U. S. SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO _________________
Commission Fine Number 0 - 30164
TENSLEEP.COM, INC.
(formerly 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) 236-8140
(Issuer's Telephone Number, including area code)
Securities 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 registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
Class B Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $131,468.
Based on the average of bid and asked prices on November 15, 1999, the
aggregate market value of common stock held by non-affiliates (992,162) of the
registrant on October 31, 1999 was approximately $1,984,324.
The number of shares outstanding of issuer's only class of Common Stock,
no par value, was 7,122,040 on November 15, 1999.
INDEX
PART I.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
GLOSSARY
HISTORY OF COMPANY AND COMPANY'S TECHNOLOGY
TECHNOLOGY AND PRODUCTS
TECHNOLOGY - DIGITAL SIGNAL CONTROLLERS
A/DSC321
MIXED SIGNAL DSP AND ANALOG FRONT END
A/DSC421
DUAL PROCESSOR WITH ANALOG FRONT END
A/DSC521
DUAL PROCESSOR WITH ANALOG FRONT END
PATENTS AND PROPRIETARY RIGHTS
MARKETS AND PRODUCTS
PRODUCT - FAST RESPONSE MODEM/CONTROLLER
MARKET - QUICK RESPONSE INTERNET MODEM/CONTROLLER
PRODUCTS - QUICK RESPONSE INTERNET MODEM/CONTROLLER
MARKET - INTERNET COMMUNICATOR
PRODUCTS - INTERNET COMMUNICATOR
MARKET - FACSIMILE MODEMS
PRODUCTS - HIGH-SPEED FACSIMILE MODEM
MARKET - MEDIUM-SPEED MODEMS
PRODUCTS - MEDIUM-SPEED MODEMS
SALES AND DISTRIBUTION
COMPETITION
RAW MATERIALS
RESEARCH AND DEVELOPMENT
EMPLOYEES
ENVIRONMENTAL COMPLIANCE
GOVERNMENTAL REGULATION
INVESTMENT POLICIES
LICENSOR'S FINANCIAL DISCLOSURE
ITEM 2. DESCRIPTION OF PROPERTY.
ITEM 3. LEGAL PROCEEDINGS.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
PART 2.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
RISKS
PLAN OF OPERATION
Operations
Capital Structure
Financing
Research and Development
Purchase and Sale of Equipment
Availability of Products
Employees
INTERNET DEVICES
CyberServers
CyberCommunicator
SAMSUNG ELECTRONICS
Fax Modem Chips
Fabrication
DESIGN CENTER
General
Core Licensing
STRATEGIC RELATIONSHIPS AND NEW TECHNOLOGY
YEAR 2000 ISSUES
CREDIT FACILITY
ITEM 7. FINANCIAL STATEMENTS
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
QUALIFIED AND NON QUALIFIED STOCK OPTIONS
EMPLOYMENT AGREEMENT
SALES COMMISSIONS
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is an Integrated Internet Development Stage Company based in
Austin, Texas. The Company founded in October 1997 has both a Consumer and
business to business focus. Its Consumer focus is directed toward developing
a hub for Financial Services and E-Commerce Stores. Its business to business
focus is directed toward both designing, developing, manufacturing and selling
products used in the Internet infrastructure and providing Internet services
and solutions. The Company has no revenues or sales from its Consumer or
Business to Business focus, except a one time license fee for a license to its
technology.
The Company was founded in October 1997, in the State of Colorado, under
the name Tensleep Design, Inc. In April 1999 it changed its name to Tensleep
Technologies, Inc. (the "Company"), and formed a wholly owned subsidiary using
the name of Tensleep Design, Inc. ("Tensleep" refers to this subsidiary).
Then on November 10, 1999, the Company again changed its name to Tensleep.com,
Inc., to reflect its emphasis and commitment to the Internet.
The Company is being restructured into the Internet Technology and E-
Commerce Divisions. The Internet Technology Division, in the current year,
will conduct its business in the Company's wholly owned subsidiary, Tensleep
Design, Inc. Tensleep is divided into the Semi-Conductor and
Services/Solutions Subdivisions. The Semi-Conductor subdivision designs,
develops, markets, and sells integrated circuits, e.g., fax modems and
controllers. The Services/Solutions Subdivision will design, develop, market
and sell communication products. Both subdivisions will market to original
equipment manufacturers through a network of independent sales
representatives.
The plan for the E-Commerce Division is to have the Financial Services
and E-Services Subdivisions. The E-Commerce Division, in the current year,
will commence business in the Company's wholly owned subsidiary, Tensleep
Finance.com, Inc. ("Finance.com"). The Financial Services subdivision will be
a financial services provider on the Internet as a hub. The E-Services
Subdivision will become an Internet service provider and content provider.
Finance.com is to provide a site for financial services for small businesses
and individuals by independent financial service providers and to distribute
consumer communications and internet products designed and manufactured by the
Company or other manufacturers. These consumers' communications products will
be distributed to consumers via the Internet and retail outlets through a
network of independent sales representatives.
The Company is marketing a family of facsimile products and has
completed the concept design for two Internet-based products. Each facsimile
product, a modem, controller and fax engine, is an integrated circuit ("IC" or
"chip"). A fax engine is a combination of fax modem and micro controller
fabricated in a single integrated circuit that controls the functions of a
facsimile machine. The facsimile products are fabricated by Samsung
Electronics Co., Ltd. ("Samsung"). The first Internet based product in
development is a special purpose modular computer or server ( the
"CyberServer"). The second in development is a communications device (the
"CyberCommunicator").
The Company's products are a combination of hardware and digital signal
processing software integrated into an integrated circuit. Digital signal
processing technology coverts analog signals to data in a digital format, the
data is then mathematically processed for use in that format or converted back
into analog signals. Digital signal processing has many uses, e.g. modems,
motor controls, disk file head positioning systems, sonars, and many others.
The Company's Customer focus, which is under development, is directed
to establishing a financial services provider, as an Internet hub, and E-
Commerce Stores, the Internet Division. Financial services contemplated
include, but are not limited to Internet trading, banking, mortgage lending,
investment services, insurance, financial planning, estate planning, etc.
The Company to enhance its business is seeking strategic relationships
with companies that design, market and sell consumer Internet and
communications products and use products and/or technology similar to the
Company's. In addition, the Company will seek to acquire new technologies in
exchange for shares of its common stock. The Company plans to use
advertising, word of mouth, press releases and business contacts to find
technologies and businesses.
GLOSSARY
The following definitions are provided for a better understanding of
this document's content.
An "algorithm" is a defined procedure for solving a problem or doing an
operation.
An "AFE" or "Analog Front End" is a collection of circuits that converts
analog signals to digital numbers and vice versa.
A "cell" is a simple logic circuit that does a specific logic function
such as an "AND," an "OR" or the storage of one bit of data.
A "DSC" or "Digital Signal Controller" is a specialized DSP that
encompasses all program memory, data memory, and computer functions within a
single chip.
A "DSP" or "Digital Signal Processor" is a specialized microcomputer
designed for more efficient processing of arithmetic operations such as
addition and multiplication.
A "digital signal" is a signal, which varies in discrete jumps, and has
a finite number of values between two bounds.
An "integrated circuit" is a complete electronic circuit contained on a
minute chip of silicon ("IC").
A "megacell" is a collection of cells that compose a more complex logic
function, e.g., addition, multiplication, or storage of data as a word.
A "modem" is a device that translates digital pulses into analog signals
for telephone transmission, and analog signals from the telephone into digital
pulses.
A "MCU" or "micro controller unit" is an integrated circuit that
contains a microprocessor and additional peripheral functions within the same
chip.
An "OEM" or "original equipment manufacturer" is a manufacturer who buys
equipment from other suppliers and integrates that equipment into its products
for resales.
HISTORY OF COMPANY AND COMPANY'S TECHNOLOGY
The Company was established with the specific goal of developing and
marketing DSPs targeted at the computer, communications and graphics markets.
The Company originally licensed its technology from Sundance Design, Inc. (the
"Licensor"), a Texas corporation, incorporated in 1987. The technology
acquired from the Licensor included three distinct DSP core architectures, and
three modem products.
The Company on March 1, 1999, acquired the rights to distribute
Samsung's standalone fax modem products in the United States and Japan on a
nonexclusive basis. The Company can put its name on these products and its
own part number and will be responsible for all product support. The
distribution rights are for a term of one year with four automatic renewals of
one year. The fax modem products covered include the following:
T2903 9600bps FAX Modem with Caller Identification
T1703 14400 bps FAX Modem with Caller Identification
T2930 9600 bps FAX Modem Super 1- Chip (Modem + MPU)
(MPU stands for Micro Processor Unit and is used
as the control device for microcomputers,
household appliances, business machines, etc.).
The T2930, T1703, and T2903 have the same pin placements for inserting
in a circuit board, or footprint, as the Rockwell Semiconductor fax modem
chips, which controls an estimated 70% of the fax modem market. Having the
same footprint means that the facsimile machine manufactures could substitute
the Samsung fax modem chip for the Rockwell chip without any board changes.
The next generation fax modem chip can 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 gives it a
unique window of opportunity. These fax modem products were developed by
Samsung and are not based on the Company's technology.
TECHNOLOGY AND PRODUCTS
The Company's products are designed to incorporate and use its
technology. Effective use of the technology depends on both hardware and
software. The hardware typically consists of three devices. One device is
used to convert analog signals to digital numbers ("Analog-to-Digital" or
"A/D"). The second device is used to convert digital numbers to analog
signals ("Digital-to-Analog" or "D/A") and the third device is Digital Signal
Processor. The software consists of algorithms that emulate transmitting and
receiving signals, analog or digital, for fax, data, voice and speech
processing and wireless communications.
The Company's Digital Signal Controllers are designed to be used as
engines for an application-specific digital signal processor. These integrated
circuits enable a device to accept an analog signal, convert the signal,
execute one or more algorithms on that signal, and store or output the result
("signal processing"). The Company's DSCs provide low power consumption and
high-speed data transmission. The DSCs are true systems-on-a-chip solutions
for many problems. Three different versions of the DSC have been designed: (1)
the A/DSC321, which has been used to implement a 14,400 bps fax modem; (2) the
A/DSC421, which combines a DSP, an AFE, and a microprocessor with an 8-bit
wide data path ("8-bit microprocessor") on one chip; and (4) the A/DSC521,
which is a smaller, faster version of the A/DSC421 in a smaller fabrication
process.
TECHNOLOGY - DIGITAL SIGNAL CONTROLLERS
A/DSC321
MIXED SIGNAL DSP AND ANALOG FRONT END.
The A/DSC321 is a highly integrated single-chip device that contains a
technique for converting an analog signal to a digital signal. This design is
ideally suited to telecommunications applications such as high-speed facsimile
machines and medium-speed imbedded modems, 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.
The design is set up in a 1.25 micron process and has become too costly
to produce competitively. In order for this product to become competitive it
must be redirected into the newer 0.5 and 0.35 micron fabrication processes.
The Company believes newer processes will reduce the cost too less than 25% of
the present cost. The Company does not plan to redirect fabrication process of
this technology within the next 12 months.
A/DSC421
DUAL PROCESSOR WITH ANALOG FRONT END
The A/DSC421 is a highly integrated single-chip device, similar to and
compatible with the A/DSC321. This technology includes on-chip interfaces for
direct connection to other devices. This is a versatile chip, and can address
a large variety of applications in the data and telecommunications markets,
navigation and surveying markets, motor control markets, and embedded system
markets. The A/DSC421 has been programmed as a 14,400 bps PC data modem
providing several functions within a single chip. Competing products with
similar functions require three or more chips.
The technology is implemented using Kawasaki's 1.0 micron process and
must be directed into a newer 0.5 micron process to enhance its marketability.
The Company is now identifying and evaluating unrelated fabricating companies
to negotiate the fabrication of this product. The Company believes that it
will identify the fabricator and commence negotiating with that company within
the next twelve months.
A/DSC521
DUAL PROCESSOR WITH ANALOG FRONT END
The A/DSC521 is virtually identical to the A/DSC421 but has a faster
clock speed for both the DSP module and the microprocessor. The higher clock
speeds expand the types of application in which the chip can be used. The
A/DSC521 technology has been successfully fabricated into engineering samples.
This proves the hardware design. To bring this product to market, the Company
is required to find a fabricator to produce the chip. The Company has not
contacted a fabricator at this date, but an effort will be made within the
next twelve months. This technology is incorporated into products designed
for specific applications, like the CyberServer.
The A/DSCx21 technology can be applied to many applications. The
technology fits where the solution requires digital signal and data
processing. Initially, the Company's sales efforts will be concentrating fax
modem/controllers. All the Company's integrated circuit products are based
upon the same hardware technology. The difference between the developed but
unsold products is the type of software used in the product.
Besides using the technology for the Company's own products, the DSP
designs will be licensed to companies that need to embed a DSP in their
application to make their products more competitive. The architecture is ideal
for embedded applications because it is compact, fast and economical.
PATENTS AND PROPRIETARY RIGHTS.
The Licensor seeks to protect and maintain its intellectual property,
including its inventions, trade secrets and technical knowledge. The Company,
when appropriate, plans to file patent applications for key designs,
innovations and inventions that it believes are most relevant to its product
line and most valuable as cost and technological advantages. The Company
prevents the loss of valuable proprietary information, such as trade secrets
and technical knowledge, through non disclosure agreements and the strict
enforcement of its license agreements.
The Company requires employees, consultants, and independent contractors
to execute confidentiality and invention/copyright assignment agreements
before engaging in any service to the Company. The Company requires other
companies, when engaged in sensitive discussions involving the Company's
proprietary technologies, to execute non disclosure agreements. These
agreements are intended to protect the Company's trade secrets, technical
knowledge, and patents and copyrights by restricting disclosure of this
information. No assurance can be made, however, that such contracts will give
the Company adequate protection if such agreements are breached through the
unauthorized disclosure or use of such intellectual property.
The Company has unlimited rights to all its products and technology
developed with Kawasaki Steel Corporation and LG Semicon.
MARKETS AND PRODUCTS
Once confined for use by the military for radar and sonar processing,
Digital Signal Processing technology is now being implemented in a variety of
applications. The applications include 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 about 31.8%
from 1997 through 2002.
WORLDWIDE DSP MARKET
($ millions)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Device Type 1997 1998 1999 2000 2001 2002 CAGR
(act) (est) (est) (est) (est) (est)
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 programmed by the IC manufacturer to address specific applications such
as modems. This is the market that the Company's developed integrated circuit
products address.
FORWARD CONCEPTS has indicated that 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 (by FORWARD CONCEPTS). Today, modems are
incorporated into personal computers, telephones, and office automation
equipment. Several industrial applications use a DSP where the DSP is embedded
in a single chip with additional specialized circuits to perform functions
besides the modem function ("industrial embedded applications").
The Company is a development stage and at the current time has no revenues
from the markets discussed below.
PRODUCT - FAST RESPONSE MODEM/CONTROLLER
The Company's Fast Response Modem/Controller is a highly integrated single-
chip device. It is specifically designed for use in embedded applications where
space, and performance and low power are key requirements. It is ideally suited
for applications coupling communications with machine control. It contains both
a modem and micro controller. They give this product a capability to control
the machine functions directly. It could be the only integrated circuit required
in many applications.
This controller can be connected to most electronic or electro-mechanical
devices, such as vending machines, ATMs, power line monitors and other devices
that require low-cost communication and control. Embedded programs include
software that enables communications over both the dial-up network and the
Internet. Other software provides an operating system that enables the
integration of embedded programs and customer-provided machine control
programs.
The Company does not have a fabricator for its fast response
modem/controller and does not plan or expect to market this developed product
within the next twelve months.
MARKET - QUICK RESPONSE INTERNET MODEM/CONTROLLER
Dataquest, an independent and unrelated computer market information
publisher, estimates that the information appliance or thin server market will
exceed $17 billion by 2002 and represent an estimated 13.5 million units sold
annually. The thin server market has seven segments that include the following:
Enterprise, Departmental, Workgroup, Industrial, Small office, Device, and
Consumer/Home. A Merrill Lynch research report projects that Internet
appliances will exceed the personal computer in sales and revenues by 2005.
Merrill Lynch says that the next wave of demand will be for information and
real-time data access and the next product categories will be appliances.
Appliances have been defined as specialized, single, or limited function devices
that are inexpensive and intuitive.
The Company's Internet controller is to be marketed in the Industrial and
Device market segments. Future sales will be driven by the universal need for
information and the desire to control machines and other devices that were not
previously controlled by a computer. The Company's internet controller is
currently under development and has no revenues or sales.
INDUSTRIAL THIN SERVER MARKET
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
(act) (est) (est) (est) (est) (est)
<S> <C> <C> <C> <C> <C> <C>
Measurement ($M) $750 $800 $900 $1,100 $1,250 $1,400
Automation ($M) $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, Interpreted by Tensleep Technology, Inc.
Possible applications include, but are not limited to, Gasoline Pumps,
Security Systems, Automated Teller Machines, Oil Well Monitoring Stations,
Credit card verification, and Electric meter reading. Of these, the credit
card verification segment is the largest. Besides these applications, the
Company, based on information from Forward Concepts, believes in a growing
desire to collect data via a modem from vending machines, arcade machines and
other machines dispensing products and/or services.
PRODUCTS - QUICK RESPONSE INTERNET MODEM/CONTROLLER (CYBERSERVER)
The Company's first Internet-based product is an Internet controller (the
"CyberServer"). The CyberServer is a modular unit consisting, in part, of
integrated circuits acting as a server and providing an interface between
appliances and devices and the Internet. CyberServer is to be a series of
products which the industry describes as thin Internet servers. This industry
definition also includes the CyberCommunicator.
The CyberServer is designed to provide efficient and to cost effective
links between people and devices or appliances via the Internet to monitor data
in real-time. The Internet is a viable cost alternative to the telephone
network.
The CyberServer allows an OEM to connect its equipment to the Internet or
a Corporate Internet. The equipment can then transmit or receive data to or
from a server over a telephone line. Typical equipment includes but is not
limited to electric meters, vending machines, monitors of traffic, security
devices, factory production machinery, etc. The CyberServer will use the
Company's integrated circuit technology that combines both the modem and modem
controller functions and the Internet protocol and appliance control/functions.
Each integrated circuit product has a digital signal processor, a microprocessor
and an analog front end.
The integrated circuit product also has a resident Z80-compatible
microprocessor and an associated set of peripherals. The CyberServer can be
connected to the Ethernet or the Internet.
The Company has no sales of this product, but is planing to enter the
market with a component module thin internet server by June 2000. The Company
cannot sell the CyberServer until the Company has completed the development of
the first CyberServer and arrange to have it manufactured by a third party.
MARKET - INTERNET COMMUNICATOR
The Internet is emerging as the communications media of choice, from a
variety available, especially for data communications. It is cheap, and cost
insensitive to either distance or duration.
Many solutions have been proposed. These include the personal computer-
oriented group ("PC Group")and the television-oriented group ("TV groups"). The
PC Group's solution involves the personal computer and the TV Group's solution
is based on using a "set-top box" that connects the TV to the cable system.
The Company's view is that neither solution is optimum. Both burden the
Internet capability with excess hardware and cost and neither specifically
focuses on the communication aspects as a solution. The PC is a general usage,
computation solution. The TV is an entertainment solution. When either is
being used in its primary function, it is unavailable for any other function.
The Company proposes a communications-oriented solution. The sole function
of its Internet communicator is to serve as a communication device.
The Internet communicator's selling points will be its low cost and easy
installation and using it is simple.
This product is under concept development and development is not expected
to be complete until mid 2001, if at all.
PRODUCTS - INTERNET COMMUNICATOR (CYBERCOMMUNICATOR)
The Company's second Internet product is to be a family of Internet
communicators that are a combination of a traditional telephone and e-mail
sending and receiving devices (the "CyberCommunicator"). The CyberCommunicator
is a consumer communications product, and falls within the definition of a thin
internet server.
The CyberCommunicator, under design, enables a non computer-literate person
to use a single device that allows the user to browse the Internet, send and
receive e-mail and make regular telephone calls. The CyberCommunicator comes
from the factory with all required software installed. The use of the product
requires no computer knowledge. Two of the CyberCommunicator's components will
be a CyberServer and an Intel microprocessor.
The basic CyberCommunicator design includes a color monitor, computer
motherboard, which may be included in the monitor, and keyboard, which may be
wireless or attached by a cable. With these minimal features, the user can take
advantage of all that is available on the Internet.
The Company's CyberCommunicator will be marketed through multiple
distribution channels. The individual consumer may purchase the units from
retail electronic outlets, or a Company web-store, to be established, on the
Internet. Units will also be distributed to organizations providing access to
the Internet ("Internet Service Provider's or "ISP"s). They can then lease,
rent or sell the units to their customers. However, the Company has conducted
no market study or survey to learn the ISPs' interest.
The Company has no sales of this product and cannot until development is
completed and a manufacturer selected. The earliest will be late 2000.
MARKET - 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>
1997 1998 1999 2000 2001 2002 CAGR
Sub-Market (act) (est) (est) (est) (est) (est)
<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%
</TABLE>
Source: Forward Concepts, DSP Strategies 2002, August 1998.
The facsimile modem markets in 1997 reached 14.1 million modems. The
Company will address this market with its fax modem/controllers. 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 a machine that provides for the collection,
storage and retransmission of facsimile messages to and from many
customers served over many telephone lines ("facsimile server"s) for
network application solutions, such as Brooktrout, Access, and
Dialogic.
3) Manufacturers of products that connect a computer to a telephone
line.
There are approximately 35 manufacturers of fax machines worldwide with the
majority concentrated in Japan. At present Rockwell Semiconductor (now
"Coexant") has approximately 70% of this market. The Company has entered sales
representative agreements with three independent groups. One group is in Japan
and the others in the United States. The sales representatives are currently
calling on potential customers to sell the Samsung fax modem/controllers.
PRODUCTS - HIGH-SPEED FACSIMILE MODEM
The main elements in a typical facsimile (fax) machine consists 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 transmissions was released in 1998.
The Company has a design for a 14,400 bps Fax Modem, but expects the newer
28,800 bps fax modems will become the next generation. The new 28,800 fax modem
standard is currently under development by Samsung and is expected to be
available by the end of 1999. The new chip will make use the existing design
but will include a larger program memory and will be designed for a smaller
process for reduced cost. The new chip will be fabricated by Samsung. Some
competitors have already completed the development of the new 28,800 standard,
but the new standard product has not been widely accepted by the fax machine
manufacturers.
The Company is marketing the facsimile modems and controller, but to date
has no sales.
MARKET - MEDIUM-SPEED MODEMS
This market has garnered little interest in the consultant community
because it is difficult to quantify. However, only two companies are 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
$5 per unit.
MEDIUM-SPEED MODEMS
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
(act) (est) (est) (est) (est) (est)
<S> <C> <C> <C> <C> <C> <C>
Units (millions) 9 8 7 6 5 4
Sales ($M) $45 $40 $35 $30 $25 $20
</TABLE>
Source: Forward Concepts, DSP Strategies 2002, August 1998.
PRODUCTS - MEDIUM-SPEED MODEMS
Medium-speed modems are found in products where movement of encoded
information by electric transmission ("data communication") is key, but not
visible. Such products include ATMs, gasoline pumps, credit card verification
machines, etc. The total data sent is small and the data rates are slower.
These products due not require an analog front end. Each of these applications
has a micro controller and a modem; the Company's technology is ideally suited
to combining these functions into an economical solution.
The Company is not marketing this product because it does not have a
fabricator to make its medium-speed modem. The Company does not plan find a
fabricator within the next twelve months.
SALES AND DISTRIBUTION
The Company uses independent manufacturers' representatives to distribute
its fax modem/controller products. The manufacturer's representatives are
selected based on Mr. Kaliher's previous relationships with these sales
organizations. Now, we have three representatives: one in California, one in
Illinois and one in Japan. The Company believes that these few reps cover the
bulk of the fax modem customer base, however, additional reps will be added as
funds permit and it is determined to be necessary.
For the facsimile market, the Company will use 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 a
chipset provided by competitors. The Company believes that the lower costs,
smaller space requirements and design flexibility of its Samsung fax
modem/controllers will be strong selling points. Jetfax in the U.S. and Ricoh
in Japan are among the companies targeted as potential customers.
The basic Company product is a combination of technology and service. All
products need programs that are permanently stored in read only memory
("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 in
the U.S.
To sell and distribute consumer products the Company will use Internet
Sales and a network of independent manufacturers' representatives that service
retail outlets.
COMPETITION
The Internet Appliance is a shift to Internet computing where specialized
devices are connected by the Internet and supported by a sophisticated
infrastructure. The Company believes, based on reports by Merrill Lynch, that
Internet appliances will be the next waves 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. Merrill Lynch further states that 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 greater marketing,
financial and other resources than the Company. Furthermore, the Licensor has
granted the following rights to principal strategic partners:
(i) Kawasaki owns technology developed by the Company and has the
express right to sub license, manufacture and sell the 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.
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.
Besides the potential competition 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 that 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 a complex integrated circuit design
targeted for one application ("Application-Specific Standard Product" or
"ASSP"), with Rockwell Semiconductor presently holding the commanding position
with a 2-chip integrated circuit in a single package. The present unit price,
to the largest Japanese customers, for the competitive product is between $7.00
and $11.00 but requires an additional $5.00 to $7.00 worth of parts not required
with the Company's Samsung fax modem/controllers, which the Company currently
markets. Rockwell's success in the Japanese market can be attributed early to
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 gives it a window of opportunity
to capture several fax machine manufacturers with the more highly integrated fax
modem/controller it is currently selling. It is smaller, has fewer external
components, and has less board area and power 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 a market share from this
competition based on a competitive price, and strong customer support. The
Company has a medium-speed modem developed, but is not currently selling this
product. To sell the product, the Company must find a fabricator and enter an
agreement to fabricated the product. The Company has not found and is not
negotiating with another company for the fabrication of the product. Some
Company's developed but not currently marketed products are highly integrated
single-chip solutions incorporating both a modem and a micro controller 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.
RAW MATERIALS
The Company has no fabrication facilities to produce its integrated
circuits. It must contract with unrelated parties with fabricating facilities
to produce its integrated circuit products. The fabricators are responsible for
purchasing the raw materials and management believes that the fabricators would
have no problems finding required raw materials.
RESEARCH AND DEVELOPMENT
The Company has accounted for the acquisition of the Technology and license
from the Licensor, for $1,577,052, as a cost to the research and development
account. In addition, the Company has not incurred direct costs to its research
and development, but it incurred indirect costs and its management has spent
uncompensated time in the initial design of its new products. However, no
accounting has been made. Management estimates that if research and development
time and expenses had been accounted for, the cost would approximate $40,000.
EMPLOYEES
As of May 1999, the Company had two full time employees and three part time
employees, two in product development, engineering, and marketing, one in sales
and marketing and two in finance and administration. The Company is currently
negotiating with unrelated companies and individuals for consulting
engineering, marketing, and other services. None of the Company's employees are
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
The Company acquired the Licensor's technology and some of its equipment.
The Company did not undertake any of the Licensor's liabilities and has not
assumed any of Licensor's obligations.
The Licensor ceased doing business in September 1997. For more than two
years revenues were non existent. For more than one and one-half years several
Licensor's officers and key personnel accrued their compensation and went
unpaid.
The Licensor's total liabilities as of December 31, 1997 were approximately
$1,655,000. Approximately 21% of this amount is owed to the Licensor's bank,
34% is accrued but unpaid compensation to officers, directors and others, 16% is
due to shareholders for shareholder loans, 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 Licensor's bank was secured with a perfected security interest on
certain equipment and software of the Licensor. In September of 1997 the bank,
the Licensor in default, 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, sued 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 be principal in the amount of approximately $322,000, and 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, the note expressly neither grants a
security interest in any property nor does it adequately define "intellectual
property." The Licensor and the Company contend 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 could pay its debts should be
disallowed or subordinated to all other creditors and preferred shareholders.
The Company was informed by Mr. Gravett, after June 1998, that he claims
a security interest in the Technology and that the transfer of the Technology
requires his approval. To avoid any liability to Mr. Gravett or any other
creditor, the Company is holding all securities issued to Licensor pursuant to
the License and Purchase Agreement in escrow. The Company will deliver the
securities pursuant to any agreement between the Claimant and Licensor, or
pursuant to an order of a court exercising jurisdiction over this matter. The
Company could place the shares with any court taking jurisdiction for
determining to whom the shares are to be distributed.
The Company's contention may be incorrect and a court may determine that
the claimants had a valid security interest in the technology and award the
claimants the technology rather than the stock held in escrow.
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 restricted shares of the
Company's common stock issued for the License and 300,000 shares of unrestricted
common stock issued pursuant to Regulation A Offering. It is Licensor's intent
to evaluate each of the 50 creditors and the obligation due him/her or it.
Each of the approximate 12 preferred and 17 common shareholders and developed a
plan for distributing the Company's common stock issued to Licensor according to
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 to
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 affect
purchasers' of the Company's securities. Such effects may include, but not be
limited to, causing problems with timing and voting on important issues of the
Company. 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. DESCRIPTION OF PROPERTY.
The Company's principal administrative, sales and marketing, research
and development facility is located in an office of approximately 500 square
feet of office in Austin, Texas. This facility is leased from a third party.
The Company intends to lease additional facilities as required.
ITEM 3. 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 in the former Chief Financial Officer of
Sundance Design, Inc., (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. To avoid liability to Claimant, the
Company is holding all securities to be issued to Sundance Design, Inc., in
escrow. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security holders during the
last quarter of the fiscal year ended September 30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common Stock has traded in the over-the-counter market
since September 1999 and is currently trading on Over The Counter Bulletin
Board. Set forth below are the high and low bid prices of the Common Stock
during the month of September 1999, the only period of time in which it has
traded, as reported by a member firm of the National Association of Securities
Dealers, Inc. that effects transactions in Bulletin Board stocks and acts as one
of the market makers for the Company's Common Stock. The quotations listed below
reflect inter-dealer prices, without retail mark-up, mark-down or commissions,
and may not represent actual transactions.
Stock Prices
High Low
SEPTEMBER 1999 $4.00 $2.50
(b) On November 19, 1999, there were approximately 203 stockholders of
record of the Company's Common Stock.
(c) The Company has paid no dividends on its Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company was founded as fab-less semiconductor company, and was
recently reorganized and restructured into an Integrated Internet development
stage company.
The Company acquired developed technology and products from the
Licensor, but has no fabrication facilities to fabricate its products. In
spite of having developed PC modem technology and products, the Company's PC
modem does not meet today's 56k transmission speed standard for multimedia
use. The hardware is sufficient but the software is not. The facsimile modem
technology and products have a lower transmission speed standard than do the
PC modems. The facsimile modem could be marketed and sold but the market has
matured. The Company is without a fabricator for its own designed fax-modem
chip.
In the beginning of its first year of business till the date of this
document the management has assessed and evaluated the strengths and
weaknesses of its technology, products and management to establish a set of
objectives. Based on its evaluations, management has established objectives
as follows:
1. Identify niche markets for its Technology and sale of its
products.
2. Establish a capital structure to raise operating capital.
3. Identify potential sources of revenue.
4. Initialize and sustain revenues from the thin internet server
market, fax-modem market, and licensing of intellectual property.
5. To establish the Company's design center and develop an E-Commerce
division.
The first objective was met by identifying three markets upon which
management believes it can build the Company's business. They are the thin
internet server, internet communication, and facsimile modem markets. A "thin
internet server" is a server that can process only a few requests from
customers at a time, as opposed to regular servers that many have to
accommodate thousands of simultaneous requests.
The second objective was met by initiating and concluding its Regulation
D, Rule 504 private offering, its Regulation A Offering under the Securities
Act of 1933, as amended, and filing Form 10 pursuant to the Securities
Exchange Act of 1934, as amended. On becoming effective on registering as a
Reporting Company, the Company was listed on the OTC Bulletin Board.
The third objective was met by identifying additional potential sources
of revenues. These include licensing of intellectual property, chip or
integrated circuit design services, and E-Commerce businesses.
The fourth objective has been met in part in that the Company has
engaged three independent representatives and is now marketing its facsimile
products in the United States and Japan. At this date there have been no
sales, though negotiations are taking place. In November 1999, the Company
has granted its first license to its technology.
The fifth objective has been met in part through the acquisition of a
minority interest in an integrated circuit design services company, Silicon
Resources, Inc.
The management, in late 1998 and early 1999, recognized the need to
reorganize the organizational structure of the Company. They determined that
the new organizational structure should be according to the markets in which
the Company would be engaged. (See Item 1. Description of Business - General)
The management has re-established previously stated objectives and added
others to take place within the next twelve months. The new ones are as
follows:
1. To initialize the development of a prototype for the CyberServer
and begin marketing it to original equipment manufacturers.
2. To develop the Company's Financial Services Portal.
The implementation of the Company's general plan, for the next twelve
months, requires additional personnel for the development of the CyberServer
and upgrading of the Company's developed products. The Company currently has
limited employees and financial resources. The Company has and will continue
to engage one or more independent third party organizations to provide the
quality and number of personnel and services required for the development of
the CyberServer and to upgrade its other developed products. The development
and upgrading services provided by these organizations will be supervised and
directed by Mr. Kaliher. In addition, the Company will also seek strategic
relationships with independent third party organizations to participate in the
development and upgrading services. The Company, with limited financial
resources, is seeking third party service providers willing to invest in the
Company. The investment in services would be exchanged for shares of the
Company's common stock and/or other non-cash consideration. Other non cash
consideration could include licenses to use or sell the Company's intellectual
property, or use its designing software and computers. Any shares issued in
exchange for services will be pursuant to Section 4(2) of the Securities Act
of 1933, as amended, and will be subject to Rule 144.
The Company has reached an agreement with Silicon Resources to provide
the Company with research and development services. The Company is also
currently negotiating with independent third parties to provide part of the
Company's required development and upgrading services, but no agreement has
been reached.
The Company plans to obtain funds, to implement its operational plan,
through the exercise of the Class A and Class B Warrants and the payment of
all or part of two notes totaling $550,200.
RISKS
The factors, which follow, make the Company's Plan of Operation for the
next twelve months risky.
ACCESS TO WAFER PRODUCTION TECHNOLOGY
The Company, to produce and sell its developed products, is dependent
upon developing a relationship with a semiconductor foundry or fabricator. At
this time, the Company has no source of production for its own developed but
un marketed products. The Samsung fax modem/controller chips, currently sold
by the Company are produced by Samsung, are an exception. To produce its own
developed products, the Company will require significant funds to initialized
production once a relationship with a fabricator is established. There is no
guaranty, the Company can obtain sufficient funds, or even develop a
relationship with a fabricator.
DEPENDENCE UPON NEW PRODUCT AND PRODUCTION DEVELOPMENT
The communications and Internet markets are characterized by rapid
technological change, evolving industry standards, changes in customer needs
and frequent new product introductions, and are therefore highly dependent
upon timely product and production innovation. In particular, data
communication products are subject to continuous changes in the fabrication
process. Each change in technology and the fabrication process requires a
concomitant change in design and developed of the Company's products. The
Company may not have the resources to make those changes.
The Company's future success is dependent in part upon its ability to
anticipate changes in technology and industry standards and to develop
successfully and introduce new and enhanced products on a timely basis. The
Company will be required to replace declining revenues from older products
with new products. The Company's developed products are modular in design,
which may reduce the cost and time to market.
There is no assurance the Company, even if it has sufficient funds, will
be able to introduce new products on a timely basis. There is no assurance
the Company can produce the new or old products, nor achieve any significant
degree of market acceptance for them, nor that it can sustain acceptance for
any significant period. Failure to produce or achieve or sustain market
acceptance of its products would affect the Company's operating results.
COMPETITION
The markets in which the Company operates are characterized by
competition among a small number of large companies that enjoy the major share
of the market. The large companies are well financed with a long history.
They have substantial advantages in terms of breadth of technology, sales,
marketing and support capability and resources. Most, if not all, have their
own fabrication facilities that cost hundreds of millions of dollars, if not
billions. The Company has limited capital and no fabrication facilities. The
Company is like a flea among giants.
ABILITY TO MANAGE A RAPIDLY CHANGING BUSINESS
The Company is anticipating significant growth, which will place a
substantial strain on its operational, administrative and financial resources.
The Company's officers have experience in managing companies as large and as
rapidly changing as is anticipated. However, there is no assurance that the
experience will prove beneficial to the new situation posed by the Company's
challenges. The Company's ability to manage any future changes effectively
will require it to have sufficient funds to attract, train, motivate and
manage its employees effectively.
DEPENDENCE ON KEY PERSONNEL
The value of the Company lies in the experience of Mr. Kaliher and its
developed technology and products. Mr. Kaliher in the early 1980's was the
general manager of Rockwell International's modem division (This division has
been spun off and its new name is "Coexant").
The Company recognizes that some people believe that the high technology
industry, in which the Company hopes to compete, is one where significant
developments are in new technology and "expertise" is a quantity that dates
and loses value quickly.
The Company's success depends greatly on the continued contributions of
Mr. Kaliher. The loss of Mr. Kaliher's services could have a material
adverse impact on the Company's operating results. The Company has no
employment agreement with Mr. Kaliher and no keyman life insurance on his
life.
The Company believes its future success will depend in large part upon
its ability to attract and retain additional highly skilled management,
technical, marketing, research and development, product development and
operations personnel. Competition for such personnel is intense, and no
assurance can be given that the Company will be successful in attracting and
retaining such personnel.
LACK OF REVENUES
The Company as of July 15, 1999 has no revenues. No assurance can be
given that the Company can earn revenues or obtain sufficient funds to sustain
its planned operations beyond the current minimal level for the next twelve
months.
LACK OF FUNDS
The Company to market effectively its products will require significant
cash to cover specific marketing costs, costs of prototypes and technical and
specific design services to be done for potential customers. No assurance can
be given that the Company can obtain sufficient funds to enable it to conduct
an adequate marketing and sales program.
PLAN OF OPERATION
The Company's business and operational plan, based on the described
objectives, for the next twelve months are directed toward developing revenues
and a foundation for growth. Management, based on its objectives, has
developed the following operational plan.
OPERATIONS
The Company is currently operating and will continue to operate with its
available funds. The current burn rate for the company is approximately
$3,000 to $5,000 per month. These funds have been and will continue to be
supplied by the exercise of Class A and B Warrants. The Company is now and
will continue to limit its expenses and not incur debt beyond the $3,000 to
$5,000 per month limit, unless additional funds are available. The Company's
expenses are limited to phone bills, limited travel, office supplies,
accounting services, repairs and maintenance, outside services and other small
but ordinary business expenses.
The Company believes that it can continue operating over the next twelve
months. It can do so by continuing the current level of expenditure and not
increasing the expenditure of cash without having the cash on hand.
The Company during the next twelve months, at this level of expenditure,
will be able to (1) continue marketing the facsimile modem and facsimile
controller integrated circuits through its network of independent sales
representatives, as described herein; (2) seek third parties to perform
product design and development services in exchange for non-cash
consideration; (3) seek to acquire other technology or business with unrelated
parties with non-cash consideration; (4) seek additional products manufactured
by others that can be sold by the Company's sales network; and (5) seek
private Placements with accredited investors through the assignment and
exercise of the Company's warrants. Non-cash consideration includes, but is
not limited to, an exchange of the Company's common stock.
The Company will not be able to start or complete the scheduled
development of the CyberServer or CyberCommunicator or achieve any of the
other objectives if it cannot obtain sufficient funds or make use of non-cash
consideration.
If the Company receives insufficient funds and is not able to obtain
design and development services for non-cash consideration early enough, the
Company will not reach its objectives within the scheduled time, if at all.
CAPITAL STRUCTURE
Management believes that its present capital structure is sufficient to
provide the funds necessary to carry out the operational plan. Raising funds
from new offerings will not be necessary for the Company, private or public.
The present capital structure, as of September 30, 1999, consists of and
allows for funding through the following:
1. 446,000 Class B Warrants exercisable at $4.50 per warrant for a
total of $2,007,000. These Warrants were issued pursuant to
Regulation A and the Company does not plan to register the shares
underlying the Warrants.
2. 508,960 Class A Warrants exercisable at $.40 and $.80 per warrant
for a total of $403,584. These Warrants were issued pursuant to
Regulation D, Rule 504 and the Company does not plan to register
the shares underlying the Warrants.
3. Notes Receivable totaling $610,200 are owed by R Tucker &
Associates, Inc., for $505,200, and an unrelated third party for
$105,000. Both notes are due on December 31, 2000 and are secured
by 200,000 shares of the Company's common stock. The Company
believes that it will receive payment on or before that date, but
it does not know if it will be in time to meet the Company's
schedule for expenditures.
FINANCING
The operational plan allows for the Company to receive funds during the
next twelve months from the exercise of the above Class A and Class B Warrants
and the payment of all or part of two notes totaling $610,200. The expiration
date of the Class A Warrants is March 31, 2000 and the Class B Warrant is May
31, 20002. Most if not all these warrants are held by R Tucker & Associates,
an affiliate, who is also is indebted to the Company for $505,200, which is
one of the two previously mentioned promissory notes. The Company believes,
that to the extent possible R Tucker & Associates will exercise the warrants
and pay down its note sufficient for the Company to continue its operations
during the next twelve months.
The Company also plans to finance the development services, with one or
more independent third parties, through an exchange of services for shares of
the Company's common stock. These transactions, if any, will be pursuant to
Section 4(2) of the Act and the shares will be restricted per Rule 144. The
services will be for the development of the CyberServer and the upgrade of the
Company's developed products and technology. The Company may also finance
such services with other non cash consideration, such as services, rental of
design software and computers, licenses to use and market the Company's
intellectual property.
RESEARCH AND DEVELOPMENT
The Company within the next twelve months plans to complete the initial
concept design of the CyberServer and will continue with developing the logic
design, board design and software design. Initial system design of the
CyberCommunicator is in progress but logic design, board design, packaging
design and software design will not start until completion of the CyberServer
that is a module within the CyberCommunicator. The Company is formulating
plans to market and sell its CyberServer products.
PURCHASE AND SALE OF EQUIPMENT
The Company does not expect to purchase or sale equipment during the
next 12 months.
AVAILABILITY OF PRODUCTS
The Company is now marketing the facsimile modem and facsimile
controller integrated circuits. The Cyberserver is not expected to be ready
for the market until near the end of the next 12 months. This is dependent on
the Company's being able to finance its product development. The
CyberCommunicator will not be available until after the next 12 months.
The Company is seeking products manufactured by others that it can
market through its established independent sales network.
EMPLOYEES
The Company expects to add employees or independent third parties to
perform design and development and other services for the Company during the
next 12 months. The number of employees will depend on (1) the funds on hand
and (2) the sales of the facsimile modems and facsimile controller integrated
circuits. The number of consultants' engaged depends on the above factors and
the Company's ability to negotiate the exchange of non-cash consideration for
their services. The number of employees and/or consultants hired within the
next 12 months could range from three to four.
The operational plan calls for the Company to accomplish a series of
events or steps, but is not limited thereto, as follows, but not necessarily
in order of value:
1. Completing the development of the hardware and software of a
CyberServer.
2. Selling the fax-modem chip acquired from Samsung Electronics.
3. Establishing a relationship with Samsung Electronics for the
fabrication of the Cyberserver components and medium-speed modems.
4. Establishing a chip or integrated circuit design center.
5. Synthesizing and licensing of the Company's intellectual property.
6. Establishing a Financial Services portal.
7. Completing the initial development of the hardware and software of
the CyberCommunicator.
INTERNET DEVICES
CYBERSERVERS
The operational plan provides for the Company to develop and sell a
series of products in the thin internet server market. These products will be
developed in three stages. The Company plans to complete development and
commence selling the first stage thin Internet server within the next 12
months; however, the company has not developed any products for sale as of
this date.
The first product will be a thin Internet server designed and built by
the Company. Management estimates that it will cost $100,000 to develop this
product and that it will be developed over more than a six to ten month period
by qualified unrelated third parties. This product will be distributed
through the Company's current network of independent representatives that are
currently selling the fax modem chips.
CYBERCOMMUNICATOR
The operational plan provides for the Company to seek out an unrelated
third party to participate in and perform the development of the
CyberCommunicator by the end of the next 12 months. The development of the
product requires designing skills different from those possessed by the
Company's contractors or consultants. Management at this time has made no
estimate of the development cost of this product and has not identified the
unrelated design firm to do the development. Management estimates that the
administrative cost of securing the unrelated design firm and refining its
design specifications will not exceed $10,000.
SAMSUNG ELECTRONICS
FAX MODEM CHIPS
The operational plan provides for the Company's fax modem chips,
fabricated by Samsung, to be distributed through its network of independent
sales representatives. These representatives sell to fax machine
manufacturers in Japan and the United States. Presently the Company has one
representative in Japan and two in the United States. Management estimates
that the marketing costs will be approximately $25,000 over the next 12
months. Once the orders are received, the Company will incur the costs of
buying the chips, providing product support, and commissions. The customer
will pay the Company upon invoicing when the customer receives the chips.
FABRICATION
The operational plan calls for management to expand its relationship
with Samsung. Management believes that an expanded relationship with Samsung
would be beneficial for several reasons. Those reasons are (1) Samsung has
several fabrication facilities that could produce the Company's products; (2)
Samsung, fabricates, markets and sells many electronic products that require
many diverse intellectual properties that could be used in the development of
the Company's products; and (3) Samsung has worldwide distribution.
Management believes that with a strong relationship it can reduce its cost of
worldwide distribution, product development and fabrication. The cost to
develop this relationship is estimated to be approximately $20,000 but the
Company could payout approximately $44,000 to purchase one order of fax-modem
chips. The Company does not have any agreement or commitment for Samsung to
perform items (1) g an agreement
with the same party to market its synthesized technology. Little cost is
expected in synthesizing the Company's intellectual property. An
administrative or overhead cost of not more than $20,000 may be incurred.
STRATEGIC RELATIONSHIPS AND NEW TECHNOLOGY
The operational plan provides for seeking strategic relationship with
other companies in consumer internet and communications consumer products and
the acquisition of new products. The development of strategic relationship
and acquisition of new technologies is to exploit and enhance the Company's
business. Management intends to acquire other companies and acquire
technology by exchanging shares of its common stock or, in limited cases, when
sufficient funds are on hand to use cash. Management believes that its cost
to find and negotiate its acquisitions of business or technology and joint
ventures indirectly cost not more than $20,000.
YEAR 2000 ISSUES
The Company has completed the Year 2000 assessment and has determined
that Year 2000 issues will have no material effect.
CREDIT FACILITY
The management does not have a credit facility.
ITEM 7. FINANCIAL STATEMENTS
Auditor's Report
BRABO, CARLSEN & CAHILL
Certified Public Accountants
1111 E. Tahquitz Canyon Way, Suite 203, Palm Springs, CA 92262
Ph: 760-320-0848 fax: 760-322-4626
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Tensleep Technologies, Inc.
We have audited the accompanying balance sheet of Tensleep Technologies, Inc.
(formerly Tensleep Design, Inc.)(a Colorado Corporation), a development stage
company, as of September 30, 1998 and 1999, and the related statements of
operation, changes in stockholders equity (deficit), and cash flows for the
period and year ended September 30, 1998 and 1999 and 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 expresses 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 Technologies, Inc. as
of September 30, 1998 and 1999 and for the period from inception (October 23,
1997) through September 30, 1999 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.
December 17, 1999.
Brabo, Carlsen & Cahill
TENSLEEP TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEETS
September 30, 1998 and 1999
<TABLE>
<CAPITION>
ASSETS
<S> <C> <C>
1998 1999
------------ -----------
CURRENT ASSETS:
Cash $ 382 $ 65
Prepaid Expenses (See note 16) - 510,000
Note Receivable (See note 17) - 60,000
Investment in Pooled Account, (See note 1) 22,693 -
------------ -----------
Total Current Assets 23,075 570,065
------------ -----------
PROPERTY AND EQUIPMENT:
Machines & Equipment 102,014 102,014
Software 172,371 172,371
------------ -----------
274,385 274,385
Less accumulated Depreciation and amortization 45,732 137,194
------------ -----------
Net Property & Equipment 228,653 137,191
------------ -----------
OTHER ASSETS:
Investment in Corporate Finance
Company (See note 2) 198,000 398,000
Receivable (See note 12) - 103,800
------------ -----------
Total Other Assets 198,000 501,800
------------ -----------
TOTAL ASSETS $ 449,728 $ 1,209,056
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts Payable $ - $ 4,693
Loan Payable to Corporate Finance
Company (See Note 4) 14,442 14,442
Accrued Consulting fees (See note 9 and 15) 120,000 140,000
Convertible note payable (See note 10 and 15) 1,500,000 -
------------ -----------
Total Current Liabilities 1,634,442 159,135
------------ -----------
TOTAL LIABILITIES; 1,634,442 159,135
------------ -----------
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 61,030 70,450
shares authorized, 6,103,016 and 7,045,016
shares issued and outstanding at September
30, 1998 and 1999, resepectively
Notes Receivable for common stock (See note 17) - (610,200)
Additional paid-in capital 535,186 3,580,966
Net Loss (Deficit accumulated during the
development stage ( 1,780,930) (1,991,295)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 1,184,714) 1,049,921
------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 449,728 $ 1,209,056
============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<S> <C> <C> <C>
For the Peiod for the period
From Inception From Inception
(October 23, 1997) For the Twelve (October 23, 1997)
through Months Ended through
September 30, September 30, September 30,
1998 1999 1999
----------------- -------------- -----------------
REVENUES:
Lease Income (See note 12) $ 5.350 $ 115,800 $ 121,150
Other Income 2,150 15,668 17,818
----------------- -------------- -----------------
Total Revenues 7,500 131,468 138,988
OPERATING EXPENSES:
Advertising 5,113 30,103 35,215
Automobile expense 2,308 8,205 10,513
Bank service charges 107 343 449
Consulting Expense (See note 9) 120,000 157,550 277,550
Depreciation and Amortization 45,732 91,462 137,194
Dues and Subscriptions 3,975 1,598 5,573
Filing fees 2,250 604 2,854
Insurance 752 1,852 2,604
License & Permits 10 110 120
Other expenses 5,910 4,723 10,633
Office supplies 899 1,576 2,476
Outside services 7,629 9,071 16,700
Postage & delivery 864 639 1,503
Printing and reproduction 1,343 66 1,409
Professional fees 2,250 7,650 9,900
Rent 5,400 12,000 17,400
Repairs 194 1,945 2,139
Research & development costs 1,577,052 - 1,577,052
(See note 13)
Telephone 4,298 7,234 11,523
Travel & Entertainment 2,075 4,838 6,913
Utilities 280 264 544
----------------- -------------- -----------------
Total Operating Expenses 1,788,430 341,833 2,130,263
----------------- -------------- -----------------
NET LOSS (DEFICIT ACCUMULATED DURING
THE DEVELOPMENT STAGE) $ (1,780,930) $ (210,365) $ (1,991,295)
================= ============== =================
EARNINGS (LOSS) PER COMMON SHARE
(See Note 14) $ (0.31) $ (0.03) $ (0.33)
================= ============== =================
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from Inception (October 23, 1997) through September 30, 1999
<TABLE>
<CAPITION>
Deficit
Accumulated Note
Additional during the Receivable
See Number of Common Paid-In Development for
Note Date Shares Consideration Stock Capital Stage Stock Total
---- -------- --------- ------------- -------- ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued 5A 11/10/97 4,500,000 Non-cash $ 45,000 $ - $ - $ - $ 45,000
Stock issued 5B 11/10/97 1,000,000 Non-cash 10,000 190,000 - - 200,000
Stock issued 5C 12/23/97 500,000 Non-cash 5,000 245,000 - - 250,000
Exercise 5D 4/1/98 400 Non-cash 4 156 - - 160
Class A
Warrants
Exercise 5D 4/1/98 400 Non-cash 4 156 - - 160
Class A
Warrants
Exercise 5D 5/27/98 2,000 Non-cash 20 780 - - 800
Class A
Warrants
Exercise 5E 6/2/98 200 Cash 2 78 - - 80
Class A
Warrants
Exercise 5D 6/17/98 40 Non-Cash - 16 - - 16
Class A
Warrants
Exercise 5F 6/23/98 100,000 Non-Cash 1,000 99,000 - - 100,000
Class A
Warrants
Net Loss for
the period
from October
23, 1997 to
September 30,
1998) (1,780,930) - (1,780,930)
--------- -------- ---------- ------------ ---------- ------------
Balance, 6,103,040 $61,030 $ 535,186 $(1,780,930) - $(1,184,714)
September 30,1998
Stock issued 5G 12/15/98 35,000 Cash/Note 350 174,650 - - 175,000
Stock issued 5H 12/15/98 8,000 Non-Cash 80 39,920 - - 40,000
Stock issued 5I 12/15/98 300,000 Non-Cash 3,000 1,497,000 - - 1,500,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - - 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - - 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - - 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - - 20,000
Stock issued 5J 12/15/98 4,000 Non-Cash 40 19,960 - - 20,000
Stock issued 5K 12/15/98 137,000 Note 1,370 683,630 - - 685,000
Exercise 5K 12/15/98 88,000 Note 880 34,320 - - 35,200
Class A
Warrants
Exercise 5L 03/31/99 4,000 Non-Cash 40 19,960 - - 20,000
Class B
Warrants
Exercise 5M 09/13/99 350,000 Non-Cash 3,500 496,500 - - 500,000
Class A & B
Warrants
Note - - - - (610,200) (610,200)
Receivable
for stock
Net Loss - - - (210,365) - (210,365)
for 1999
--------- -------- ---------- ------------ ---------- ------------
Balance, 6,691,040 $ 70,450 $3,580,966 $(1,991,295) (610,200) $ 1,049,921
March 31,
1999
========= ======== ========== ============ ========= ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period
from Inception
(October 23, 1997)
through
Year Ended September 30, September 30,
1998 1999 1999
----------------- -------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (Deficit accumulated during
the development stage) $ ( 1,780,930) $ (210,200) $ (1,991,295)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 45,732 91,462 137,194
Expenses incurred in exchange for 250,000 30,000 280,000
common stock
Non cash expense for accrued 120,000 - 120,000
consulting fees
Non cash expense for purchase of 1,327,052 - 1,327,062
technology, products, goodwill,
and cancellation of royalties
Increase in prepaid expenses - - -
Increase in accounts payable - 4,639 4.693
Increase in accounts receivable - (103,800) (103,800)
Increase in accrued consulting fees - 140,000 140,000
-------------- -------------- --------------
Net cash used by operating Activities ( 38,146) (48,010) (86,156)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 1,437) - (1,437)
-------------- -------------- --------------
Net cash used by investing activities ( 1,437) - (1,437)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Corporate Finance Co. 17,578 - 17,578
Proceeds from Pooled Investment Acct 22,307 22,693 45,000
Proceeds from sale of stock - 25,000 25,000
Proceeds from sale of stock warrants 80 - 80
------------- -------------- --------------
Net cash provided by financing 39,965 47,693 87,658
activities
------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH 382 (317) 65
CASH, beginning of period - 382 -
------------- -------------- --------------
CASH, end of year $ 382 $ 65 $ 65
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP TECHNOLGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND
FOR THE PERIOD FROM INCEPTION (oCTOBER 23, 1997)
THROUGH SEPTEMBER 30, 1999
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tensleep Technologies, Inc. (formerly Tensleep Design, Inc.)
(see note 18) (A Colorado Corporation) is a development stage integrated
Internet company. (The Company) has both a consumer and business to business
focus. Its Consumer focus is directed toward a hub for Financial Services and
E-Commerce stores. The Board of Directors has authorized the Consumer focus
business to be conducted in a wholly owned subsidiary corporation which was
formed on November 10, 1999 as Tensleep Finance.com, Inc. Its business focus
is directed toward the business of designing, developing, and marketing
Internet Appliances and other integrated circuits with a specific focus on
digital signal processors. The Board of Directors has authorized the Business
focus business to be conducted in a wholly owned subsidiary corporation which
was formed on May 10, 1999 , but as yet has not commenced doing business. The
Company is located in Austin, Texas. Both subsidiaries are expected to
commence business during the current year. The Consumer focus business will
be directed to small businesses and individuals and the Business focus will be
directed to original equipment manufactures located throughout the world.
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 the Company's financial instruments, the carrying value is considered
to approximate the fair value. Cash 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,
1999, 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
---------- ---------- ------- ------
$1,991,295 $1,991,295 2019 2014
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 Receivable for common stock
The Company reports notes received in payment for the Company's stock a
a deduction from stockholders' equity (deficit). A note will be recorded as
an asset if collected in cash prior to the issuance of the financial
statements.
NOTE 1: INVESTMENT IN POOLED EQUITY ACCOUNT
The Company owns an interest in a personal brokerage account held by a
shareholder. At September 30, 1999 and 1998, the account has a balance of
zero and $22,693, respectively. 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 $22,693
and $22,307 from the shareholder for the years ended September 30, 1999 and
1998, respectively.
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. The Company acquired
an additional 80,000 shares in 1999 (see note 3). Shares acquired represent
approximately a 8.8% ownership in CFC. A major shareholder of the Company is
also a major shareholder of CFC. Based on the 8.8% 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 to
unrelated parties. 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). The Company obtained
an additional 80,000 shares of Corporate Finance company in 1999 from R Tucker
and Associates in exchange for a $200,000 reduction to a note receivable owed
to the Company by R Tucker and Associates (see note 17).
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.
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.
As explained in 5H, the Company issued 24,000 shares of common stock to
pay off $120,000 in accrued consulting fees.
As explained in Note 5I, the Company issued 300,000 shares of common
stock to pay off $1,500,000 in convertible debt.
As explained in Note 5J, the Company exchanged 4,000 shares of common
stock for advertising. The common stock was valued at the agreed-upon price
of $20,000, or $5.00 per share.
As explained in Note 5L, the Company exchanged 4,000 shares exercise
from Class B Warrants for advertising and promotional services. The common
stock was valued at the agreed-upon price of $20,000, or $5.00 per share.
As explained in Note 5M the Company exchanged 300,000 shares exercised
from Class A Warrants and 50,000 shares from Class B Warrants for advertising
and promotional services. The common stock was valued at the agreed-upon
price of $500,000.
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, 1999 in the amount
of $14,442 is covered by a non-interest bearing demand note.
NOTE 5: CAPITAL FUNDING
The Board of Directors 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. The Board
of Directors authorized a public offering pursuant to Regulation A, an
exemption under the Securities Act of 1933, as amended. 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 exercise price of the
warrants was $.40 per share and the cash from the exercise
of these warrants was received by CFC and was used to reduce
the Company's loan payable to CFC. The warrants were
exercised by unrelated third parties.
Note E 200 warrants were exercised. The exercise price of the warrants
was $.40 per share. The cash from these warrants was deposited
into the Company's checking account and were exercised by
unrelated third parties.
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 35,000 shares of common stock were sold for $175,000. The
Company received $25,000 in cash and promissory notes in the
amount of $155,000. One of the promissory notes received was
for $50,000 and R Tucker & Associates was the payee (see note K)
Note H 24,000 shares of common stock were issued for $120,l000 to pay
off accrued consulting fees.
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 $172,948 and Research & development expenses of
$1,327,052 (see note 10).
Note J 4,000 shares of common stock were issued for $20,000 in exchange
for advertising.
Note K 137,000 shares of common stock were issued for $685,000 and
88,000 Class A warrants exercised in exchange for $765,200
promissory note, secured by 200,000 shares of common stock. The
$765,200 note includes $50,000 resulting from the cancellation
of a $50,000 note previously issued by R Tucker & Associates to
an unrelated in an unrelated transaction (see note G).
Note L 4,000 Class B Warrants were exercised for $20,000 in exchange
for advertising and promotional services for the year ending
March 31, 2000.
Note M 300,000 Class A Warrants and 50,000 Class B Warrants were
exercised for $500,000 in exchange for advertising and
promotional services for the years ending September 30, 2000 and
2001.
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. During
the year ended September 30, 1999 the company revoked 50,000 shares, leaving
200,000 options still outstanding. These options expire December 1, 2002.
The Company granted on October 26, 1999, the options to purchase 120,000
additional shares at $1.25 per share (same as the then current market price)
to the majority and controlling shareholders.
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 September 30, 1998, the following warrants
were outstanding:
Class A - one warrant can purchase one common share
R Tucker and Associates - 8,960 warrants at 40 cents per share
Ron Tucker - 200,000 warrants at 80 cents per share
R Tucker and Associates - 300,000 warrants at 80 cents per share
The warrants expire July 31, 1999. On April 23, 1999 the Board of
Directors extended the expiration date to March 31, 2000. During the current
fiscal year warrants were transferred from the Tucker Family Trust and Corporate
Finance Company to n Tucker and R Tucker and Associates.
Class B - one warrant can purchase one common share
R Tucker and Associates - 411,000 warrants at $4.50 per share
George N. Haddad - 35,000 warrants at $4.50 per share
The warrants expire on May 31, 2002. The Company has the right to call
the unexercised Class B Warrants before their expiration date at a price of 10
cents per warrant provided the bid price for the Company's common stock for 10
consecutive trading days is $5.50 or more.
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 September 30, 1999 the account balance is zero. 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.
The Company has commenced a plan of strict limits on and control over
costs, expenses, compensation and capital expenditures. The Company
believes it will receive sufficient capital from the exercise of warrants
and the repayment of Notes from related and unrelated parties and the sale
of an affiliates common stock, held by the Company, through a private
placement.
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 November 1997 the Company issued 4,500,000 shares of its common stock
at a stated value of $.01 per share to a related party in exchange for an
assignment of a right to $45,000 in a pooled investment account. (See Note 1,
3, 5, and 8)
In November 1997 the Company issued 1,000,000 investment units to a
related party in exchange for 80,000 shares of its common stock. (See Note 2)
In December 1997 the Company issued 500,000 shares of its common stock to
an unrelated party, which later became a related party, in exchange for a
license agreement valued at $250,000. (See Notes 3 and 5C)
In December 1998 the Company issued 300,000 of its common stock to a
related party in cancellation of an indebtedness incurred in the purchase of
technology and other assets pursuant to a purchase agreement entered into by
the Company in January 1998. (See Note 10)
In June 1998 the Company issued 100,000 shares of its common stock to an
unrelated party in exchange for technology and equipment/software valued at
$100,000. (See Note 11)
The accrued consulting fee as of September 30, 1999 is payable to R
Tucker & Associates, Inc., performed by 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). The accrued
consulting fee as of September 30, 1999 is payable to Corporate Finance
Company for services performed by Dennis Kaliher and Ronald S. Tucker.
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).
In March 1999 the Company reduced a Note Receivable from R Tucker and
Associates in exchange for 80,000 shares of common stock in Corporate Finance
Company valued at $200,000 (see note 2).
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 entered into an agreement to lease equipment to an unrelated
third party, Silicon Resources, Inc., dated August 21, 1998 and received a
partial payment in the amount of $5,350. 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 provide engineering services at a rate of
$104.05 per hour or $18,000 per month as requested by the Company as a credit
for the lease of the equipment.
The above lease agreement was amended on October 22, 1998 to provide for
the following terms:
Silicon Resources, Inc., rented equipment from the Company for a rental
rate of $9,650 per month for five work stations payable in the form of
a credit. Silicon Resources would provide the Company with office space
for $1,000 per month and the Company will credit Silicon Resources for
$1,000 of the equipment rental payment. The remainder of the credit
will be used to employ Silicon Resources, Inc. to provide engineering
personnel on the Company's projects at a rate of $104 per hour. Any
unused credit in a month would be accrued and could be used in subsequent
months.
During the current fiscal year Silicon Resources, Inc. was billed
$115,800 for equipment leasing. This amount was reduced by $12,000 that the
Company owed to Silicon Resources, Inc. for office space rental, leaving a
balance due to the Company of $103,800 as of September 30, 1999. On September
1, 1999 the "Company began negotiations with Silicon Resources, Inc. to
purchase a portion of Silicon Resources, Inc. a consulting business. On
November 30, 1999 the Company entered into a modification agreement with
Silicon Resources, Inc. modifying the agreement entered into on September 1,
1999. Under the terms of the modification agreement Silicon Resources and the
Company will enter into a non-exclusive license agreement for the Company's
technology with a value of $750,000 for which the Company will receive Silicon
Resources, Inc. common stock. The Company, R Tucker and Associates, and
Silicon Resources, Inc. agreed to exchange 50,000 shares of its unrestricted
common stock and 60,000 Class A Warrants to purchase 60,000 shares of the
Company's common stock with an exercise price of $0.80 per share, all valued at
$250,000, cancel the indebtedness owed to the Company by Silicon Resources
in the amount of $103,800 pursuant to the Equipment lease, and the license fee
in the amount of $750,000 for a total of 1,900,452 shares of Silicon Resources
restricted common stock.
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 for the period from inception
(October 23, 1997) through September 30, 1998 consist of the following:
Technology license $ 250,000
Purchase of technology, products,
goodwill, and cancellation of royalties 1,327,052
------------
$ 1,577,052
============
NOTE 14: EARNINGS PER SHARE
As of September 30, 1999 and 1998 The Company had 7,045,040 and 6,103,040
common shares outstanding, respectively, and no preferred shares outstanding.
The earnings (loss) 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, 1999 and 1998 was 6,587,829 and 5,653,300 shares,
respectively. The number of shares used in the computation for the period
from Inception (October 23, 1997) through September 30, 1999 was 6,068,674.
NOTE 15: STOCK DIVIDEND
On August 2, 1999 the Board of Directors authorized a 10% stock dividend
payable to those investors that purchase the corporations common stock in the
open market between August 2, 1999 and October 31, 1999, register the shares
in their name and are the registered shareholder on July 31, 2000. The Shares
to be distributed by August 31, 2000. On October 2, 1999 the Board of
Directors extended the date for purchasing common stock in the open market
from October 31, 1999 to December 31, 1999. On December 1, 1999 the Board of
Directors extended the date for purchasing common stock in the open market
from December 31, 1999 to January 31, 2000 and advanced the record date to
March 31, 2000 from July 31, 2000.
NOTE 16: PREPAID EXPENSES
As explained in Note 5L the Company exercised 4,000 Class B warrants in
exchange for $20,000 in advertising and promotional services for the one year
period from April 1999 to March 1999. During the current fiscal year the
Company expensed $10,000 as advertising expenses.
As explained in Note 5M the Company exercised 300,000 Class A Warrants
and 50,000 Class B Warrants in exchange for $500,000 in advertising and
promotional services for the two year period starting October 1, 1999. During
the current fiscal year the Company did not expense any as advertising
expenses.
NOTE 17: NOTE RECEIVABLE FOR COMMON STOCK
In December 1998, the Company issued 35,000 shares of common stock to an
unrelated investor in exchange for $25,000 in cash and a $105,000 note
receivable. After year end and prior to the audit report date, the Company
collected $60,000 in cash on this note receivable. The Company's accounting
policy requires the Company to report the $60,000 in the current asset section
as a note receivable and the balance of $45,000 in the stockholders' equity
(deficit) section.
Also, in December 1998, the Company issued 137,000 shares of common
stock and 88,000 Class A Warrants were exercised in exchange for a $765,200
note receivable from a related party. In March 1999 of the current year the
note was reduced by $200,000 in exchange for 80,000 shares of common stock in
a related party transaction (see note 2). The balance due of $565,200 is
reported in the stockholders' equity (deficit) section.
NOTE 18: NAME CHANGE
In April 1999 of the current year the Board of Directors voted to change
the Company's name from Tensleep Design, Inc. to Tensleep Technologies, Inc.
After year end, the Board of Directors voted to change the Company's name to
Tensleep.com, Inc. The purpose for changing the name was to reflect the focus
of the Company in developing Internet technologies and E-Commerce Portal
Sites.
NOTE 19: SUBSEQUENT EVENTS
The following equity transactions have taken place subsequent to
September 30, 1999 and through November 15, 1999.
<TABLE>
<CAPTION>
Additional
See Number of Common paid-in
Note Date Shares Consideration Stock Capital Total
<S> <C> <C> <C> <C> <C> <C> <C>
Exercise Class B 19A 10/11/99 15,000 Non-Cash 150 74,850 75,000
Warrants
Exercise Class A 19B 10/26/99 20,000 Non-Cash 200 39,800 40,000
Warrants
Exercise Class A 19C 10/29/98 35,000 Non-Cash 350 27,650 28,000
Warrants
Exercise Class A 19D 11/01/98 5,000 Cash 50 3,950 4,000
Warrants
Exercise Class A 19E 11/03/98 1,000 Cash 10 790 800
Warrants
Exercise Class A 19F 11/03/98 1,000 Cash 40 790 800
Warrants ------- ------- ------- --------
77,000 $ 770 $147,830 $ 148,600
======= ======= ======== =========
<FN>
A In exchange for promotional services to be performed over six months
commencing October 11, 1999 through April 10, 2000 the Company exercised
15,000 Class B warrants. The common stock was valued at $75,000, the agreed-
upon value of the services to be received.
B In exchange for consulting services to be performed over three months
commencing October 28, 1999 though January 24, 2000 the Company exercised
20,000 Class A Warrants. The common stock was valued at $40,000, the agreed-
upon value of the services to be received.
C In exchange for designing and consulting services to be performed
over six months commencing October 29, 1999 through April 29, 2000 the Company
exercised 35,000 Class A Warrants. The common stock was valued at $28,000,
the agreed-upon value of the services to be received.
D 5,000 Class A Warrants were exercised. The exercise price of the
warrants was $0.80 per share. The cash from these was deposited into the
Company's checking account and exercised by unrelated third parties.
E 1,000 Class A Warrants were exercised. The exercise price of the
warrants was $0.80 per share. The cash from these was deposited into the
Company's checking account and exercised by unrelated third parties.
F 1,000 Class A Warrants were exercised. The exercise price of the
warrants was $0.80 per share. The cash from these was deposited into the
Company's checking account and exercised by unrelated third parties.
</TABLE>
Had the above additional stock issuance taken place on September 30,
1999, earnings per common share would not have changed.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
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, Chief Financial Officer and Director, is the
founder of the Company. In 1996, Mr. Tucker founded Corporate Finance
Company and is now its President. 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.
Dennis E. Kaliher, age 62, Director and Chief Operating 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, engineering, marketing
and corporate management with Collins Radio Co., Rockwell International, and
Advanced Micro Devices and 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. He also participated in the
growth of 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 Secretary, 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.
Each director serves for a term of one year and is subject to reelection
at the annual meeting of shareholders.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's executive officers and directors and
persons who beneficially own more than 10% of a registered class of the
Company's Common Stock ("reporting persons") to file initial reports of
ownership and reports of changes in ownership with the SEC. Such reporting
persons are required by SEC regulations to furnish the Company with copies of
all such reports that they file.
Based solely upon a review of copies of such reports furnished to the
Company during its fiscal year ended September 30, 1998 and thereafter, or any
written representations received by the Company from reporting persons that no
other reports were required, the Company believes that, during the Company's
1998 fiscal year, all Section 16(a) filing requirements applicable to the
Company's reporting persons were complied with except that R Tucker &
Associates, Inc., in advertently failed to file on a timely basis a form 4
with respect to transferring 42,000 Series A Warrants by gift in November
1999. In December 1999, R Tucker & Associates filed a late Form 4 reflecting
this transaction.
ITEM 10. EXECUTIVE COMPENSATION.
The Company's officers and directors, during this time, to conserve
capital, have agreed to work for no compensation but reimbursement of business
expenses, out of pocket costs and consulting fees as cash is available. At a
time the Board determines is appropriate, the Company will enter employment
agreements with the officers and establish compensation for the directors.
The Company, at its year end September 30, 1998 and 1999, authorized the
accrual and payment of a consulting fee of $120,000 and $140,000,
respectively, for services provided by Ronald S. Tucker valued at $80,000 and
$100,000, respectively, and Dennis Kaliher valued at $40,000 and $40,000,
respectively. In December 1998 24,000 shares of the Company's common stock
were issued in cancellation of the indebtedness of the accrued compensation
pursuant to the Regulation A offering on the bases of $5 per share. The
shares were issued to persons designated by Ronald S. Tucker and Dennis
Kaliher.
The following table reflects the Executive Compensation for the year
ending September 30, 1998 and 1999:
SUMMARY COMPENSATION TABLE
Name and Other Annual
Principal Position Compensation
1998 1999
Ronald S. Tucker, CEO $81,300(1) $ 107,380(1)
Dennis E. Kaliher, COO $45,000(2) $ 40,500(2)
(1) For 1998 and 1999 this represents cash of $1,300 and $7,380,
respectively, and an accrual of $80,000 and $100,000,
respectively, for which in 1998 16,000 shares of common
stock was issued in cancellation of the indebtedness in
December 1998.
(2) For 1998 and 1999 this represents cash of $5,000 and $500,
respectively, and an accrual of $40,000 and $ 40,000,
respectively, for which in 1998 16,000 shares of common
stock was issued in cancellation of the indebtedness in
December 1998.
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 September 30, 1999
Non Qualified Options exercisable within 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 an employment agreement with
any of the officers or directors. The management does not believe that an
agreement will be entered until after September of 2000.
SALES COMMISSIONS
Sales are to be made either through manufacturers' representatives or
internal sales personnel. The Company policy will be to award sales
commissions ranging from three to ten percent, depending upon the type and
size of sales transaction. The Company has not had any sales or paid any
sales commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company, as of September 30, 1999, had 7,045,040 shares of its
Common stock, 508,960 Class A Warrants, and 446,000 Class B Warrants to
purchase common stock issued and outstanding with 200,000 options granted.
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 MORE THAN 5%
<TABLE>
<CAPTIONS>
Class of Number of Percent of
Securities Name Shares Outstanding
<S> <C> <C> <C>
Common Stock R Tucker & 4,545,388 58.54%
Associate, Inc.(1)
78153 Calle Norte
La Quinta, CA
Common Stock Corporate 4,545,388 58.54%
Finance Company
78153 Calle Norte
La Quinta, CA
Common Stock Dennis Kaliher 2,400,000 33.59%
3802 Frodo Cove
Austin, TX
Common Stock Sundance Design, Inc.(2) 2,300,000 32.19%
3802 Frodo Cove
Austin, TX
Total 6,945,388 88.54%
</TABLE>
(1) Ronald S. and Leticia I. Tucker are majority shareholders of both R Tucker
& Associates, Inc. and Corporate Finance Company. Corporate Finance
Company owns 621,428 shares. These shares include 411,000 Class B
Warrants and 308,960 Class A Warrants in name of R Tucker and Associates,
Inc.
(2) Dennis Kaliher is the majority stockholder of Sundance Design, Inc.,
formerly Tensleep Design, Inc., a Texas corporation, which owns 800,000
shares. This also includes 100,000 options.
MANAGEMENT
<TABLE>
<CAPTION>
Class of Securities Name Number of Percent of
Class of SEcurities Name Shares Outstanding
<S> <C> <C> <C>
Common Stock Ronald S. Tucker(1) 4,849,838 60.13%
78153 Calle Norte
La Quinta, CA
Common Stock Leticia I. Tucker 4,549,838 58,59%
78153 Calle Norte
La Quinta, CA
Common Stock Dennis Kaliher(2) 2,400,000 33.59%
3802 Frodo Cove
Austin, TX
All Directors & 7,249,838 88.79%
Officers As a
Group (3)
</TABLE>
(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, 308,960 Class A Warrants and 411,000 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., a Texas corporation, now known as
Sundance Design, Inc., and 100,000 options in the name of Dennis Kaliher.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
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 an assignment of $45,000. The $45,000 was invested in liquid
securities as of November 1, 1997. These securities are carried at book
value. R Tucker & Associates, Inc., is a corporate financial consulting firm.
Ronald S. and Leticia I. Tucker are principal shareholders and are also officers
and directors. It is a private company.
The issuer on or about November 10, 1997 issued 1,000,000 investment units
to Corporate Finance Company 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 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 has an exercise price of $.40 per share and the last 500,000 Class A
Warrants may be exercised at $.80 per share. Corporate Finance Company is a
specialty finance company. It provides financing to small companies that expect
to 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.
In October 1997, during negotiations for the acquisition of the Licensor's
technology, Mr. Kaliher agreed and authorized Mr. Tucker to use the name
"Tensleep Design, Inc." for a Colorado corporation. Mr. Tucker formed the
Company to acquire either a nonexclusive license or all the ownership rights to
the technology.
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. Mr. Kaliher had entered no agreement, understanding, or
commitment that he would become affiliated with or become an officer, director
or shareholder of the Company. The value of the license was set at $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 more than
1/5 of the license fee paid by Zilog for a similar license from the Licensor
approximately two years earlier. Besides 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 all its rights, title and ownership interests in its
technology. This included all Research and Development Property, equipment
and software listed on its balance sheet as of the year end for 1996. In
addition, it included all contracts re sales of licenses and Products or
engineering services, all molds, prototypes, tooling and/or dies, and
production credits subject to existing licenses. It also included 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 if 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. 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 agreed to value of $1,500,000 considered 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 the Company a Bill
of Sale pursuant to the Purchase Agreement and issued an invoice in the
aggregate of $1,500,000 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.
On June 18, 1998, the Company acquired technology and equipment/software
to support integrated circuit design from LS Squared, Inc. ("LS2"), an
unaffiliated company, valued at $100,000 and Mr. Tucker acquired all the issued
and outstanding common stock of LS2 with a payment of $100. This technology and
equipment and integrated circuit design software was received by the Company in
exchange for 100,000 shares of the Company's common stock. CFC facilitated this
transaction by assigning and exercising 100,000 Class A Warrants and the Company
acquired the technology, equipment and integrated circuit design software from
LS2 as consideration for the purchase of the shares.
The Company, as of the year end in 1998, authorized the accrual of a
consulting fee of $120,000 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 common stock was issued in cancellation of the
indebtedness. The cancellation was based on $5 per share and assigned the
shares to others designated by Ronald S. Tucker and Dennis Kaliher. The shares
were issued for the cancellation of indebtedness pursuant to the Regulation A
Offering that became effective November 6, 1998.
In December 1998 R Tucker & Associates, a related party, issued a
promissory note for $765,200 to the Company in exchange for the purchase of
137,00 investment units pursuant to the Regulation A Offering, the exercise of
88,000 Class A warrants, and the cancellation of a $50,000 note previously
issued to a third party and transferred to the Company.
In March 1999 the Company reduced a Note Receivable from R Tucker and
Associates in exchange for 80,000 shares of the common stock in Corporate
Finance Company valued at $200,000.
The Company, as of the year end in 1999, authorized the accrual of a
consulting fee of $140,000 payable to Corporate Finance Company for the services
of Ronald S. Tucker valued at $100,000 and Dennis Kaliher valued at $40,000 for
the year ending September 30, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description Method of Filing
3. Charter and Bylaws
3.1 Articles of Incorporation A
3.1.1 Amended Articles for change of Name C
3.1.2 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
10.6 Distribution Agreement C
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
99.2 Agreement with Silicon Resources for
Rental B
99.3 Audited Financial Statement for the
Company for the year ending 9/30/98 C
* Included herewith.
** Contained in Financial Statements included herewith.
A Incorporated by reference to the Company's Form 1 - A Registration
Statement No. 24-3960.
B Filed with original Form 10SB, Accession Number:
0001006024-99-000010
C Filed with Form 10SB/A which became effective August 2, 1999.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed by the undersigned, there unto
duly authorized.
Tensleep.com, Inc.
(Registrant)
Signature Title Date
/S/ Ronald S. Tucker Director, CEO and CFO December 23, 1999
Ronald S. Tucker
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/S/ Leticia I. Tucker Director December 23, 1999
Leticia I. Tucker
/S/ Dennis Kaliher Director, COO December 23, 1999
Dennis Kaliher
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 TECHNOLOGIES, 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.COM, 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 Technologies, Inc.
/S/ Leticia I. Tucker
By: Leticia I. Tucker
Its Secretary
Title
SUBSIDIARIES OF REGISTRANT
Tensleep Design, Inc. incorporated in May 10, 1999, in the State of Colorado
and is doing business under that name.
Tensleep Finance.com, Inc. incorporated on November 10, 1999, in the State
of Colorado and is doing business under that name.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's audited financial statements for the year ending September 30, 1999
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0001006024
<NAME> TENSLEEP TECHNOLOGIES INC
<S> <C>
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