UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Filed at
Washington D. C. 20549
FORM 10-SB/A
General Form For Registration of Securities
of Small Business Issuers Under Section 12 (b)
or 12 (g) of the Securities Act of 1934
TENSLEEP TECHNOLOGIES, INC.
(Name of Small Business Issuer in its charter)
COLORADO 33-0789960
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2201 N. LAMAR BLVD., SUITE 205, AUSTIN, TEXAS 78705
(Address of Principal Executive offices, Zip Code)
(512) 236-1840
(Issuer's Telephone Number, including area code)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None
None
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
Class B Warrants
(Title of Class)
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is an Internet and Communication technology development
company based in Austin, Texas. It is in the development stage and is engaged
in the development and sale of integrated circuits, and systems addressing
Internet and Communications markets. The Company is marketing several
facsimile modems and a facsimile controller (the "fax modem/controller"). A
facsimile controller is a combination of fax modem and micro controller
fabricated in a single integrated circuit that controls the functions of a
facsimile machine. The fax modem/controllers are integrated circuits
fabricated by Samsung Electronics Co., Ltd. ("Samsung"). The Company has two
Internet-based products in the development stage (the CyberServerTM and
CyberCommunicatorTM). The Company has no sales of the fax modem/controllers
or any other products as of the date of this document.
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).
The Company recently reorganized itself into two segments conducting
business through subsidiary corporations. The Tensleep segment is divided
into two divisions. One division designs, develops, markets, and sells
integrated circuits, e.g., fax modems and controllers, to original equipment
manufacturers. The second division will design, develop, market and sell
communication products to original equipment manufacturers through a network
of independent sales representatives. The second segment's business will be
conducted in a subsidiary corporation. This subsidiary will be formed to
distribute consumer communications 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. This network is separate from
that of the Tensleep segment.
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"), formerly Tensleep Design, Inc., a Texas corporation, incorporated
in 1987. The technology acquired from the Licensor evolved to its current
state from (1) generating digital signal designs for customers under contract
with the Licensor, (2) through developing custom chips for customers of the
Licensor, and (3) developing a DSP core library and products based on this
collection of cells and megacells that compose a chip design ("library").
These design efforts yielded three distinct DSP core architectures, and three
modem products.
A key element in the early growth of the Company's technology was the
successful development of long term strategic relationships with major
international semiconductor manufacturers, such as Kawasaki and LG Semicon.
These relationships gave the Licensor more than 6.0 million dollars to fund
the design of leading edge communications technologies, and the Licensor
retained rights to the technology for its own products.
The Licensor pioneered and completed the design and development of
products using a hardware technology that incorporates both analog and digital
circuits "mixed-signal." The technology includes hardware, in the form of
integrated circuits, and software. The integrated circuit products are
integrated into one-IC that provides cost effectiveness. The one-IC designs
can eliminate 30 to 40 other electrical components. This results in a cost
savings of approximately $7.00 to $15.00 in the typical $100 modem card or
box.
The Company was incorporated by R Tucker & Associates, Inc. ("R
Tucker"), and its principal shareholder, Ronald S. Tucker, is an officer,
director, shareholder and promoter of the Company. R Tucker, a corporate
financial consulting firm, and for many months had been negotiating with the
Licensor to acquire its technology or to participate in its capital
reorganization.
In October 1997 Mr. Tucker received authorization, from the Licensor, to
name a new Colorado corporation "Tensleep Design, Inc." In December 1997 the
Company acquired a nonexclusive perpetual license to the technology and modem
products develop by the Licensor (the "Technology"). Then in January 1998,
the Company entered a definitive agreement to acquire all the ownership rights
to the Technology and other assets in exchange for 300,000 shares of the
Company's common stock. Although the Company acquired the Technology from
Licensor, the Licensor has granted nonexclusive rights to the Technology to
others. The Licensor was founded by Dennis Kaliher, who was the president,
chief executive officer, director and majority shareholder.
The Licensor, from 1987 to 1997, developed the following Technology and
three products:
Technology
A/DSC321 Digital Signal Controller
A/DSC421 Dual Processor Controller
A/DSC521 Dual Processor Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Micro controller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
In 1996 the Licensor decided to develop and market its own products and
stop providing engineering services to others; however, to accomplish this, it
required funding. It entered an agreement with a Texas broker/dealer to do a
"best efforts" underwriting and expended more than $200,000 in legal and
accounting fees for that purpose. It filed a Form SB-2 with the Denver Office
of the Securities and Exchange Commission, but the registration was never
completed because of a lack of funds and loss of interest by the
broker/dealer. The underwriting never took place. For more than one year the
Licensor had no revenues and depleted its capital. The Company was unable to
market its products, and was unable to raise capital to advance its business.
The employees, save Mr. Kaliher, were transferred to Zilog, a semiconductor
manufacture and unrelated third party, or found other employment. Since
completing the development contracts with Kawasaki and LG Semicon in 1996, the
Licensor had been exclusively engaged in attempting to obtaining funding to
exploit its technology and products. About January 1, 1998, the Licensor
stopped any further efforts to exploit the technology or raise funds.
On June 18, 1998, the Company entered an agreement with LS Squared, Inc.
("LS2"), a California corporation, to acquire LS2's technology and
equipment/software to support integrated circuit design. LS2 was an unrelated
party, a California corporation. In exchange for the technology and
equipment/software, valued at $100,000, the Company agreed to issue 100,000
shares of its common stock, valued at $100,000 or $1 per share. The shares
were to be issued in the name of the sole shareholder of LS2, an unrelated
party before and after the transaction. Corporate Finance Company, a Colorado
corporation ("CFC"), an affiliate, to prevent the dilution of shareholder
interests, agreed to and assigned 100,000 Class A Warrants for the benefit of
the then sole owner of LS2, an unrelated party. After executing the
assignment, CFC exercised the 100,000 warrants on behalf of the sole owner of
LS2 and directed the 100,000 shares be issued directly to LS2's owner, or his
designee. The Company, pursuant to the exercise of the warrants and in
satisfaction of its agreement with LS2, issued 100,000 shares to LS2's owner.
The Company received the title to LS2's hardware/software and technology
valued at $100,000. This consideration represented the exercise price of
100,000 warrants, $0.40 per warrant for an aggregate of $40,000, and a
contribution to capital, $60,000, with a total aggregate value of $100,000.
CFC was not issued any shares of the Company's common stock pursuant to this
transaction. Nor did it receive any consideration from any other party. Mr.
Tucker, to protect the software licenses the Company acquired from LS2 and to
enable the Company to use the trade name of LS2, after this transaction,
purchased all the issued and outstanding common stock of LS2 for $100.
Following the Company's purchase of the technology and equipment/software,
LS2 was a shell corporation, it had no assets or liabilities and was winding
up its business. It had been in the business of providing custom integrated
circuit design services for various international semiconductor manufacturers.
The transaction was prompted by significant health problems of LS2's sole
owner and president, an unrelated person.
Besides the technology, the Company acquired design workstations and
software design tools purchased by LS2 for approximately $1,800,000 (per paid
invoices) and were carried on its books at approximately $120,000 at the time
acquired.
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.
LS2 developed a variety of designs resulting in a design library that
complements the DSC systems-on-a chip. The library includes nonvolatile and
volatile memories, phase-locked loop circuits, and micro controllers. These
designs will aid the Company's in designing and producing a variety of future
integrated circuits quickly and economically.
TECHNOLOGY - DIGITAL SIGNAL CONTROLLERS
A/DSC321
MIXED SIGNAL DSP AND ANALOG FRONT END.
The A/DSC321 is a highly integrated single-chip device 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.
ENGINEERING DESIGN SERVICES
The Company plans to solicit design contracts in its LS2 division. The
Company believes that it can increase the depth and breadth of its
intellectual property by maintaining the right to use, market and sell the
technology developed for others, and it also believes it can augment its
income with fees charged for design services.
The Company promotes its design service business by maintaining a web-
site at LS2.com and through its independent representatives. In addition, the
Company continues to solicit business from the Licensor's and LS2's past
customers.
The design services are supported by more than 10 workstations. They
are compatible to those sold by Sun Microsystems and they run a suite of
design and layout tools, supported by logic synthesis, circuit analysis and
timing analysis software.
To support its design activity, the Company has a large library of
integrated circuit designs, ranging from simple logic circuits to complex
digital signal processors and microprocessors. Many elements of the library
have value in themselves and can be marketed to other companies engaged in the
design of integrated circuits or used in designs contracted with the Company.
The Company, based on information given by Forward Concepts, believes
that because of increased complexity of today's integrated circuits, and
increased time-to-market pressure, more companies are purchasing designed
technology rather than developing them, especially when they lack expertise.
These purchases range from outright sales and licensing to contracts for
complete chip design, layout and test.
At this time the Company has no design or layout service contracts.
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. MANAGEMENTS 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 Internet and communications
technologies development 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 the management assessed
and evaluated the strengths and weaknesses of its technology, products and
management to establish a set of objectives. Based on its evaluations,
management 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 other potential sources of revenue.
The first objective has been 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 has been 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 intends to apply for listing
on the OTC Bulletin Board.
The third objective has been met by identifying four additional
potential sources of revenues. These are the licensing of intellectual
property, chip or integrated circuit design services, and web-store selling
consumer communications products.
The management, in late 1998, 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 established its objectives for the next twelve months
as follows:
1. To initialize and sustain revenues from the thin internet server
market, fax-modem market, design services, and licensing of
intellectual property.
2. To establish the Company's design center and web-store.
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 will seek 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 is currently negotiating with several independent third
parties to provide all or part of its 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 $665,400.
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 R Tucker & Associates or Mr. Tucker. The funds will come from the
Pooled Investment Account owned by Mr. Tucker and/or the Company's note
receivable owed by R Tucker & Associates, as described below. The Pooled
Investment Account has an accumulated value of in excess of $50,000 as of July
15, 1999 and comprises listed securities on the New York Stock Exchange and
NASDAQ National Market. 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 consists of and allows for funding through the
following:
1. 500,000 Class B Warrants exercisable at $4.50 per warrant for a
total of $2,250,000. These Warrants were issued pursuant to
Regulation A and the Company does not plan to register the shares
underlying the Warrants.
2. 808,960 Class A Warrants exercisable at $.40 and $.80 per warrant
for a total of $523,589. 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 $665,400 are owed by R Tucker &
Associates, Inc., for $560,400, 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 $665,400. 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 $560,400, 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
ability to market the Company's synthesized intellectual property is scheduled
for February 2000.
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 web-store selling consumer communication products.
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. The Company does not have an agreement
with a qualified person to develop the CyberServer at this time. 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)
The operational plan provides for management to receive integrated
circuit design and synthesization services from an unrelated third party
pursuant to an equipment lease agreement entered in 1998. The unrelated party
is to pay an equipment rental fee of $9,650 per month. From that amount, the
unrelated party is to provide chip design services, valued at up to $8,650 per
month, as a credit against the unrelated party's rental of the design
equipment and design software. Any unused monthly credit will be accumulated
by the Company. The agreement also calls for the unrelated party to provide
design personnel for any design contracts obtained by the Company. The
unrelated party is to receive a fee of $104 per hour for each person it
provides for performing design services. The fee is to be off set by the
accumulated monthly credit.
Management does not believe it will have an actual out of pocket cost
for the design services of the unrelated third party. It probably will have
an administrative or overhead cost of not more than $15,000 during the next 12
months.
Core Licensing
The operational plan provides for the Company to market the intellectual
property in the A/DSC521 DSC technology. This technology contains many major
elements that have potential to be licensed and be incorporated in chip
designs of other manufacturers. The Company's technology must be repackaged
into an easily abstracted form so that it can be adapted to any fabrication
process ("synthesization"). Management intends to market its a/DSC521
technology to manufacturers of proprietary chip products.
The Company, as part of its equipment lease agreement with an unrelated
party, has received a commitment from the lessee to synthesize the Company's
intellectual property as an offset to the monthly credit. This is expected to
be completed within six months. The Company is also negotiating 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.
INTERNET SALES
The operational plan provides for the Company to acquire an internet
sales company, commence an internet sales company or to enter a joint venture
that will engage in internet sales of consumer communications products. The
Company has been negotiating with an unrelated company to either acquire all
or part of it or to enter a joint venture with it. If the Company acquires
all or part of that company it will be based on an exchange of shares of the
Company's common stock. If the Company acquires the internet sales company or
enters a joint venture with it, the Company could be required to invest up to
$150,000. The Company has not determined want it would cost to set up its own
internet sales company, but management estimates that it would not invest more
than $100,000. To negotiate an acquisition or to enter a joint venture or
investigate starting an internet sales company, management estimates that its
administrative or overhead cost will be not more than $20,000.
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 3. 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 an independent
third party. The Company intends to lease additional facilities as required.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company, as of April 30, 1999, had 6,691,016 shares of its Common
stock, 808,960 Class A Warrants, and 500,000 Class B Warrants to purchase
common stock issued and outstanding with 200,000 options 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>
<CAPTION>
Name Number of Percent of
Class of Securities Address Shares Outstanding
<S> <C> <C> <C>
Common Stock R Tucker & Associate,Inc.1 4,899,388 59.75%
78153 Calle Norte
La Quint, CA
Common Stock Corporate Finance Company 4,899,388 59.75%
78153 Calle Norte
La Quinta, CA
Common Stock Dennis Kaliher 2,300,000 28.05%
3802 Frodo Cove
Austin, TX
Common Stock Sundance Design, Inc.2 2,300,000 28.05%
3802 Frodo Cove
Austin, TX
Total 7,199,388 87.8%
<FN>
1 Ronald S. and Leticia I. Tucker are the majority shareholders of both R
Tucker & Associates, Inc. and Corporate Finance Company. Corporate
Finance Company owns 621,428 shares. These shares include 465,000 Class
B Warrants and 608,960 Class A Warrants in name of R Tucker and
Associates, Inc.
2 Dennis Kaliher is the majority stockholder of Sundance Design, Inc.,
formerly Tensleep Design, Inc., a Texas corporation, which owns 800,000
shares.
</TABLE>
Management
<TABLE>
<CAPTION>
Name Number of Percent of
Class of Securities Address Shares Outstanding
<S> <C> <C> <C>
Common Stock Ronald S. Tucker1 5,203,838 63.46%
78153 Calle Norte
La Quint, CA
Common Stock Leticia I. Tucker 5,103,838 62.24%
78153 Calle Norte
La Quinta, CA
Common Stock Dennis Kaliher2 2,400,000 29.27%
3802 Frodo Cove
Austin, TX
All Directors & Officers
As a Group (3) 7,603,838 92.73%
<FN>
1 These shares include 4,450 shares in their names as joint tenants,
3,204,000 shares by R Tucker & Associates, 621,428 shares by Corporate
Finance Company, 100,000 options and 200,000 Class A Warrants held by
Ronald S. Tucker, 608,960 Class A Warrants and 465,000 Class B Warrants
held by R Tucker & Associates, Inc.
2 These shares include 1,500,000 in the name of Dennis Kaliher and 800,000
in the name of Tensleep Design, Inc., a Texas corporation, now known as
Sundance Design, Inc., and 100,000 options in the name of Dennis Kaliher.
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The following are the Officers, Directors, and Key Management of the
Company.
Name Position
Ronald S. Tucker Director and Chief Executive Officer and Chief
Financial Officer
Dennis Kaliher Director and Chief Operating Officer
Leticia I. Tucker Director and Secretary
Ronald S. Tucker, 60, 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. In 1994 Mr. Tucker and his wife filed for
protection under the bankruptcy laws of the United States.
Dennis E. Kaliher, age 62, Director and Chief 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. In 1994 Mr. Tucker and
his wife filed for protection under the bankruptcy laws of the United States.
Each director serves for a term of one year and is subject to reelection
at the annual meeting of shareholders.
ITEM 6. EXECUTIVE COMPENSATION.
The Company's officers and directors, during this time, 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, authorized the accrual and payment of a
consulting fee of $120,000 for services provided by Ronald S. Tucker valued at
$80,000 and Dennis Kaliher valued at $40,000 for the year ending September 30,
1998. 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:
SUMMARY COMPENSATION TABLE
Name and Other Annual
Principal Position Compensation
Ronald S. Tucker, CEO $81,300(1)
Dennis E. Kaliher, COO $45,000(2)
(1) Represents cash of $1,300 and an accrual of $80,000 for
which 16,000 shares of common stock was issued in
cancellation of the indebtedness in December 1998.
(2) Represents cash of $5,000 and an accrual of $40,000 for
which 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 the date of this
document 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 1999.
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 7. 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 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.
ITEM 8. LEGAL PROCEEDINGS
The Company is not involved in any litigation incidental to its business
or material to the business activities or financial performance of the
Company.
The Company is informed that in the former Chief Financial Officer of
Sundance Design, Inc., formerly Tensleep of Texas (the "Claimant") claims a
security interest in the Technology, for accrued but unpaid salaries, and that
the transfer of the Technology requires Claimant's approval. To avoid
liability to Claimant, the Company is holding all securities to be issued
to Sundance Design, Inc. The escrow agent will deliver the shares as agreed
to by the Claimant and Sundance Design or an order of a court exercising
jurisdiction over this matter.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Market Information. There is no established public trading market for
the Company's common stock. There are 200,000 options issued and outstanding,
808,960 Class A Warrants issued and outstanding. 500,000 Class B Warrants
issued and outstanding. There are no shares that could be sold pursuant to
Rule 144 under the Securities Act or under any agreement to register under the
Securities Act for sale by security holders. The Company is not publicly
offering equity securities and does not intend to do so.
Holders. The Company has approximately 219 holders of record of its
common stock.
Dividends. The Company has not paid any dividends on its capital stock
since its inception. The Company currently anticipates that it will retain any
available funds for use in the operation of its business and does not intend
to pay any cash dividends on its Common Stock in the future. Any future
payment of cash dividends is subject to the discretion of the Board of
Directors of the Company and will depend upon the Company's earnings,
financial condition, capital requirements and other related factors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company on or about November 10, 1997 issued 4,500,000 shares of its
Common Stock, at a stated value of $.01 per share, to the R Tucker &
Associates in exchange for $45,000 invested in liquid securities as of
November 1, 1997. These securities are carried at book value. These shares
were issued pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and are "restricted" shares pursuant to Rule 144. R Tucker &
Associates, Inc., is a corporate financial consulting firm with the principal
shareholders, Ronald S. and Leticia I. Tucker, who are also the officers and
directors. It is a private company.
The issuer, on or about December 23, 1997 acquired a nonexclusive
license to develop, use, enhance, sale, and market the modem chip technology
of Sundance Design, Inc., a Texas Corporation, formerly Tensleep Design, Inc.,
in an arms length transaction, for $250,000 and a royalty to be paid on all
revenues. In exchange for the license, Tensleep of Texas agreed to accept
500,000 shares of the Company's common stock valued at $250,000 in lieu of
$250,000 in cash. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and are "restricted" shares pursuant to
Rule 144. Dennis Kaliher is the president, chief executive officer, and
chairman of the board, and a major shareholder of Sundance Design, Inc. At
the time the two companies entered the two agreements, Dennis Kaliher was not
an officer, director, shareholder or promoter of the Company. There was no
agreement, commitment or understanding that he become an officer, director,
shareholder or promoter of the Company. After executing the acquisition
agreement, the Company agreed with Dennis Kaliher to become the president and
director of the Company. The two agreements were entered at arms length.
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 made for cash and non-cash consideration to
unaffiliated third persons. The sales were made 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 to be sold has an
exercise price of $.80 per share. The Company's shares and warrants were
issued pursuant to Regulation D, Rule 504 under the Securities Act of 1933.
The Company was organized by R Tucker & Associates, Inc., and Ronald S. Tucker
to engage in the specific business of developing digital signal process
technology, marketing, and selling it. The Company was to acquire either a
non exclusive perpetual license or ownership rights to the technology of
Tensleep of Texas (Rule 504 (a)(3)). Corporate Finance Company is a specialty
finance company. It provides financing to small companies expecting to become
publicly trading companies. The Tuckers' are the primary shareholders of CFC
and R Tucker & Associates. They are also officers and directors. Corporate
Finance Company and R Tucker & Associates are affiliates of the Company and
the securities received by CFC are "control" securities as the term is defined
in Rule 144.
In January 1998, the Company entered a definitive agreement to acquire
all the ownership rights to the Technology, and other assets of the Licensor.
In exchange the Licensor was to receive 300,000 shares of the Company's common
stock. In December 1998 the Company, pursuant to the agreement and in
cancellation of an indebtedness of $1,500,000 issued Sundance Design, Inc., a
related party, 300,000 shares of the Company's common stock. The 300,000
shares were issued pursuant to Regulation A, an exemption under the Securities
Act of 1933, as amended.
In June 1998, the Company entered an agreement with LS2 to acquire LS2's
technology and equipment/software to support integrated circuit design. In
exchange for the technology and equipment/software, the Company issued 100,000
shares of its common stock to the sole shareholder of LS2, an unrelated party
before and after the transaction. The transaction was valued at $100,000.
CFC, an affiliate, assigned and exercised 100,000 Class A Warrants at $.40 per
share for the then sole owner of LS2, an unrelated party. The Warrants and
shares were issued pursuant to Rule 504, Regulation D under the Securities Act
of 1933, as amended.
ITEM 11. DESCRIPTION OF SECURITIES.
The authorized capital stock of the Company consists of 50,000,000
authorized shares of common stock, with no par value per share ("Common
Stock"), and 10,000,000 shares of preferred stock, with no par value per share
("Preferred Stock").
Common Stock
The holders of shares of Common Stock have no preemptive rights to
maintain their respective percentage ownership in the Company. Nor do they
have any other subscription rights for other securities of the Company.
Shares of Common Stock are not redeemable or subject to further calls or
assessments. All of the outstanding shares of Common Stock are fully paid and
non assessable. The shares of Common Stock to be outstanding are fully paid
and non assessable. The holders of shares of Common Stock are entitled to
share pro rata in such dividends, if any, as may be declared by the Board of
Directors of the Company out of funds legally available therefor. Subject to
the prior rights of holders of shares of Preferred Stock, if any, upon
liquidation, dissolution and winding up of the Company, holders of shares of
Common Stock are entitled to share ratably in the net assets available for
distributions to such holders.
Holders of Common Stock are entitled to vote upon all matters submitted
to a vote of the stockholders of the Company and will be entitled to one vote
per share held, except in the election of directors where the holder will be
entitled to one vote per share held times the number of directors to be
elected. Generally, the vote of the majority of the shares represented at a
meeting of the stockholders and entitled to vote is sufficient for actions
that require a vote of the stockholders.
Preferred Stock
The Board of Directors is authorized, without any further action by the
shareholders, to issue Preferred Stock from time to time in such series, in
such a number of shares and with such dividends, redemption, liquidation,
voting, conversion, sinking fund and other rights as the Board will establish.
The Company has no present intention, commitment or understanding to issue
preferred securities of any type or kind.
The Transfer Agent and Registrar for the Common Stock are the Executive
Registrar & Transfer Agency, Inc., at 3145 W. Lewis Ave., Suite 200, Phoenix,
AZ 85009. Its telephone number is (602) 415-1273.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide that the Company will indemnify its
Directors and officers to the fullest extent permitted by law against certain
losses that may be incurred concerning any proceeding that arises because such
person is or was an agent of the Company. The Company believes that
indemnification under the Bylaws covers at least negligence and gross
negligence by an indemnified party, and permits the Company to advance
litigation expenses for stockholder derivative actions or other actions,
against an undertaking by the indemnified party to repay those advances if it
is ultimately determined that the indemnified party is not entitled to
indemnification.
In addition, the Company's Articles of Incorporation provide that,
pursuant to Colorado law, its Directors will not be liable to the Company or
its stockholders for monetary damages for and act or omission in the
Director's capacity as a Director. This provision does not eliminate or limit
the liability of a Director to the extent the Director is found liable for a
breach of the Director's duty to loyalty to the Company, for acts or omissions
lacking good faith or involving intentional misconduct, or a knowing
violation of the law, for actions leading to improper personal benefit to the
Director and for an act or omission for which the liability of the Director is
explicitly provided by applicable statute. The provision also does not affect
a Director's responsibilities under any other law, such as federal securities
laws or state and federal environmental laws.
ITEM 13. FINANCIAL STATEMENTS.
Attached as Exhibits.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(i) Financial Statements. *
The following is a list of all financial statements filed as a part of
this Report:
1. Audited Balance Sheet - September 30, 1998 from inception.
2. Audited Statement of Operations for year ending September 30, 1998
from inception.
a. Audited Statement of Stockholders' Equity for the year ended
September 30, 1998 from inception.
b. Audited Statement of Cash Flows for the year ended September
30, 1998 from inception.
c. Notes to Financial Statements - September 30, 1998 from
inception.
1. Unaudited Balance Sheet - March 31, 1999.
2. Unaudited Statement of Operations for period six months ending
March 31, 1999.
a. Unaudited Statement of Stockholders' Equity for the six
months ended March 31, 1991.
b. Unaudited Statement of Cash Flows for the six months ended
March 31, 1999.
c. Notes to Financial Statements - March 31, 1999.
(b) Exhibits.
Exhibit No. Description Method of Filing
3. Charter and Bylaws
3.1 Articles of Incorporation A
3.1.1 Amended Articles for change of Name *
3.2 Bylaws A
10. Material Contracts
10.1 License Agreement with Tensleep Design, Inc.,
a Texas corporation A
10.2 Purchase Agreement and Bill of Sale with
Tensleep Design, Inc., a Texas corporation A
10.3 Warrant Agreement for Class A Warrants A
10.4 Warrant Agreement for Class B Warrants A
10.5 Stock Option Plan A
10.6 Distribution Agreement *
11. Statement re: Computation of Per Share Earnings **
21. Subsidiaries of the Registrant B
27. Financial Data Schedule B
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
* Filed 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 orginal Form 10SB, Accession Number:
0001006024-99-000010
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
Tensleep Design, Inc.
(Registrant)
Signature Title Date
/S/ Ronald S. Tucker President, CEO and CFO July 29, 1999
Ronald S. Tucker
/S/ Leticia I. Tucker Director, Secretary July 29, 1999
Leticia I. Tucker
/S/ Dennis Kaliher Director, COO July 29, 1999
Dennis Kaliher
<PAGE>
Auditor's Report
EX-(a)1.
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 Design, Inc.
We have audited the accompanying balance sheet of Tensleep Design, Inc. (a
Colorado Corporation), a development stage company, as of September 30, 1998,
and the related statements of operation, changes in stockholders equity
(deficit), and cash flows for the period from inception (October 23, 1997)
through September 30, 1998. These financial statements are the responsibility
of the Company's management. Our responsibility is to 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 Design, Inc. as of
September 30, 1998 and the results of its operation, changes in stockholders
equity (deficit) and its cash flows for the year then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 8 to the
financial statements, the Company has been in the development stage since its
inception on October 23, 1997. Realization of a major portion of the assets
is dependent upon the Company's ability to meet its future financing
requirements, and the success of capital funding and future operations. These
factors raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
March 31, 1999.
Brabo, Carlsen & Cahill
TENSLEEP DESIGN, INC.
(A Development Stage Company)
Balance Sheet
September 30, 1998
ASSETS
CURRENT ASSETS:
Cash $ 382
Investment in Pooled Account, (See note 1) 22,693
------------
Total Current Assets 23,075
------------
PROPERTY AND EQUIPMENT:
Machines & Equipment 102,014
Software 172,371
------------
274,385
Less accumulated Depreciation and amortization 45,732
------------
Net Property & Equipment 228,653
------------
OTHER ASSETS:
Investment in Corporate Finance
Company (See note 2) 198,000
------------
Total Other Assets 198,000
------------
TOTAL ASSETS $ 449,728
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Loan Payable to Corporate Finance
Company (See Note 4) $ 14,442
Accrued Consulting fees (See note 9 and 15) 120,000
Convertible note payable (See note 10 and 15) 1,500,000
------------
Total Current Liabilities 1,634,442
------------
TOTAL LIABILITIES; 1,634,442
------------
STOCKHOLDERS' EQUITY (DEFICIT:
Preferred stock, no stated value, 10,000,000
shares authorized, no shares issued and
outstanding -
Common stock, $0.01 stated value, 50,000,000
shares authorized, 6,103,040 shares
issued and outstanding 61,030
Additional paid-in capital 535,186
Net Loss (Deficit accumulated during the
development stage ( 1,780,930)
-------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) ( 1,184,714)
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 449,728
=============
<PAGE>
EX-(a)2.
Audited Statement of Operations September 30, 1998
TENSLEEP DESIGN, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
For the period from inception (October 23, 1997) through September 30, 1998
REVENUES:
Lease Income (See note 12) $ 5.350
Other Income 2,150
--------------
Total Revenues 7,500
OPERATING EXPENSES:
Advertising 5,113
Automobile expense 2,308
Bank service charges 107
Consulting Expense (See note 9) 120,000
Depreciation and Amortization 45,732
Dues and Subscriptions 3,975
Filing fees 2,250
Insurance 10
License & Permits 5,910
Other expenses 899
Outside services 7,629
Postage & delivery 864
Printing and reproduction 1,343
Professional fees 2,250
Rent 5,400
Repairs 194
Research and development costs (See note 13) 1,577,052
Telephone 4,298
Travel & Entertainment 2,075
Utilities 280
--------------
Total Operating Expenses 1,788,430
--------------
NET LOSS (DEFICIT ACCUMULATED DURING THE
DEVELOPMENT STAGE) $ (1,780,930)
===============
EARNINGS (LOSS) PER COMMON SHARE (See Note 14) $ (0.31)
===============
<PAGE>
EX-(a)2.a.
Audited Statement of Changes in stockholders'Equity September 30, 1998
TENSLEEP DESIGN, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from Inception (October 23, 1997) through September 30, 1998
<TABLE>
<CAPITION>
Additional
See Number of Common Paid-In Retained
Note Date Shares Consideration Stock Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued 5A 11/10/97 4,500,000 Non-cash $ 45,000 -0- -0- $ 45,000
Stock issued 5B 11/10/97 1,000,000 Non-cash 10,000 190,000 -0 200,000
Stock issued 5C 12/23/97 500,000 Non-cash 5,000 245,000 -0- 250,000
Exercise 5D 4/1/98 400 Non-cash 4 156 -0- 160
Class A
Warrants
Exercise 5D 4/1/98 400 Non-cash 4 156 -0- 160
Class A
Warrants
Exercise 5D 5/27/98 2,000 Non-cash 20 780 -0- 800
Class A
Warrants
Exercise 5E 6/2/98 200 Cash 2 78 -0- 80
Class A
Warrants
Exercise 5D 6/17/98 40 Non-Cash -0- 16 -0- 16
Class A
Warrants
Exercise 5F 6/23/98 100,000 Non-Cash 1,000 99,000 -0- 100,000
Class A
Warrants
Net(Deficit
accumulated
during the
development
stage) (1,780,930) (1,780,930)
Balance, 6,103,040 $61,030 $ 535,186 $(1,780,930) $(1,184,714)
September 30,1998
</TABLE>
<PAGE>
EX-(a)2.b.
Audited Statement of Cash Flows September 30, 1998
TENSLEEP DESIGN, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
For the period from inception (October 23, 1997) through September 30, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss (Deficit accumulated during the
development stage) ($ 1,780,930)
Adjustments to reconcile net loss to net cash used
in operations:
Depreciation and amortization 45,732
Expenses incurred in exchange for common stock 250,000
Non cash expense for accrued consulting fees 120,000
Non cash expense for purchase of technology, products,
goodwill, and cancellation of royalties ( 1,327,052)
--------------
Net cash used by operating Activities ( 38,146)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 1,437)
---------------
Net cash used by investing activities ( 1,437)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from Corporate Finance Company 17,578
Proceeds from Pooled Investment Account 22,307
Proceeds from sale of stock warrants 80
--------------
Net cash provided by financing activities 39,965
--------------
NET INCREASE IN CASH 382
CASH, beginning of period -
--------------
CASH, end of year $ 382
==============
<PAGE>
EX-(a)2.c.
Audited Notes to Financial Statements September 30, 1998
TENSLEEP DESIGN, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tensleep Design, Inc. (A Colorado Corporation) is a development stage
company (The Company) in the business of designing, developing, and marketing
integrated circuits with a specific focus on digital signal processors. The
Company is located in Austin, Texas. It is expected that the Company's
primary customers will be original equipment manufacturers located in
California and Japan for inclusion into their products.
Development Stage Company
The Company is currently in its development stage, and has not generated
any income from operations. The Company was incorporated in October 1997, and
is currently obtaining funding to proceed with development and marketing of
its technologies. The Company's success is dependent on obtaining additional
funding and the ultimate successful sales of its products. There is no
assurance that funding will be obtained or that the Company can ever operate
profitably. Success in also dependent on many other factors, such as
management and distribution. Some of these factors may be beyond the
Company's control.
Cash and Cash Equivalents
For the purposes of financial statement reporting, the Company considers
all highly liquid investments with maturity of 3 months or less to be
considered cash equivalents.
Concentration of Credit Risk
The Company maintains its operating cash account at a commercial bank in
Orange County, California. The account at the bank is guaranteed by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank.
Property and Equipment, Depreciation and Amortization
Property and equipment obtained in exchange for stock is carried at the
fair market value of the equipment on the date of exchange, if purchased it is
carried at cost as of the date of purchase.
Depreciation and amortization is computed using the straight-line method
over the assets' expected useful lives. The useful lives of property and
equipment for purposes of computing depreciation and amortization are:
Machinery & Equipment 3 years
Software 3 years
Repairs and maintenance are charged to operations when incurred. Cost of
betterments which materially extend the useful lives of the asset are
capitalized. Gains and losses from sales or disposition of assets are
included in the statement of operation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments
For 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,
1998, unused operating loss carryforwards that may be applied against future
taxable income and that expire as follows:
Amount of Unused Operating Expiration During Year
Loss Carryforwards Ended September 30:
State -
Federal Colorado Federal State
---------- ---------- ------- ------
$1,780,930 $1,780,930 2018 2013
Adjustments
In the opinion of management the data reflects all adjustments necessary
for a fair statement of results for this period. All adjustments are of a
normal and recurring nature.
Advertising
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of direct-
response advertising, if any, are capitalized and amortized over the period
during which future benefits are expected to be received.
NOTE 1: INVESTMENT IN POOLED EQUITY ACCOUNT
The Company owns a $22,693 interest in a personal brokerage account held
by a shareholder. Originally, the Company received a $45,000 interest in the
account which was obtained in exchange for 4.5 million shares of common stock,
as described in Note 3. The Company has received $22,307 from the
shareholder.
NOTE 2: INVESTMENT IN CORPORATE FINANCE COMPANY
In 1997 the Company acquired 80,000 shares of Corporate Finance Company
("CFC") common stock. CFC is an affiliate company. Shares acquired represent
approximately a 4.4% ownership in CFC. A major shareholder of the Company is
also a major shareholder of CFC. Based on the 4.4% ownership interest in CFC,
the Company has accounted for the investment under the cost method. The
shares were obtained in the cash-free exchange described in Note 3 and were
valued at $2.50 per share, which represents the sale price of CFC shares in
transactions during the six to twelve months prior to the date of the
exchange. The valuation of the shares obtained was an agreed-upon value as
of the date of the exchange and will be carried on the books of the Company
at cost. In 1998 the Company sold 800 shares of CFC common stock 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).
As explained in Note 5C, the Company obtained its licensing
agreement in exchange for 500,000 shares of common stock. The common stock
was valued at the agreed-upon price of $250,000, or 50 cents per share.
As explained in Note 5F and Note 11, the Company acquired from LS2
equipment and software in exchange for 100,000 shares of common stock.
NOTE 4: LOAN PAYABLE TO CORPORATE FINANCE COMPANY
CFC has loaned the Company certain funds to cover operating expenses.
The balance due on the loan from CFC as of September 30, 1998 in the amount
of $14,442 is covered by a non-interest bearing demand note.
NOTE 5: CAPITAL FUNDING
The Company has resolved to authorize private offerings pursuant to
Regulation S, Section 3 (b) and/or 4(2) of the Securities Act of 1933, as
amended, and/or Rule 504 of Regulation D promulgated thereunder. These
offerings can be composed of common stock and/or warrants. Such offerings
could result in dilution to Company stockholders prior to each offering.
Additionally, dilution could also result from the exercising of warrants,
incentive stock options, and non-incentive stock options. Stock option
plans are described in Note 6. The following summarizes the various stock
and warrant transactions as reported in the accompanying Statement of Changes
in Stockholders' equity (deficit):
Note A - upon value as of the date of exchange.
Note C - 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 6: STOCK OPTION PLANS
The Company has a stock option plan pursuant to Section 422A of the
Internal Revenue Code. The plan has yet to be defined other than the
reserving of 500,000 shares of common stock for such a plan.
The Company has also adopted a non-incentive stock option plan. This
plan grants options that can be exercised at a specified price. The Company
has resolved that 800,000 shares of common stock be reserved for this plan.
As of April 30, 1998, the options to purchase 250,000 shares at 50 cents per
share (same as the then current market price) had been granted to the
majority and controlling shareholders and an independent consultant. These
options expire December 1, 2002.
NOTE 7: WARRANTS
As part of its funding activities, the Company has issued warrants for
the purchase of common stock. Additional warrants may be issued in the future
during additional offerings. As of June 30, 1998, the following warrants were
outstanding:
Class A - one warrant can purchase one common share
Tucker Family Trust - 200,000 warrants at 40 cents per share
Corporate Finance Company - 196,960 warrants at 40 cents per share
Corporate Finance Company - 500,000 warrants at 80 cents per share
The warrants expire July 31, 1999.
NOTE 8: RISKS AND UNCERTAINTIES
As discussed in Organization and Summary of Significant Accounting
Policies, the Company has been in the development stage since its inception
on October 23, 1997. Realization of a major portion of the assets is
dependent upon the Company's ability to meet its future financing
requirements, and the success of capital funding and future operations.
These factors raise substantial doubt about the Company's ability to continue
as a going concern.
The investments in the pooled equity account are held available-for-
sale.
As of September 30, 1998, the account consists of 4,000 shares of Torch Energy
Royalty Trust, listed on the New York Exchange, symbol "TRU", with a value of
$5 15/16 per share, bid price, 2000 shares Karzco Realty Trust, listed on the
New York Exchange, symbol "KRT", with a value of $16 11/16 per share, 500
shares of Cross Timbers Royalty Trust, listed on the New York Exchange,
symbol "CRT", with a value of $11 5/8 per share, 60 shares of Alliance
Pharmaceutical Corp., listed on the New York Exchange, symbol "ALLP", with
a value of $3.04688 per share, 4,000 shares Amtech Systems, Inc. listed on
the NASDAQ smallcap, with a value of $27/32 per share, and 1,000 Amylin
Pharmaceuticals, Inc. listed on NASDAQ national market, with a value of
$3 3/32 per share, and $4,531 in cash. The aggregate value of the account
is $57,213 as of September 30, 1998.
The investment in the pooled equity account is subject to the hazards
of trading equities on the open market. The account will experience growth
and loss in varying amounts depending on the performance of the securities
traded. All of the Company's $22,693 interest in the account is at risk and
subject to loss. The sum of $22,693 will be paid to the Company as required
to pay its costs and expenses as incurred until revenues are sufficient to
pay such costs and expenses. Any unpaid balance, at the time revenues are
sufficient to pay monthly costs and expenses, will be repaid pursuant to a
plan to be made at that time.
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 is payable to Dennis Kaliher and Ronald S.
Tucker, the president and vice president of the Company, respectively, for
consulting services rendered. This liability was canceled December 15, 1998
in exchange for 24,000 shares of common stock (See note 15).
In conjunction with the purchase of LS Squared, Inc. equipment by the
Company, Ronald S. Tucker, a major shareholder of the Company, also purchased
LS Squared, Inc. individually (See note 11).
NOTE 10: PURCHASE OF TECHNOLOGY
On January 30, 1998 the Company acquired from the Licensor, pursuant to
an agreement dated January 23, 1998, the following items valued as follows:
Machines & Equipment $ 40,577.00
Software 132,371.00
Technology
A/dsc321 Digital Signal Controller
A/dsc421 Dual Processor Controller
A/dsc 521 Digital Signal Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
Total Technology & Products 1,200,000.00
Goodwill and cancellation of Royalties 127,052.00
------------
Total $ 1,500,000.00
The Licensor received a non-interest bearing note from the Company for
specified items in the amount of $1,500,000.00. The amount representing
Technology, Products, Goodwill and cancellation of Royalties was charged to
research and development costs (See note 13) in the development stage period
as required by generally accepted accounting principles. The convertible note
payable was reported under current liabilities in the accompanying balance
sheet since the Licensor has agreed to accept the Company's securities in
cancellation of the indebtedness. The Licensor has agreed to accept 300,000
tradable Units at $5 per unit, if qualified by July 31, 1998 or 500,000
restricted shares of common stock if not qualified by July 31, 1998. The
date for qualifying the tradable Units was extended until December 31, 1998.
This note was canceled December 15, 1998 in exchange for 300,000 shares of
common stock (See note 15).
NOTE 11: PURCHASE OF EQUIPMENT AND DESIGN SOFTWARE
On June 19, 1998, the Company acquired testing equipment, design
software, hardware, and intellectual property from LS Squared, Inc., (LS2) a
California corporation, valued at $100,000 and appearing on LS2 books and
records with a book value of an approximate amount. LS2 was an independent
third party and a non-affiliate of the Company and none of its officers and
directors were or are affiliated with the Company at the time of the equipment
acquisition. The terms of the agreement provided that the Company receive the
assets in exchange for 100,000 shares of the Company's common stock through
the exercise of 100,000 Class A Warrants. In July 1998 Ronald S. Tucker, a
major shareholder of the Company purchased LS2 as an individual. At the time
of purchase, LS2 was a California Corporation with no assets or liabilities.
NOTE 12: LEASE INCOME
The Company 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.
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and Development costs are charged to operations when incurred.
The components of research and development costs 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, 1998 The Company had 6,103,040 common shares
outstanding and no preferred shares outstanding. The earnings per share
amount is based on the weighted average number of shares actually outstanding.
The number of shares used in the computation for September 30, 1998 was
5,653,300 shares.
NOTE 15: SUBSEQUENT EVENTS
The following equity transactions have taken place subsequent to
September 30, 1998 and through the date of the audit report.
<TABLE>
<CAPTION>
Reported in Statement Additional
of Changes in See Number of Consider- Common Paid-In
Stockholder's Equity Note Date Shares ation Stock Capital Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, 9/30/98 6,103,040 $ 61,030 $ 535,186 $ 596,216
Stock issued 15A 12/15/98 35,000 Cash/Note 350 174,650 175,000
Stock issued 15B 12/15/98 8,000 Non-Cash 80 39,920 40,000
Stock issued 15C 12/15/98 300,000 Non-Cash 3,000 1,497,000 1,500,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15B 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15D 12/15/98 4,000 Non-Cash 40 19,960 20,000
Stock issued 15E 12/15/98 137,000 Non-Cash 1,370 683,630 685,000
Exercise 15E 12/15/98 88,000 Non-Cash 880 34,320 35,200
Class A
Warrants
Balance,
March 31, 1999 6,691,040 $ 66,910 $ 3,064,506 $ 1,304,344
<FN>
A 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 E).
B 24,000 shares of common stock were issued for $120,000 in exchange
for accrued consulting fees, which was expensed as Research &
development (see note 14)
C 300,000 shares of common stock were issued for $1,500,000 to pay off
the convertible note, which was issued in exchange for fixed assets
of $173,948 and Research & Development expenses of $1,327,052 (see
note 14)
D 4000 shares of common stock were issued for $20,000 in exchange for
advertising in 1999.
E 137,000 shares of common stock were issued for $685,000 and 88,000
warrants exercised in exchange for a $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 party
in an unrelated transaction. (see note A)
</TABLE>
Had the above additional stock issuance taken place on September 30,
1998, earnings per common share would not have changed.
<PAGE>
Management's Report
EX-(a)3.
Unaudited Balance Sheet March 31, 1999
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Balance Sheet As Of
March 31, 1999
(unaudited)
ASSETS
Current assets:
Cash $ 1,130
Investment in Pooled Account, (Note 7) 18,544
------------
Total Current Assets 19,674
Fixed assets:
Machines & Equipment 102,105
Software 172,371
Accumulated Depreciation ( 91,464)
-------------
Total Fixed Assets 183,012
Other Assets:
Credits for Engineering Services (Note 12) 51,900
Secured Note Receivable (Note 5) 105,000
Securities held for sale (Note 2) 398,000
------------
Total Other Assets 554,900
Total Assets $ 757,586
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loan Payable (Note 4) $ 14,442
Accrued Expenses 4,000
------------
Total Liabilities 18,442
Stockholders' Equity:
Preferred stock, no stated value, 10,000,000
shares authorized, no shares issued and
outstanding -0-
Common stock, $0.01 stated value, 50,000,000
shares authorized, 6,691,016 shares
issued and outstanding 66,910
Additional paid-in capital 3,059,706
Retained earnings ( 1,780,930)
Note Receivable, Related Party(Note 5) 560,400
Net Income (Loss) For Period ( 46,142)
-------------
Total Stockholders Equity 739,144
------------
Total Liabilities & Stockholders' Equity $ 757,586
============
<PAGE>
EX-(a)4.
Unaudited Statement of Operaion March 31, 1999
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Statement of Operations
October 1, 1998 to March 31, 1999
(unaudited)
Income
Equipment Rental $ 57,900
Equipment Sales 12,000
--------------
Net Income 69,900
Operating Expenses:
Operating Expenses 118,764
--------------
Net Operating Income (Loss) ( 48,864)
--------------
Other Income (Expenses) 2,722
--------------
Net Loss Before Income Taxes ( 46,142)
--------------
Income Taxes -0-
--------------
Net Loss After Taxes $( 46,142)
==============
Earnings (Loss) Per Common Share (Note 14) $( $0.0072)
===============
<PAGE> EX - (a)4.a.
Unaudited Statement of Stockholder's Deficit
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Statement of Stockholders' Deficit
October 23, 1997 (Inception) to March 31, 1999
(unaudited)
<TABLE>
<CAPITION>
Additional
See Number of Common Paid-In Retained
Note Date Shares Consideration Stock Capital Deficit Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued 5A 11/10/97 4,500,000 Non-cash $ 45,000 -0- -0- $ 45,000
Stock issued 5B 11/10/97 1,000,000 Non-cash 10,000 190,000 -0 200,000
Stock issued 5C 12/23/97 500,000 Non-cash 5,000 245,000 -0- 250,000
Exercise 5D 4/1/98 400 Non-cash 4 156 -0- 160
Class A
Warrants
Exercise 5D 4/1/98 400 Non-cash 4 156 -0- 160
Class A
Warrants
Exercise 5D 5/27/98 2,000 Non-cash 20 780 -0- 800
Class A
Warrants
Exercise 5E 6/2/98 200 Cash 2 78 -0- 80
Class A
Warrants
Exercise 5D 6/17/98 40 Non-Cash -0- 16 -0- 16
Class A
Warrants
Exercise 5F 6/23/98 100,000 Non-Cash 1,000 99,000 -0- 100,000
Class A
Warrants
Net(Deficit
accumulated
during the
development
stage) (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 -0- 175,000
Stock issued 5H 12/15/98 8,000 Non-Cash 80 39,920 -0- 40,000
Stock issued 5I 12/15/98 300,000 Non-Cash 3,000 1,497,000 -0- 1,500,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5J 12/15/98 4,000 Non-Cash 40 19,960 -0- 20,000
Stock issued 5K 12/15/98 137,000 Non-Cash 1,370 683,630 -0- 685,000
Exercise 5K 12/15/98 88,000 Non-Cash 880 34,320 -0- 35,200
Class A
Warrants
Net Loss -0- -0- -0- (46,142) (46,142)
(Deficit
accumulated
from10/1/98
to 3/31/99)
Balance, 6,691,040 $66,910 $3,064,506 $(1,827,072) $ 1,304,344
March 31, 1999
</TABLE>
<PAGE>
EX - (a)4.b.
Unaudited State of Cash Flows March 31, 1999
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
Statement of Cash Flows
For the Six Months
October 1, 1998 to March 31, 1999
(Unaudited)
Cash flows from operating activities:
Net income ($ 46,142)
Adjustments to reconcile net loss to net cash used:
Depreciation and amortization 45,732
Expenses incurred in exchange for common stock 20,000
Non cash expense for accrued consulting fees 4,000
Accrued Equipment Rental ( 51,900)
--------------
Net cash used by operating Activities ( 28,310)
Cash flows from investing activities:
Purchase of property and equipment ( 92)
---------------
Net cash provided by (used in) investing activities ( 92)
Cash flows from financing activities:
Proceeds from Pooled Investment Account 4,150
Net Proceeds from Sale of Securities 25,000
--------------
Net cash provided by (used in) financing activities 29,150
--------------
Net increase (decrease) in cash and cash equivalents 748
Cash and cash equivalents, beginning of period 382
--------------
Cash and cash equivalents, end of period $ 1,130
==============
<PAGE>
EX - (a)4.c.
Unaudited Notes to Financial Statements March 31, 1999
TENSLEEP TECHNOLOGIES, INC.
(Formerly Tensleep Design, Inc.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
General
This interim financial statement has be prepared by the management of
the Company and it is of the opinion that the statements include all
adjustments that are necessary in order to make them not misleading.
Organization
Tensleep Technologies, Inc. (A Colorado Corporation),
formerly Tensleep Design, Inc., is a development stage company (The Company)
in the business of designing, developing, and marketing Internet Appliances
and other integrated circuits with a specific focus on digital signal
processors. The Company is located in Austin, Texas. It is expected that
the Company's primary customers will be original equipment manufacturers
located in California and Japan for inclusion into their products.
Development Stage Company
The Company is currently in its development stage, and has not generated
any income from operations. The Company was incorporated in October 1997, and
is currently obtaining funding to proceed with development and marketing of
its products and technologies. The Company's success is dependent on
obtaining additional funding and the ultimate successful sales of its
products. There is no assurance that funding will be obtained or that the
Company can ever operate profitably. Success in also dependent on many other
factors, such as management and distribution. Some of these factors may be
beyond the Company's control.
Cash and Cash Equivalents
For the purposes of financial statement reporting, the Company considers
all highly liquid investments with maturity of 3 months or less to be
considered cash equivalents.
Concentration of Credit Risk
The Company maintains its operating cash account at a commercial bank in
Orange County, California. The account at the bank is guaranteed by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank.
Property and Equipment, Depreciation and Amortization
Property and equipment obtained in exchange for stock is carried at the
fair market value of the equipment on the date of exchange, if purchased it
is carried at cost as of the date of purchase.
Depreciation and amortization is computed using the straight-line method
over the assets' expected useful lives. The useful lives of property and
equipment for purposes of computing depreciation and amortization are:
Machinery & Equipment 3 years
Software 3 years
Repairs and maintenance are charged to operations when incurred. Cost of
betterments which materially extend the useful lives of the asset are
capitalized. Gains and losses from sales or disposition of assets are
included in the statement of operation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
Fair Value of Financial Instruments
For most of the Company's financial instruments, the carrying value is
considered to approximate the fair value. Cash, most accounts receivable and
accounts payable are settled so close to the balance sheet date that fair
value does not differ significantly from the stated amounts.
Revenues
The revenue included in these statements is from an equipment rental
agreement with Silicon Resources, Inc. (See Note 12) The company recognizes
revenues on rentals and sales on an accrual basis at the time of invoice upon
delivery of the Company's products or as right to income is incurred.
Income Taxes
The Company has not generated any taxable income and therefore a
provision for income taxes is not necessary. Similarly, a provision for
deferred taxes is not necessary. The Company has available at September
30, 1998, unused operating loss carryforwards that may be applied against
future taxable income and that expire as follows:
Amount of Unused Operating Expiration During Year
Loss Carryforwards Ended September 30:
Federal State - Colorado Federal State
---------- ---------- ------- ------
$1,780,930 $1,780,930 2018 2013
Adjustments
In the opinion of management the data reflects all adjustments necessary
for a fair statement of results for this period. All adjustments are of a
normal and recurring nature.
Advertising
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of direct-
response advertising, if any, are capitalized and amortized over the period
during which future benefits are expected to be received.
NOTE 1: INVESTMENT IN POOLED EQUITY ACCOUNT
The Company owns a $18,544 interest in a personal brokerage account held
by a shareholder. Originally, the Company received a $45,000 interest in the
account which was obtained in exchange for 4.5 million shares of common stock,
as described in Note 3. The Company has received $26,456 from the
shareholder.
NOTE 2: INVESTMENT IN CORPORATE FINANCE COMPANY
In 1997 the Company acquired 80,000 shares of Corporate Finance Company
("CFC") common stock. CFC is an affiliate company. Shares acquired represent
approximately a 4.4% ownership in CFC. A major shareholder of the Company is
also a major shareholder of CFC. Based on the 4.4% ownership interest in CFC,
the Company has accounted for the investment under the cost method. The
shares were obtained in the cash-free exchange described in Note 3 and were
valued at $2.50 per share, which represents the sale price of CFC shares in
transactions during the six to twelve months prior to the date of the
exchange. The valuation of the shares obtained was an agreed-upon value as of
the date of the exchange and will be carried on the books of the Company at
cost. In 1998 the Company sold 800 shares of CFC common stock 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).
As explained in Note 5C, the Company obtained its licensing agreement in
exchange for 500,000 shares of common stock. The common stock was valued at
the agreed-upon price of $250,000, or 50 cents per share.
As explained in Note 5F and Note 11, the Company acquired from LS2
equipment and software in exchange for 100,000 shares of common stock.
NOTE 4: LOAN PAYABLE TO CORPORATE FINANCE COMPANY
CFC has loaned the Company certain funds to cover operating expenses.
The balance due on the loan from CFC as of September 30, 1998 in the amount
of $14,442 is covered by a non-interest bearing demand note. In January
1999 CFC assigned the note to R Tucker & Associates.
NOTE 5: CAPITAL FUNDING
The Company has resolved to authorize private offerings pursuant to
Regulation S, Section 3 (b) and/or 4(2) of the Securities Act of 1933, as
amended, and/or Rule 504 of Regulation D promulgated thereunder. These
offerings can be composed of common stock and/or warrants. Such offerings
could result in dilution to Company stockholders prior to each offering.
Additionally, dilution could also result from the exercising of warrants,
incentive stock options, and non-incentive stock options. Stock option
plans are described in Note 6. The following summarizes the various stock
and warrant transactions as reported in the accompanying Statement of
Changes in Stockholders' equity (deficit):
Note A - upon value as of the date of exchange.
Note C - 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 - 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 $120,000 in
exchange for accrued consulting fees, which was expensed as
operating expense (see note 9)
Note I - 300,000 shares of common stock were issued for $1,500,000 to pay
off the convertible note, which was issued in exchange for fixed
assets of $173,948 and Research & Development expenses of
$1,327,052 (see note 13)
Note J - 4000 shares of common stock were issued for $20,000 in exchange
for advertising in 1999.
Note K - 137,000 shares of common stock were issued for $685,000 and
88,000 warrants exercised in exchange for a $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 party in an unrelated
transaction (see note G)
NOTE 6: STOCK OPTION PLANS
The Company has a stock option plan pursuant to Section 422A of the
Internal Revenue Code. The plan has yet to be defined other than the
reserving of 500,000 shares of common stock for such a plan.
The Company has also adopted a non-incentive stock option plan. This
plan grants options that can be exercised at a specified price. The Company
has resolved that 800,000 shares of common stock be reserved for this plan.
As of March 31, 1999, the options to purchase 200,000 shares at 50 cents per
share (same as the then current market price) had been granted to the
majority and controlling shareholders and an independent consultant.
These options expire December 1, 2002.
NOTE 7: WARRANTS
As part of its funding activities, the Company has issued warrants for
the purchase of common stock. Additional warrants may be issued in the
future during additional offerings. As of June 30, 1998, the following
warrants were outstanding:
Class A - One Warrant can purchase one common share
Ronald S. Tucker - 200,000 warrants at 40 cents per share
R Tucker & Associates, Inc. - 108,960 warrants at 40 cents per share
R Tucker & Associates, Inc. - 500,000 warrants at 80 cents per share
The warrants expiration dated has been extended from July 31, 1999,
to March 31, 2000.
Class B - one warrant can purchase one common share
George N. Haddad - 35,000 warrants at $4.50 per share
R Tucker & Associates, Inc. - 465,000 warrants at $4.50 per share
The warrants are to expire on May 31, 2002.
NOTE 8: RISKS AND UNCERTAINTIES
As discussed in "Organization and Summary of Significant Accounting
Policies", the Company has been in the development stage since its
inception on October 23, 1997. Realization of a major portion of the
assets is dependent upon the Company's ability to meet its future
financing requirements, and the success of capital funding and future
operations. These factors raise substantial doubt about the Company's
ability to continue as a going concern.
The investments in the pooled equity account are held
available-for-sale. As of March 26, 1999, the account consists of 1,000
shares of Torch Energy Royalty Trust, listed on the New York Exchange,
symbol "TRU", with a value of $4 13/16 per share, bid price, 6500 shares
Karzco Realty Trust, listed on the New York Exchange, symbol "KRT", with
a value of $11 9/16 per share, 100 shares of Kla-Tencor Corp, listed on
the NASDAQ national market, symbol "KLAC", with a value of $49 15/32 per
share, 100 shares of Novellus Systems, Inc., listed on the NASDAQ
national market, symbol "NVLS", with a value of $53 7/16 per share, short
100 shares ATMI, Inc. listed on the NASDAQ national market, symbol "AMTI",
with a value of $18 9/16 per share, and short 500 Gasonics Intl Corp.,
listed on NASDAQ national market, with a value of $10 5/16 per share,
and short Sabine Royalty Trust, listed on the New York Exchange, symbol
"SBR", with a value of $13.00 per share. The aggregate value of the
account is $77,748 as of March 26, 1999.
The investment in the pooled equity account is subject to the hazards of
trading equities on the open market. The account will experience growth and
loss in varying amounts depending on the performance of the securities traded.
All of the Company's $18,544 interest in the account is at risk and subject to
loss. The sum of $18,544 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 is payable to Dennis Kaliher and Ronald S.
Tucker, the president and vice president of the Company, respectively, for
consulting services rendered. This liability was canceled December 15, 1998
in exchange for 24,000 shares of common stock (See note 15).
In conjunction with the purchase of LS Squared, Inc. equipment by the
Company, Ronald S. Tucker, a major shareholder of the Company, also
purchased LS Squared, Inc. individually (See note 11).
NOTE 10: PURCHASE OF TECHNOLOGY
On January 30, 1998 the Company acquired from the Licensor, pursuant to
an agreement dated January 23, 1998, the following items valued as follows:
Machines & Equipment $ 40,577.00
Software 132,371.00
Technology
A/dsc321 Digital Signal Controller
A/dsc421 Dual Processor Controller
A/dsc 521 Digital Signal Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
Total Technology & Products 1,200,000.00
Goodwill and cancellation of Royalties 127,052.00
------------
Total $ 1,500,000.00
The Licensor received a non-interest bearing note from the Company
for specified items in the amount of $1,500,000.00. The amount representing
Technology, Products, Goodwill and cancellation of Royalties was charged to
research and development costs (See note 13) in the development stage period
as required by generally accepted accounting principles. The convertible
note payable was reported under current liabilities in the accompanying
balance sheet since the Licensor has agreed to accept the Company's
securities in cancellation of the indebtedness. The Licensor had agreed to
accept 300,000 tradable Units at $5 per unit, if qualified by July 31, 1998
or 500,000 restricted shares of common stock if not qualified by July 31,
1998. The date for qualifying the tradable Units was extended until
December 31, 1998. This note was canceled December 15, 1998 in exchange for
300,000 shares of common stock (See note 5).
NOTE 11: PURCHASE OF EQUIPMENT AND DESIGN SOFTWARE
On June 19, 1998, the Company acquired testing equipment, design
software, hardware, and intellectual property from LS Squared, Inc.,
(LS2) a California corporation, valued at $100,000 and appearing on LS2
books and records with a book value of an approximate amount. LS2 was an
independent third party and a non-affiliate of the Company and none of its
officers and directors were or are affiliated with the Company at the time
of the equipment acquisition. The terms of the agreement provided that the
Company receive the assets in exchange for 100,000 shares of the Company's
common stock through the exercise of 100,000 Class A Warrants. In July
1998 Ronald S. Tucker, a major shareholder of the Company purchased LS2 as
an individual. At the time of purchase, LS2 was a California Corporation
with no assets or liabilities.
NOTE 12: LEASE INCOME
The Company 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 the Company with office space for a $1,000 credit
against 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.
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and Development costs are charged to operations when incurred.
The components of research and development costs 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 March 31, 1999 The Company had 6,691,016 common shares outstanding
and no preferred shares outstanding. The earnings per share amount is based
on the weighted average number of shares actually outstanding. The number of
shares used in the computation for March 31, 1998 was 6,397,016 shares.
DISTRIBUTION AGREEMENT
THIS DISTRIBUTOR AGREEMENT is entered into by and between Samsung
Electronics Co., Ltd., a corporation formed under the laws of Korea, with a
place of business at San #24 Nongseo-Ri, Kiheung-Eup, Yongin-City, Kyungki-
Do, Korea 449-900 ("Samsung") and Tensleep Design Inc., a corporation
formed under the laws of the state of Colorado, U.S.A., with a place of
business at 78153 Calle Norte La Quinta, CA 92253 ("Distributor")
BACKGROUND
Samsung is engaged in the design and manufacture of stand-alone fax modem
products (the "Products"). Distributor has requested the right to
distribute Samsung's Products on a non-exclusive basis. To induce Samsung
to enter into this Agreement, Distributor represents and warrants to
Samsung that Distributor is: (1) qualified to distribute Products in the
territory of United State of America and Japan ("Territory"); (2) has
sufficient knowledge of Samsung's Products to do so; and (3) is not
competing in any manner or from against Samsung
In consideration of the mutual promises of the parties, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound, Samsung and Distributor
hereby agree as follows:
1. Appointment
Subject to the terms herein, Samsung hereby appoints to the
Distributor the nonexclusive right to sell the Samsung stand-alone fax
modem products identified in Exhibit A hereto (the "Products") in the
United States of America and Japan (the "Territory") during the term of
this Agreement. Distributor agrees that it will not sell the Products
outside the Territory, nor knowingly sell the Products to customers who
intend to install the Products outside the Territory, without the prior
written consent of an authorized representative of Samsung. Samsung shall
provide Distributor with necessary technical information regarding the
Products.
2. Acceptance of Appointment
Distributor hereby accepts its appointment as Samsung's distributor
with the nonexclusive right to sell the Products in the Territory. Except
as expressly set forth in this Section 2, Distributor acknowledges that
Samsung shall have the right to appoint other distributors in the Territory
and that Samsung and/or its affiliates may distribute the Products in the
Territory.
Notwithstanding the above, Samsung agrees not to appoint
Distributor's agents or subagents as distributors. Samsung agrees, prior
to its appointment of any party as a distributor or its distribution of its
Products in the Territory, to give Distributor 30 days written notice of
its intention ("Notice of Appointment") and Samsung agrees that
Distributor shall have the exclusive right to sell to customers listed on a
customer list provided to Samsung within 10 days after the receipt of
Samsung's Notice of Appointment, only to the extent actual and substantial
order placement of the Products from such customer has been made as of the
receipt date of Samsung's Notice of Appointment.
3. Duties of Distributor
Distributor shall undertake, at its sole expense, the following
duties in a professional manner to the satisfaction of Samsung:
3.1 Use its best efforts to promote the sales of Products in the
Territory. Such efforts shall include, but not be limited to, promptly
servicing all customer accounts and cooperation with and participation in
Samsung's advertising and sales promotional programs. All promotional and
advertising materials for the Products, unless supplied by Samsung, must be
approved in writing by Samsung.
3.2 Maintain adequate office and warehouse facilities.
3.2 Provide its customers with technical support related to the
Products.
3.3 Maintain a trained and aggressive sales force and technical
personnel.
3.4 Maintain an inventory of Products as may be reasonably
necessary to meet market demand for the Territory.
3.5 Provide monthly reports to Samsung regarding inventory, sales
and sales forecast of Products and any other information reasonably
requested by Samsung.
3.6 Elect one person designated by Samsung to serve on
Distributor's Board of Directors. The person designated will be subject to
the approval of the Distributor, which will not be unreasonably withheld.
4. Agreement of Purchase and Sale
Samsung agrees to sell to Distributor and Distributor agrees to
purchase from Samsung the Products subject to Samsung's terms and
conditions of sale ("Terms and Conditions"), attached hereto as Exhibit A
and incorporated herein by reference set forth herein.
5. Purchase Orders
No contract for sale of Products shall result except by Samsung's
written acceptance of each order submitted by Distributor. Accepted
purchase orders will be exclusively subject to the Terms and Conditions
attached hereto as Exhibit B. Any preprinted information on Distributor's
Purchase Orders shall be of no force or effect.
6. Prices
Products will be invoiced to Distributor at the applicable prices
listed on the price list or other applicable written price quotations to be
issued to Distributor by Samsung twice per year (the end of June and
December), current at the date of Samsung's acceptance of Distributor's
order. The initial price offered to the Distributor effective as of the
date of this Agreement is attached hereto as Exhibit B. The payment term
shall be C.O.D(Cash on Delivery) which requires full payment of the prices
invoiced to Distributor prior to shipment of the Products under
Distributor's order. Such payment will be made by wire transfer to a bank
account in Korea as designated by Samsung in the applicable invoice.
7. Product Discontinuance and Changes
Samsung reserves the right to discontinue the sale of any and all
types of Products and to change the product type, specifications, designs,
formula, contents or packaging thereof, with sixty (60) days' advance
written notice to Distributor. In such event, Samsung agrees to fulfill
all orders or contracts for the discontinued products outstanding or taken
prior to the product termination date included in this Section 7.
Distributor shall also have the right to purchase the Mask set and designs
at a reasonable price and seek fabrication from another foundry.
8. Product Implementation and Derivatives
Distributor may implement Supplier's technology related to the
Products into other derivative products, subject to terms and condition of
a separate written agreement to be executed between the parties ("License
Agreement"), including but not limited to Supplier's technical support for
such implementation, royalty payment for the Distributor's use of
Supplier's technology, royalty-free grant-back license for Supplier's use
of derivative technology developed by Distributor, and foundry service
arrangement for such derivative products.
9. Confidential Information
Neither party ("Recipient") shall use or disclose to a third party
any confidential information of the other party ("Provider") acquired by
the Recipient as a result of activities under or in the performance of this
Agreement except as authorized in writing by the Provider. This
confidential obligation shall survive for five (5) years after the
termination or expiration of this Agreement. Upon expiration or
termination of this Agreement pursuant to Section 10, below, Recipient
shall immediately return to the Provider all of the Provider's confidential
information including but not limited to technical Information set forth in
Section 1, together with any and all copies thereof.
10. Covenant of Non-competition
Distributor shall not purchase, sell, distribute or otherwise deal
such products, which are competitive with or similar to the Products in the
Territory, without prior written consent of Samsung.
11. Trademarks and Trade Names
Distributor shall use its own trademarks, trade name, logo, marking
and identification code("Trademark") on the Products supplied under this
Agreement and other printed materials associated with resale of the
Products . Samsung will supply the Products on an OEM basis with
Distributor's Trademark. Distributor shall not use Samsung's Trademark
without Samsung's prior written consent. Distributor shall not have any
right or interest in or claim to any Samsung trademark or trade name in any
manner whatsoever.
12. Term and Termination
12.1 The initial term of this agreement shall be one (1) year from
the date of receipt of the Technical Source & Document (as set forth in
Exhibit A) to be provided by Samsung pursuant to this Agreement.
Thereafter this Agreement may be automatically renewed for four(4)
additional terms of one year each, unless Samsung or Distributor provides
the other with 90 days' written notice of non-renewal, for any reason or
for no reason, prior to the end of the initial or any renewal term.
12.2 This Agreement may be terminated at any time by either party if
the other party defaults in the performance of any provision of this
agreement and such default continues for a period of 30 days after notice
thereof, and if the other party is adjudicated a bankrupt, becomes
insolvent, makes an assignment for the benefit of creditors, has a receiver
appointed, files a petition in bankruptcy or initiates reorganization
proceedings.
12.3 Samsung agrees to fulfill all orders or contracts of Products
outstanding or taken prior to the effective date of the expiration or
termination of the Agreement provided in this Section 12, unless such
termination is caused due to Distributor's default or insolvency set forth
under Section 12.2.
13. Notice
Any notice, request, consent, offer or demand required or permitted under
this Agreement must be in writing and must be sufficiently given if
delivered in person or sent by registered airmail or fax confirmed by
registered by registered airmail, addressed as follows:
Samsung Distributor
Address: Samsung Electronics Tensleep Design, Inc.
San #24 Nongseo-Ri, kiheung-Eup 78153 Calle Norte La Quinta,
Kyungki-Do, Korea CA 92253 U.S.A.
Fax : 82-331-209-3262 1-760-771-4191
Telephone : 82-2-760-6023 1-760-771-0036
Attention : Dr. Hyung Lae Roh Mr. Ronald S. Tucker
Notice must be deemed to have given on the date of mailing except the
notice of change of address which must be deemed given when received.
14. Indemnification
14.1 Distributor shall indemnify Samsung and hold Samsung harmless
from and against any loss, claim, damages, fees (including attorney's
fees), or award arising from any lawsuit, proceeding or other action
arising out of (i) the operation of Distributor's business or (ii) related
to any claim by a third party based, in whole or in part, on Distributor's
distribution, use or install of the Products. The activities of any of
Distributor's employees or agents will be considered activities of the
Distributor for purposes of this section. Samsung will have the right, but
not the obligation, to assume the defense of any such lawsuit, proceeding
or action. Samsung and Distributor will each give the other prompt notice
of any such claim, lawsuit, proceeding or action.
14.2 Except for any design, specification or technical data provided
by the Distributor, any changes in the Products made by the Distributor, or
any combination with other products or incorporation into system products
not undertaken by Samsung for which the Distributor shall indemnify and
hold harmless Samsung in accordance with this Section 14.2, Samsung shall
indemnify, release and hold Distributor harmless from any claims, demands,
liabilities, actions, suits or proceedings asserted or claimed by any third
party from sales of the Products, whether against Samsung or Distributor,
and arising out of the violation of any copyrights and/or patents, and
Samsung agrees to undertake the cost of defending same, including
reasonable attorney's fees, where such claim, demands, liabilities,
actions, suits or proceedings are the result of defencts in the Products or
violations of copyrights and/or patents of others. Samsong shall be given
timely notice of any such claim demand, liability, action, suit or
proceeding, and Samsung shall have the option to undertake and conduct the
defense thereof.
15. Limitation of Liability
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OR IN CONNECTION WITH A PARTY'S
PERFORMANCE OR FAILURE TO PERFORM UNDER THIS AGREEMENT.
SAMSUNG'S LIABILITY ON ANY CLAIM OF ANY KIND, WHETHER BASED ON BREACH
OF CONTRACT, WARRANTY, TORT, OR INDEMNIFACTION UNDER THE SECTION 14.2 SHALL
IN NO EVENT EXCEED THE PRICE OF THE PRODUCT FURNISHED HEREUNDER WHICH GIVE
RISE TO THE CLAIM.
16. General
16.1 Relationship of Parties. The relationship of the parties shall
be that of independent contractors, and nothing herein shall be construed
as creating an employment, agency, partnership or joint venture
relationship between the parties hereto. Distributor expressly
acknowledges that it has no power or authority to make any commitments for
Samsung or to obligate Samsung in any manner whatsoever.
16.2 Force Majeure. If the performance of either party is made
impossible by reason of any circumstances beyond Samsung's reasonable
control, including without limitation, fire, explosion, power failure, acts
of God, war, revolution, civil commotion, order or requirement of any
government or legal body, then the affected party shall be excused from
such performance to the extent of such interference.
16.3 No License. Except as expressly set forth herein, nothing in
this Agreement shall be construed as granting to the other party any
rights, interest in, or license to any property, including intellectual
property and information, of the other party.
16.4 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable, such provision shall
be enforced to the fullest extent permitted by applicable law and the
validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
16.5 Waiver. Failure by either party to enforce or take advantage
of any provision hereof shall not constitute a waiver of the right
subsequently to enforce or take advantage of such provision. Any waiver of
any kind by a party of a breach of this Agreement must be in writing, shall
be effective only to the extent set forth in such writing and shall not
operate or be construed as a waiver of any subsequent breach.
16.6 Governing Law. The construction, validity and performance of
this Agreement will be governed in all respects by the laws of the State of
California in the United States of America. Any and all disputes arising
from or in connection with this Agreement shall be settled by arbitration
to be held in Seul, Republic of Korea in accordance with the arbitration
rules of the International Chamber of Commerce then effective, which shall
be final and binding upon both parties
16.7 Assignment. This Agreement may not be assigned or transferred
by either party except with the other party's written consent; provided,
however, Samsung may assign this Agreement to its affiliated company.
16.8 Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the parties relating to the subject
matter contained herein and supersedes all other prior agreements, oral or
written. This Agreement may not be changed or amended, in any way
whatsoever, except by written agreement signed by duly authorized
representatives of both parties.
16.9 Counterparts. The parties agree that they may execute
counterparts to this Agreement with each being considered the original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
SAMSUNG ELECTRONICS CO., LTD. TENSLEEP DESIGN INC.
By: /S/ Hyung Lae Roh By: /S/ Ronald S. Tucker
Print Name: Hyung Lae Roh Print Name: Ronald S. Tucker
Title: Vice President Title: Chairman
& General Manager
Exhibit "A"
1. Samsung Stand-Alone Fax Modem to be covered under this Agreement
a. KS16116-02 100QFP 9600bps FAX Modem with Caller ID
b. KS16117-02 100QFP 14400bps FAX Modem with Caller ID
c. KS16118 144QFP 9600bps FAX Modem Super 1-chip
(Modem +MCU)
d. KS16119 may be available for sale to the Distributor at the 4th
quarter of 1999, subject to the terms and conditions of a
separate agreement for such additional product to be discussed
and agreed between the parties.
2. Technical Source & Document to be provided to the Distributor:
a. Test Program (teradyne :A580 series)
b. Test Vector
c. FAX Modem Development Board
d. FAX Modem Evaluation Board
e. KS16118 Development Tool & Board Circuit
f. KS16118 Control Source Program
g. KS16116/7 Designer's Guide (Frame maker)
h. KS16118 Designer's Guide (Frame Maker)
i. KS16118 User's Guide (Frame Maker)
j. Test Plan (Frame Maker)
k. Field emulation Report (Powerpoint)
l. Ber Report (PowerPoint)
m. Performace Report & Compare Report(Frame Maker
& PowerPoint)
n. Two Hundred Fifty (250) samples of each of the
Products
Exhibit "B"
[Prices of Wafers and Packaged Chips applicable for the 1st
Quarter of 1999]
Products Wafer Price Packaged Chip Price
KS16116-02 $460.00 $3.01
KS16117-02 $460.00 $3.11
KS16118 $460.00 $7.30
KS16118S $580.00 $3.91
* The Products will be provided to the Distributor by Samsung
with minimum order of one hundred (100) wafers or twenty
thousand (20,000) packaged chips per each purchase order.
