation is amended to: TENSLEEP TECHNOLOGIES, INC.
THIRD: The manner, if not set forth in such amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
amendment shall be effected, is as follows:
Not Applicable
If these amendments are to have a delayed effective date, please list that
date: N.A.
(Not to exceed ninety (90) days from the date of filing)
Tensleep Design, Inc.
By: Ronald S. Tucker
Its Secretary
Title
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Tensleep
Technologies, Inc., audited Financial Statements dated September 30, 1998 and
unaudited as of March 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0001006024
<NAME> TENSLEEP TECHNOLOGIES, INC.
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-END> MAR-31-1999 SEP-30-1998
<CASH> 1,130 382
<SECURITIES> 18,514 22,693
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 19,674 23,075
<PP&E> 274,476 274,385
<DEPRECIATION> 91,464 45,732
<TOTAL-ASSETS> 1,317,986 449,728
<CURRENT-LIABILITIES> 18,442 1,634,442
<BONDS> 0 0
0 0
0 0
<COMMON> 66,910 61,030
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,317,986 449,728
<SALES> 69,900 7,500
<TOTAL-REVENUES> 72,622 7,500
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 118,764 1,788,430
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (46,142) (1,780,930)
<EPS-PRIMARY> (0.007) (0.31)
<EPS-DILUTED> (0.006) (0.254)
</TABLE>
SUBSIDIARIES OF REGISTRANT
Tensleep Design, Inc. incorporated in May 10, 1999, in the State of Colorado
and is doing business under that name.
