UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Filed at
Washington D. C. 20549
FORM 10-SB/A
Second Amendment
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 Communications technologies 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 a family of
facsimile modem integrated circuits and a facsimile controller, which are
integrated circuits. The Company has two Internet-based products in the
development stage. The Company has no sales of any products as of the date of
this document. A facsimile controller is a combination of fax modem and
microcontroller fabricated in a single integrated circuit that controls the
functions of a facsimile machine.
The first Internet-based product is an Internet controller (the
"CyberServerTM"s) which is a modular unit acting as a server providing an
interface between appliances or devices and the Internet. CyberServer is a
thin Internet Server.
The second product consists of a family of Internet communicator units
which are a combination of a traditional telephone and an e-mail sending and
receiving device (the "CyberCommunicatorTM"). CyberCommunicator is a consumer
communications product.
The Company was founded in October 1997 under the laws of the state of
Colorado under the name Tensleep Design, Inc, and changed its name in April
1999 to Tensleep Technologies, Inc. (the "Company"), and formed a wholly owned
subsidiary using the name of Tensleep Design, Inc. ("Tensleep" 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 and market
communication products, e.g., thin Internet servers and Internet
communicators, and sell them to original equipment manufacturers through a
network of independent sales representatives. The second segment's business
will be conducted in a subsidiary corporation to be formed and will
distribute communications products, e.g., Internet Communicators, telephones,
etc., 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 products sold in the second segment need not be
producted or manufactured by the Company.
The Company's CyberServers will be marketed to original equipment
manufacturers of office equipment, production equipment, test equipment and
other appliances or devices. The facsimile modem and controllers are being
marketed to facsimile machine and facsimile server manufacturers. The Company
believes it is one of only a half dozen manufacturers that have a true
monolithic integrated circuit for high-speed fax modem products which can be
used by the facsimile and facsimile server manufacturers.
The CyberCommunicator will be marketed through multiple distribution
channels. The individual consumer may purchase the units from retail
electronic outlets, or a Company's 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 determine ISP interest.
The Company in order to enhance its business is seeking strategic
relationships with companies which design, market and sell consumer Internet
and communications products and make use of 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
In order to make the information more understandable the following
definitions are provided for your convenience.
An "algorithm" is a defined procedure for solving a problem or
performing 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 performs a specific logic
function such as AND, OR or 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
that is 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 in the form of a
word.
A "modem" is a device that translates digital pulses from a computer
into analog signals for telephone transmission, and analog signals from the
telephone into digital pulses the computer can understand.
An "OEM" or "original equipment manufacturer" is a manufacturer who buys
equipment from other suppliers and integrates that equipment into its products
for resale.
BACKGROUND OF COMPANY
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. 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, as well as three modem
products.
A key element in the early growth of the Company's technology was the
successful development of long term strategic relationships with major
international semiconductor manufacturers, such as Kawasaki and LG Semicon .
These relationships provided the Licensor with over $6.0 million dollars to
fund the design of leading edge communications technologies, and the Licensor
retained rights to the technology for its own products.
The Licensor pioneered and completed the design and development of
products using a hardware technology that incorporate both analog and digital
circuits "mixed-signal". coupled with software that accepts a signal, executes
algorithms on that signal, and stores or outputs the result ("signal
processing algorithms"), integrating it all into one-IC in a cost effective
manner. The one-IC designs can replace competitive IC sets (which contain two
to four integrated circuits), and eliminate 30 to 40 other electrical
components, resulting in approximate cost savings of $7.00 to $15.00 in the
manufactured cost of a typical $100 modem card or box. The Company has
identified specific segments of the communications and computer markets to
which it is marketing and hopes to sell these products. By operating in
selected segments of the marketplace (facsimile machines and non-multimedia
modems) the Company believes it will have fewer competitors, because of a lack
of perceived market, and many customers with a potential for high volume
purchases to which it can supply its products.
HISTORY OF COMPANY AND COMPANY'S TECHNOLOGY
The Company was incorporated in the state of Colorado on October 23,
1997 by R Tucker & Associates, Inc. ("R Tucker"), and its principal
shareholder, Ronald S. Tucker, an officer, director, shareholder and promoter
of the Company. R Tucker, a corporate financial consulting firm, for many
months before October 1997 had been negotiating with the Licensor to acquire
its technology or to participate in its capital reorganization. In October
Mr. Tucker received authorization from the Licensor to use the name "Tensleep
Design, Inc." for a corporation he was forming in the State of Colorado. In
December 1997 the Company acquired a non-exclusive perpetual license to the
technology and modem products develop by the Licensor (the "Technology").
Then in January 1998, the Company entered into a definitive agreement to
acquire all the ownership rights to the Technology and other assets of the
Licensor in exchange for 300,000 shares of the Company's common stock.
Although the Company acquired the Technology from Licensor, the Licensor has
granted non-exclusive rights to the Technology to others:
The Licensor was a Texas corporation formed and founded in 1987 by
Dennis Kaliher, who was the president, chief executive officer, director and
majority shareholder.
The Licensor since 1987, with strategic partners like Kawasaki Steel and
LG Semicon (formerly Lucky Goldstar) of Korea, has developed Technology and
three products as follows:
Technology
A/DSC321 Digital Signal Controller
A/DSC421 Dual Processor Controller
A/DSC521 Dual Processor Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
The development costs of the Technology and Products exceeded
$6,000,000.
The Licensor's business from 1987 to 1996 was providing engineering
services through strategic relationships. This allowed it to develop good and
valuable technology and products. Then in 1996 the Licensor made a decision
to develop and market its own products and stop providing engineering services
to others; however, to accomplish this, it required funding. It entered an
agreement with a Texas broker/dealer to do a best efforts underwriting and
expended over $200,000 in legal and accounting fees for that purpose. It
filed a Form SB-2 with the Denver Office of the Securities And Exchange
Commission, but the registration was never completed because of a lack of
funds and loss of interest by the broker/dealer. The underwriting never took
place and for over one year the Licensor had no revenues, depleted its capital
and was unable to market its products and was unable to raise capital to
advance its business. The employees, save Mr. Kaliher, were transferred to
Zilog, 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 into 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. 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. Corporate Finance Company, a Colorado corporation ("CFC"), an
affiliate, in order to prevent the dilution of the shareholders interest by
issuing the 100,000 shares pursuant to the LS2 agreement, agreed to assign and
exercise 100,000 Class A Warrants at $.40 per share on behalf of the then sole
owner of LS2, an unrelated party. CFC receive no consideration from the
Company, LS2 or LS2's owner. The result is that the Company received
$100,000, $1.00 per share. Subsequent to that transaction, Mr. Tucker
purchased all the issued and outstanding common stock of LS2 for $100. LS2 at
that time had no assets and was winding up its business. It was 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.
In addition to the technology, the Company acquired design workstations
and software design tools which had been 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, entered into a distributor agreement with
Samsung Electronics Co., Ltd., to distribute Samsung stand-alone fax modem
products in the United States and Japan on a non-exclusive basis. The Company
will be able to put its name on these products and its own part number and
will be responsible for all product support. The agreement is for a term of
one year with four automatic renewals of one year. The fax modem products
covered by the agreement include the following:
T2903 9600bps FAX Modem with Caller 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. It is
used as the control device for microcomputers,
household appliances, business machines, etc.)
The T2930, T1703, and T2903 have the same footprint as the Rockwell
Semiconductor fax modem chips, which controls an estimated 70% of the fax
modem market. The fact that the Samsung fax modem chips are of the same
footprint means that the facsimile machine manufactures would be able to
substitute that chip for the Rockwell chip without any board changes. The
next generation fax modem chip will be able to be used in the same circuit
boards now in use, while Rockwell's will require circuit board revision. The
Company believes that many manufacturers would prefer not to redesign their
board because of the cost to do so. The Company believes that this provides
it with a unique window of opportunity. These fax modem products were
developed by Samsung and are not based on the Company's technology.
The Company is completing its 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 which is a module within the
CyberCommunicator. The Company is marketing a facsimile modem integrated
circuit fabricated by Samsung, but has not sold any to date, and is
formulating plans to market and sell its CyberServer products.
TECHNOLOGY AND PRODUCTS
The Company's products are designed to incorporate and use its
technology. Effective implementation of the technology depends on both
hardware and software. The hardware typically consists of a mechanical or
electrical device used to convert continuous analog signals to discrete
digital numbers ("Analog-to-Digital" or "A/D") and a mechanical or electrical
device used to convert discrete digital numbers to continuous analog signals
("Digital-to-Analog" or "D/A") and a Digital Signal Processor. The software
consists of an algorithm capable of emulating, in the DSP, the 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 application-specific digital signal processor integrated circuits.
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 wide variety of designs resulting in a design library
that complements the DSC systems-on-a chip. The library includes non-volatile
and volatile memories, phase-locked loop circuits, and microcontrollers. These
designs enhance the Company's ability to build a variety of integrated
circuits quickly and economically.
TECHNOLOGY- DIGITAL SIGNAL CONTROLLERS
A/DSC321
MIXED SIGNAL DSP AND ANALOG FRONT END.
The A/DSC321 is a highly integrated single-chip device which contains a
fixed point DSP and 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; to voice
applications such as voice processing for digital answering machines, and
other applications where space, performance, and low power are key
requirements. It provides capability equivalent to competitive products that
require two to three chips.
The design is implemented 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 re-targeted into the newer 0.5 and 0.35 micron
fabrication processes which the Company believes will reduce the cost to less
than 25% of the present cost. The Company does not have a plan to re-target
product's fabrication process 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, with an 8-bit microcontroller, an AFE, and a
comprehensive set of peripheral interfaces. The 8-bit microcontroller
instruction set is compatible with the Zilog Z80 repertoire of instructions to
operate the microcontroller ("instruction set"). The Z80 compatibility allows
the use of industry standard development tools, and makes available a large
set of existing software solutions. The A/DSC421 also 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 market, navigation and surveying markets, motor control
markets, and embedded systems. The A/DSC421 has been programmed as a 14,400
bps PC data modem providing several functions within a single chip, which
competing products providing similar functions require three or more chips.
The technology is implemented using Kawasaki's 1.0 micron CMOS process
and must be re-targeted into a newer 0.5 micron process to enhance its
marketability. The Company is now identifying and evaluating unrelated
fabricating companies in order 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 12 months.
A/DSC521
DUAL PROCESSOR WITH ANALOG FRONT END
The A/DSC521 is virtually identical to the A/DSC421 but with a faster
clock speed for both the DSP module and the microprocessor. The higher clock
rates expand the type of applications the chip can address.
The A/DSCx21 technology can be applied to a great many applications
where the solution requires analog, digital signal processing and data
processing. Initially, the Company will be concentrating in high-speed
facsimile machines and medium-speed modems. All products are based upon the
A/DSCx21 hardware technology; the primary difference in the actual products is
in the software executed in the DSP and MCU modules.
In addition to using the technology for the Company's own products, the
DSP designs will be licensed to companies needing a DSP in their embedded
applications which makes their products more competitive. The architecture is
ideal for embedded applications because it is compact, fast and economical.
TECHNOLOGY - NON-VOLATILE MEMORIES
These memories are used primarily for program storage for the DSC and
MCU processors. The library provides the DSC and MCU processors with a wide
selection of program memories to accommodate a variety of applications.
TECHNOLOGY - VOLATILE MEMORIES
Volatile memories are used primarily to provide a temporary store for
data that the processors are working on. The library includes a large
selection of volatile memory in which the data, once written, is stable until
power is removed ("Static Random Access Memories" or "SRAMs"). All are
implemented in contemporary 0.5 micron processes.
TECHNOLOGY - PHASE-LOCKED LOOP CIRCUITS
Phase-locked loops (PLL) are required for the new high-speed processors;
the internal clock rates are usually higher than clock rates readily available
from inexpensive circuits that continuously output a simple signal that
repeats at a fixed time interval or frequency ("oscillators"). A PLL will step
up the oscillator clock.
TECHNOLOGY - STANDARD CELL LIBRARY
The standard cell library includes a large set of the basic collection
of logic elements that perform a specific function ("logic blocks") necessary
to implement any integrated circuit.
PRODUCTS - QUICK RESPONSE INTERNET MODEM/CONTROLLER (CYBERSERVER)
The CyberServer is designed to efficiently and cost effectively link
people with devices or appliances in real-time via the Internet. The Internet
is a viable cost alternative to the telephone network.
The CyberServer allows an OEM to connect its equipment to the Internet
or a Corporate Internet. The equipment is then able to transmit data to (and
receive data from) a server where ever there is a telephone. Typical
equipment includes electric meters, vending machines, traffic monitors,
security devices, factory production machinery, etc. The CyberServer is based
on two of the Company's integrated circuit products, one of which combines the
modem, modem controller functions and the other combines 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 will be
able to be connected to the ethernet or the Internet.
The Company has no sales of this product. It will not be able to until
it has completed the development of its first product and make arrangements to
have the CyberServer manufactured by a third party.
PRODUCTS - INTERNET COMMUNICATOR (CYBERCOMMUNICATOR)
The CyberCommunicator, under design, enables a non computer-literate
person to use a single device which allows the user to browse the Internet,
send and receive e-mail and to make voice calls over the Internet and regular
telephone. The CyberCommunicator comes equipped from the factory with all
software required for the features; it requires no loading of software by the
user or knowledge of how to use a computer. The CyberCommunicator will make
use a CyberServer plus an Intel microprocessor.
A user will be able to search the Internet, send/receive e-mail,
participate in chat rooms, eventually use the Internet for voice
communications, and also allow for conventional voice communications. The
basic design of the CyberServer includes a color monitor, computer motherboard
and a keyboard. There is no software to load. The motherboard may be housed
within the monitor so there is only the cable to the keyboard and the power
cable to worry about. There is no setup to be done by the user other than a
telephone number and a password- the unit comes loaded from the factory with
the operating system, e-mail and browser software.
With these minimal features, the user can take advantage of all that is
available on the Internet. However, in the basic system there is no long-term
storage for data, nor is there any print capability. However, these and other
features can be added at any time. The user can buy the unit as a pure
Internet communications terminal and expand it into a full-blown Windows 98
computer with off-the-shelf components from their local computer store, if
desired.
The Company has no sales of this product. It will not be able to until
it has completed the development of its first product and make arrangements to
have the CyberCommunicator manufactured by a third party.
PRODUCTS - HIGH-SPEED FACSIMILE MODEM
The main elements in a typical facsimile (fax) machine consist of a
controller, a modem, a page scanner and a printer. The fax modem has evolved
from a low-speed (2400 bps) to today's standard of 14,400 bps. A new standard
for 28,800 bps fax transmission was released in 1998.
The Company has a design for a 14,400 bps Fax Modem, but expects the
newer 28,800 bps fax modem 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. It will provide a transmission that
occurs in both directions on a circuit, but not simultaneously, at up to 33600
bps in agreement with the ITU V.34 recommendation. 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 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 it has no sales.
PRODUCTS - MEDIUM-SPEED MODEMS
Medium-speed modems are found in products where the movement of encoded
information by means of electrical transmission systems ("data communication")
is key but not very visible such as ATMs, gasoline pumps, credit card
verification machines, etc. The total data sent is small, the data rates are
typically slower than those for a PC modem, and there is no need for the
addition of analog input/output capability to a digital computer ("multi-
media") capability. Each of these applications have a microcontroller as well
as a modem; the Company's technology is ideally suited to combining these
functions into one economical solution.
The Company does not have a fabricator to fabricate its medium-speed
modem. The Company is not marketing this product and has no plans to do so
within the next 12 months.
T2424
FAST RESPONSE MODEM/CONTROLLER
The Company's Fast Response Modem/Controller is a highly integrated
single-chip device combining a full-duplex DSP-based modem with a Z-80
compatible 8-bit microcontroller. It is specifically designed for use in
embedded applications where connection to the Internet and where space,
performance and low power are key requirements. It is ideally suited for
applications coupling telemetry capability with machine control as it contains
both a modem and microcontroller and allied peripherals that give it the
capability of directly controlling machine functions. It could be the only
integrated circuit required in many applications.
This 8-bit Controller can be connected to most electronic and electro-
mechanical devices and is targeted to such equipment as vending machines,
ATMs, power line monitors and other devices which require low-cost
communication and control. Embedded programs include protocol and command sets
which enable communications over both the dial-up network and the Internet;
and other software provides the operating system enabling the integration of
the embedded programs and customer-provided machine control programs.
The Company does not have a fabricator for its fast response
modem/controller. The Company is not marketing this product. It has no plans
to do so within the next 12 months.
ENGINEERING DESIGN SERVICES
The Company plans to solicits 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 augment its income from designing fees
charged for design services. The Company's design capability ranges from
initial concept and system design/analysis through logic/circuit design;
testing completed logic to see if it adheres to the design requirements
("logic simulation"); translation of a schematic or logic diagram into
physical transistors, wires, resistors, and other elements on an integrated
circuit ("circuit layout"); verification that the circuit layout agrees with
the schematic and does not violate any of the rules imposed on the layout by
the foundry ("circuit verification"), cell test and final test design.
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 companies that have used the
Licensor's and LS2's services in the past and companies with which they have
had other relationships.
The design activity is maintained on more than 10 workstations
compatible to those sold by Sun Microsystems running 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. This library of very basic
logic cells ("standard cells") and megacells forms the base from which the
Company has developed and will continue to design and develop proprietary
products for sale under the Company's label. However, many of the elements of
the library have value in themselves and can be marketed to other companies
engaged in the design of integrated circuits or used in designs contracted
with the Company.
The Company, based on information given by industry consultants,
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 of sample descriptions
of the logic or schematics 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 has endeavored to protect and maintain its intellectual
property, including its inventions, trade secrets and technical know-how. The
Company, when appropriate, plans to file patent applications for key
patentable designs, innovations and inventions that it believes are most
relevant to its product line and most valuable in terms of cost and
technological advantages. The Company prevents the loss to competitors of
valuable proprietary information such as trade secrets and technical know-how
through the use of 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
prior to engaging in any service to the Company. The Company further
requires, whenever possible, that companies engaged in sensitive discussions
with the Company, involving its proprietary technologies, execute non-
disclosure agreements. These agreements are intended to protect the Company's
trade secrets, technical know-how, and patentable and copyrightable subject
matter by restricting disclosure of such information. No assurance can be
made, however, that such contracts will provide the Company with adequate
protection in the event that such agreements are breached through the
unauthorized disclosure or use of such intellectual property.
The Company has unlimited rights to all its products and technology
developed with Kawasaki Steel Corporation and LG Semicon.
MARKETS AND CUSTOMERS
Once confined for use by the military for radar and sonar processing,
Digital Signal Processing technology is now being implemented in a wide
variety of applications, including modems, cellular telephones, compact disc
and digital stereo systems, hard and optical disk drives, and video games. The
DSP market is expected to show phenomenal growth; the Average Annual Growth
Rate (AAGR) for the total market is projected to be in the range of 31.8% from
1997 through 2002.
Worldwide DSP Market
($ millions)
<TABLE>
<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 which are programmed by the IC manufacturer to address specific
applications such as modems. This is the market that the Company's 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, office automation equipment,
and several industrial applications for a DSP where the DSP is embedded in a
single chip with additional specialized circuits to perform functions in
addition to 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.
QUICK RESPONSE INTERNET MODEM/CONTROLLER (CYBERSERVER)
Dataquest, an independent and unrelated computer market information
publisher, estimates that the information appliance or thin server market will
exceed $17 billion by 2002 and represents an estimated 13.5 million units sold
annually. The thin server market has seven segments which include the
following: Enterprise, Departmental, Workgroup, Industrial, Small office,
Device, and Consumer/Home. A Merrill Lynch research report projects that
Internet appliances will exceed the personal computer in sales and revenues
by 2005. Merrill Lynch says that the next wave of demand will be for
information and real-time data access and the next product category will be
appliances. Appliances have been defined as specialized, single, or limited
function devices that are inexpensive and reasonably intuitive.
The Company's CyberServer is to be marketed in the Industrial and Device
market segments. Future sales will be driven by the universal need for
information and the desire to control machines and other devices that were not
previously controlled by a computer. The Company has no revenues from the sale
of its CyberServer, which is currently being designed.
Industrial Thin Server Market
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
(act) (est) (est) (est) (est) (est)
<S> <C> <C> <C> <C> <C> <C>
Measurement ($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. In addition to these applications,
the Company, based on information from industry consultants, believes there
is a growing desire to collect data via modem from vending machines, arcade
machines and other machines dispensing products and/or services.
The Company has no revenues from this market, but is planing to enter the
market with a component module thin internet server buy June 2000.
INTERNET COMMUNICATOR (CYBERCOMMUNICATOR)
The Internet is emerging as the communications media of choice from among
the many available, especially for data communications. It is cheap, and its
cost is insensitive to either distance or duration.
A number of solutions have been proposed. These come from two broad groups-
the PC-oriented group and the TV oriented group. The PC group is by and large
happy with the present situation- one can purchase a usable PC for $700. The TV
group is implementing a solution based around the "set-top box" that connects
the TV to the cable system.
In our view, neither solution is optimum. Both burden the Internet access
capability with excess hardware and cost and neither specifically focuses on the
communication aspects as a solution. The PC is primarily a computation
solution, and the TV an entertainment solution, because when either is being
used in its primary function, it is unavailable for any other function.
We propose a communications-oriented solution. Our end target markets are
customers that are uncomfortable using a PC, or who have a PC but don't want to
wrestle with conflicts in usage, and those who just don't need or want a
computer but want use e-mail and/or to surf the net. The Company believes,
without market testing, that its intermediate market will be the ISPs
themselves. We will encourage them to lease the terminals to their customers
as part of a monthly rate or provide it at no cost. To make this attractive to
the internet service providers, we will offer lease terms as well as outright
sales - those that are chronically short of capital should find the lease
option very attractive. We will augment this distribution path by offering
the terminals for sale via the Internet and telephone. Service/support for the
leased units will be on an exchange basis- ship us the bad unit plus a small
fee and we will ship a replacement.
The basic selling points are the low initial cost, plus the ease of
installation and use. It can be thought of as closer to an appliance than a
computer. The price of the basic unit is targeted at 60-70% of that of the
minimal PC. Because there is no rotating machinery (no discs) and no loadable
software, the maintenance will be markedly less than that of the typical PC.
Because of the low selling price, we must also keep the direct marketing costs
low.
However, as there will be customers that are debating the choice between
the Internet Communicator or a PC, we have the capability of upgrading the unit
with the disc storage and memory needed to convert the unit to a full-blown PC.
This product is under development and is not expected to be complete until
mid 2001, if at all.
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 market in 1997 reached 14.1 million modems. The
Company will address this market with its facsimile modems and facsimile
controller. 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 products.
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 into
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 for the purpose of selling them the
Company's facsimile models and facsimile controller. To date the Company has
no revenues from the sale of these products.
MEDIUM-SPEED MODEMS
This market is difficult to quantify as it has garnered little interest
on the part of the consultant community. However, there are only two companies
addressing the market, Rockwell Semiconductor and TDK Semiconductor. Revenues
and volume are expected to decline through 2002 with the price per unit
holding steady at $5 per unit.
Medium-Speed Modems
<TABLE>
<CAPTION>
1997 1998 1999 2000 2001 2002
(act) (est) (est) (est) (est) (est)
<S> <C> <C> <C> <C> <C> <C>
Units (millions) 9 8 7 6 5 4
Sales ($M) $45 $40 $35 $30 $25 $20
</TABLE>
Source: Forward Concepts, DSP Strategies 2002, August 1998.
The Company has a product for this market. However, the Company
currently has no sales of this product and none can be made until the Company
can identify and enter an agreement with an unrelated party for the
fabrication of the product. The Company has identified a Company but has not
commence negotiations.
SALES AND DISTRIBUTION
The Company uses independent manufacturer's representatives as the sales
channel to address the U.S. customers, except for fax modem/controller
products. The manufacturer's representatives are selected based on Mr.
Kaliher's previous relationships with these sales organizations. At present,
we have three representatives; 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.
For the facsimile market, the Company will utilize management's
relationships with overseas distributors and fax manufacturers to penetrate
the volume customers in Japan and other Pacific Rim countries. The Company
intends to establish relationships with U.S. manufacturers who are currently
using chipsets provided by competitors. The Company believes that the lower
cost, smaller space requirements and design flexibility of its integrated
circuits will be strong selling points. Jetfax in the U.S. and Ricoh in Japan
are among the companies targeted as potential customers. Fax sales in the
U.S. and Europe will be conducted through the field representatives
supplemented with the close relationships between Management and selected
customers.
The basic Company product is a combination of technology and service.
All products need 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 located in the U.S.
To sell and distribute consumer products the Company will use Internet
Sales and a network of independent manufacturer's representatives which
service retail outlets.
COMPETITION
The Internet Appliances are a shift to Internet computing where
specialized devices are connected by the Internet and supported by a
sophisticated infrastructure. The Company believes, based on reports by
Merrill Lynch, that Internet appliances are the next wave of demand for
information and real-time data access, and three existing vendor groups will
compete for the appliance market: computer makers, consumer appliance
companies, and mobile telecom vendors. 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
substantially greater marketing, financial and other resources than the
Company. Furthermore, the Licensor has granted the following rights to
principal strategic partners:
(i) Kawasaki is the owner of certain technology developed by the
Company and has the express rights to manufacture, modify, sell
and sublicense such technology;
(ii) LG Semicon has an unrestricted license to use certain intellectual
property that is jointly developed by the Company and LG Semicon;
and
(iii) Zilog has the right to sell, modify, manufacture and establish
certain products developed by the Company.
In the event any of these companies perceive economic opportunities,
they may elect to use such technology to manufacture products that may be
competitive with the Company's products.
In addition to the potential 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
which results in fewer components, lower power requirements and less board
space for the system or board developer (OEM). This translates directly into
lower costs for the customer. The Company believes the cost savings, along
with the Company's willingness and ability to add custom features, will
provide a competitive edge over its competitors.
The fax modem chip market is served by 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 for the competitive product is between $7.00 and $11.00 to the
largest Japanese customers but the product requires an additional $5.00 to
$7.00 worth of parts not required with the Company's fax modem/controller.
Rockwell's success in the Japanese market can be attributed to early market
entry into the major customer base in Japan, and the inability of other
modem/IC manufacturers to compete against Rockwell's technological lead-time
advantage. However, economic conditions in Japan are causing a change in this
market, and fax manufacturing is shifting from Japan to other Asian countries
and to the U.S.
The Company believes this market change provides it with a window of
opportunity to capture several fax customers with a more highly integrated
product. It is smaller, fewer external components, 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 market share from this
competition based on a competitive price, and strong customer support. Some
of the Company's products are highly integrated single-chip solutions
incorporating both a modem and a microcontroller which results in smaller
board space, lower power consumption, and lower cost than the competition.
The units lend themselves better to satisfying proprietary demands by allowing
programming by the customer.
RAW MATERIALS
The Company has no fabrication facilities to produce its integrate
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 acquiring required raw materials.
RESEARCH AND DEVELOPMENT
The Company has accounted for the acquisition of the Technology and
license from the Licensor, in the amount of $1,577,052, as a cost to research
and development. 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, but 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.
Licensor, at the end of September 1997, ceased doing business and closed
down it operations. The Licensor in early 1996 changed its business strategy
from preforming DSP engineering services to producing and selling DSP
products. For more than two years revenues were non existent and management
was seeking investment capital to continue operating. In order to finance its
new business strategy, the Licensor attempted to register a public offering
with a small broker dealer on a "best efforts" basis. The offering never took
place and the Licensor used up its limited available cash to pay for the costs
of the offering. For more than one and one-half years several of the
Licensor's officers and key personal accrued their compensation and went
unpaid.
The Licensor's total liabilities as of December 31, 1997 were
approximately $1,655,000, of that amount approximately 21% is owed to the
Licensor's bank, 34% is accrued but unpaid compensation to officers, directors
and others, 16% is due to shareholders 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
Licensor in default to its bank and its bank took possession of its
collateral. In the middle part of 1998, the bank conducted a sale of its
collateral. The bank, unable to satisfy its note from the sale of the
collateral, filed a suit in the Texas State Court to collect the deficient
amount due on the note against the Licensor and Mr. Kaliher, a personal
guarantor. Mr. Kaliher was the founder, president and chief executive officer
and a director of the Licensor. The amount of the deficiency is believed to
consist of principal of approximately $322,000, accrued but unpaid interest,
and legal fees. The bank has become an unsecured creditor to the extent of
the deficiency. The Company is not a party to the suit nor subject to
Licensor's obligation to the Bank.
In late August 1997, Mr. Kaliher, at the insistence of the Licensor's
chief financial officer ("CFO"), Mr. Richard Gravett, executed two promissory
notes. Each note represented the accumulation of accrued but unpaid
compensation for more than one and one-half years to Mr. Kaliher and Mr.
Gravett. Each note contained a provision that "(t)he secured property
includes" the "intellectual property" of the Licensor and "all proceeds from
the utilization of such property." In spite of this provision, neither note
expressly grants a security interest in any property nor does it define
"intellectual property." The Licensor and the Company 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 had the ability to pay its debts should be disallowed or subordinated
to all other creditors and preferred shareholders.
The Company was informed by Mr. Gravett, subsequent to June 1998, that
he claims a security interest in the Technology and that the transfer of the
Technology requires his approval. In order 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 as agreed to by the Claimant and Licensor,
or pursuant to an order of a court exercising jurisdiction over this matter or
place the shares with any court taking jurisdiction for the purpose of
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 escrowed stock.
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 and each of the approximately 12 preferred and 17 common
shareholders and develop a plan for distributing the Company's common stock
issued to Licensor in accordance with the Bankruptcy Code. However, this
requires the approval, consent and/or acquiescence of all the creditors and
shareholders. If the bank and Mr. Gravett and any other creditors or
shareholders fail to approve, consent or acquiesce the plan, the Licensor may
be required to proceed with a state or federal debtor proceeding to avoid
liability.
If the Licensor commences bankruptcy or state debtor proceedings, the
proceedings and/or distribution of the Company's securities may have a direct
effect on purchaser's of the Company's securities. Such effects may included,
but not be limited to, causing problems with timing and voting on important
issues of the Company, and a trustee in bankruptcy or other person may disrupt
the market for the Company's common stock, if and when developed, by
liquidating the Licensor's shares of the Company's common stock.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company was founded in October 1997 as fab-less semiconductor
company based in Austin, Texas. The Company was recently reorganized and
restructured into an Internet and communications technologies development
company.
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 in which there are
significant developments in technology and that "expertise" is a quantity that
dates and loses value quickly.
The Company acquired developed technology and products, but has no
fabrication facilities from which 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 multi-media 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 and the Company is without a fabricator for its own designed fax-modem
chip.
The Company's industry is made up of large companies with significant
financial resources. Most, if not all, have their own fabrication facilities
which 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.
In the beginning of its first year of business the management assessed
and evaluated the strengths and weaknesses of its technology, products and
management in order to establish a set of objectives. Based on its
evaluations, management established objectives as follows:
1. Identify niche markets for the use of 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 is capable of processing 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 and its Regulation A Offering under
the Securities Act of 1933, as amended, and the filing of 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 12 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.
PLAN OF OPERATION
The Company's business and operational plan, based on the described
objectives, for the next 12 months is directed toward developing revenues and
a foundation for growth. Management, based on its objectives, has developed
the following operational plan.
Operations
The Company is curently operating and will continue to operate with its
available funds. The curent 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 from the Pooled Investment Account
and/or the Company's note receivable owed by R Tucker & Associates, as
described below. The Company is now and will continue to limited its expenses
and not incur debt beyond payments within the $3,000 to $5,000 per month
limit, until and unless the Company has available funds on hand. 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 will be able to continue operating over the
next 12 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 12 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.
In the event the Company does not receive sufficient funds, as described
hereafter, or is not able to make use of non-cash consideration, exchange of
common stock, during the next 12 months, the Company will not be able to start
or complete the scheduled development of either the CyberServer or
CyberCommunicator or achieve any of the other objectives set out below.
If the Company receives less than a sufficient amount of funds and is
not able to find third parties to provide design and development services for
non-cash consideration early enough, the Company will not be able to reach its
objectives with in the scheduled time period, 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. It will not be
necessary for the Company to raise funds from new offerings, 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 has no plans 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
Rule 504, Regulation D and the Company has no plans to register
the shares underlying the Warrants.
3. Notes Receivable currently in the amount of $665,400 owed by R
Tucker & Associates, Inc., in the amount of $560,400, and an
unrelated third party in the amount of $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 provides for financing through the sources
identified above. The financing, if any, will be in the form of cash and non-
cash consideration. An integral part of the financing plan is to use the
Company's warrants held by R Tucker & Associates, an affiliate. R Tucker &
Associates has agreed with the Company to assign warrants to investors and
third party service providers designated by the Company, without consideration
to any party.
Research and Development
The Company with in the next 12 months plans to complete the initial
concept design of the CyberServer and CyberCommunicator. The Company is
scheduled to develop the logic design, board design, and software design for
the first product of the CyberServe by February 2000. The logic design, board
design, packaging design and software design will not start for the
CyberCommunicator until completion of the CyberServer, which is a module
within the CyberCommunicator.
Purchase and Sale of Equipment
The Company does not expect to purchase or sale epuipment 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 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 amount of
funds on hand and (2) the sales of the facsimile modems and facsimile
controller integrated circuits. The number of consultant's engaged will
depend 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. The complete development of the hardware and software of a
CyberServer.
2. Sales of the fax-modem chip acquired from Samsung Electronics in
the United States and Japan.
3. The Establishment of a relationship with Samsung Electronics for
the fabrication of the Cyberserver components and medium-speed
modems.
4. The establishment of a chip or integrated circuit design center.
5. The synthesization and licensing of the Company's intellectual
property.
6. The establishment of a web-store selling consumer communication
products.
7. 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 a six to ten month period by
qualified unrelated third parties. This product will be distributed through
the Company's current network of independent representatives which 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. At the present time 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 a large number of electronic products
which require a large number of diverse intellectual properties which 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 may payout approximately $44,000 of
purchasing one order of fax-modem chips. The Company does not have any
agreement or commitment for Samsung to perform items (1)
DESIGN CENTER
General
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 into in 1998. This agreement
provides that the unrelated party 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, but it 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 a number of
major elements that have potential to be licensed and be incorporated in chip
designs of other manufacturers. The Company's technology must be 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. There should be no
or minimal cost in synthesizing the Company's intellectual property. There
will be an administrative or overhead cost of not more than $20,000.
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 complete 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 in located in an office of approximately 500 square
feet of office in Austin, Texas. This facility is leased from an independent
third party. The Company intends to lease additional facilities as required.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company, as of April 30, 1999, had 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 over 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 and now is the President of
Corporate Finance Company and since 1990 to present, Mr. Tucker was the founder
and has been the President and director of TextBase Imaging Corp. ("TBI") (now
called "R Tucker & Associates, Inc."), a software development company. Prior to
forming TBI Mr. Tucker for a period of seven months was a director of 3CI, Inc.,
a public company, and for a period of three months was the President of that
Company. Prior to becoming involved with 3CI, Mr. Tucker has been owner and
manager of several business ventures and has been engaged in the private
practice of law. In 1986 and 1987 Mr. Tucker was a special counsel and
consultant to an originator of manufacturing housing installment sales
contracts. Mr. Tucker is a graduate of the University of California at Los
Angeles where he received a Bachelor of Science while majoring in finance and
accounting. Mr. Tucker is also a graduate of the Loyola University School of
Law. Mr. Tucker is a member of the California and Texas Bar Associations.
In 1994 Mr. Tucker and his wife filed for protection under the bankruptcy laws
of the United States.
Dennis E. Kaliher, age 62, Director and Chief 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, and engineering, marketing
and corporate management with Collins Radio Co., Rockwell International, and
Advanced Micro Devices as well as founding the Company. From 1963 to 1986, Mr.
Kaliher's experience at Collins and Rockwell ranged from developing and
marketing communications switching systems to managing the development and
growth of large and very large IC components; data modems, fax modems and other
communications devices for the telecommunications industry. Mr. Kaliher
received his BEE from the University of Minnesota.
Leticia I. Tucker, 57, Director and 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, in order 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 when the Board deems appropriate, the Company will enter into
employment agreements with the officers and establish compensation for the
directors. The Company, as of the year end authorized the accrual and payment
of a consulting fee of $120,000 for services during the Company's fiscal year
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 over five years have been granted
as follows:
Ronald S. Tucker 100,000 @ $0.50 per share
Dennis Kaliher 100,000 @ $0.50 per share
EMPLOYMENT AGREEMENTS
The Company at this time has not entered into an employment agreement
with any of the officers or directors. The management does not believe that
an agreement will be entered into until after September of 1999.
SALES COMMISSIONS
Sales are to be made either through manufacturer's 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 cash which 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
with the principal shareholders being Ronald S. Tucker and Leticia I. Tucker,
who are also the officers and directors. It is a private company.
The issuer on or about 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 of stock for cash and non-cash consideration
to unaffiliated third persons during the preceding six months at $2.50 per
share. Each investment unit of the Company consists of one share of its
common stock and one Class A Warrant to purchase one share of its common
stock. The first 500,000 Class A Warrants have an exercise price of $.40 per
share and the last 500,000 Class A Warrants may be exercised at $.80 per
share. Corporate Finance Company is a specialty finance company. It provides
financing to small companies with the expectation they will become publicly
trading companies. The primary shareholders of CFC and R Tucker & Associates
are Ronald S. and Leticia I. Tucker. They are also officers and directors.
Corporate Finance Company and R Tucker & Associates are affiliates of the
Company.
In October 1997, during negotiations for the acquisition of the
Licensor's technology, Mr. Kaliher agreed and authorize Mr. Tucker to use the
name "Tensleep Design, Inc." for a Colorado corporation. Mr. Tucker was to
form the Company for the purpose of acquiring either a non-exclusive license
or all the ownership rights.
The Company through Mr. Tucker and the Licensor through Mr. Kaliher
executed the license agreement on December 23, 1997. The license agreement,
negotiated at arms length, granted a non exclusive perpetual license to the
"Licensed Technology". The licensed Technology included Licensor's Previous
Results, Firmware, Services, Technical Information, and Products, including
the DSP Core (a/DSC321, a/DSC421, a/DSC521 technology), and any and all items
related thereto, and any and all derivatives, improvements, revisions,
versions, and/or modifications of the Licensed Technology owned by Licensor.
At the time of entering the license agreement, Mr. Kaliher was not associated
or affiliated with the Company and there was no agreement, understanding, or
commitment that Mr. Kaliher would become affiliated with or become an officer,
director or shareholder of the Company. The value of the license was agreed
to be $250,000 and was payable by the issuance of 500,000 shares of the
Company's common stock. The transaction, the value of the license and the
consideration was approved by the board of directors of both companies. The
license was valued at slightly more than 1/5 of the license fee paid by Zilog
for a similar license from the Licensor approximately two years earlier. In
addition to the license fee the Company was to pay a royalty based on the
gross revenues of the Company from sales of the Licensed products.
The Company and the Licensor executed the "Purchase Agreement" on
January 23, 1998. Mr. Tucker negotiated this agreement with Mr. Kaliher. The
Licensor agreed to sell to the Company all its rights, title and ownership
interests in its technology including all Research and Development Property,
equipment and software listed on its balance sheet as of the year end for
1996, all contracts re sales of licenses and Products or engineering services,
all molds, prototypes, tooling and/or dies, production credits, subject to
existing licenses, and the release of the royalties provided for in the
License Agreement. The value for all the described assets was placed at
$1,500,000 and the Purchase Agreement provided that the purchase price would
be paid with the issuance of 300,000 investment units of the Company's
securities issued pursuant to a qualified Regulation A offering under the
Securities Act of 1933, as amended (the "Act"). The transaction, the value of
the assets and the consideration was approved by the board of directors of
both companies. At the time of entering the Purchase Agreement, Mr. Kaliher
was not associated or affiliated with the Company and there was no agreement,
understanding, or commitment that Mr. Kaliher would become affiliated with or
an officer, director or shareholder of the Company. The total development
cost of the Licensor's technology was in excess of $7,000,000 and the cost of
the Licensor's, equipment and integrated circuit design software was in excess
of $500,000. The value of $1,500,000 was agreement to by taking in to
consideration the development costs of the technology, the cost of the
equipment and design software, and the license fee of $1,200,000 paid by
Zilog, Inc.
On January 30, 1998, the Licensor executed and delivered to the Company
a Bill of Sale pursuant to the Purchase Agreement and issued an invoice in the
aggregate of $1,500,000 which was apportioned among the assets purchased
pursuant to the Purchase Agreement.
On January 31, 1998, Mr. Tucker asked Mr. Kaliher to become the
President, chief executive officer and a director of the Company, which Mr.
Kaliher accepted.
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 through the exercise of 100,000 Class
A Warrants and the acceptance of the Company of the acquired technology,
equipment and integrated circuit design software received from LS2 as
consideration of the exercise price and contribution from CFC.
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 on
the bases of $5 per share and assigned the shares others designated by Ronald
S. Tucker and Dennis Kaliher. The shares were issued for the cancellation of
indebtedness pursuant to the Regulation A Offering which became effective
November 6, 1998.
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. The Company
believes the second claim is without merit. In order to avoid liability to
Claimant, the Company is holding any and all securities to be issued to
Sundance Design, Inc. The escrow agent will deliver the shares as agreed to
by the Claimant and Sundance Design or an order of a court exercising
jurisdiction over this matter.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Market Information. There is no 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, and 500,000 Class B Warrants
issued and outstanding. There are no shares that could be sold pursuant to
Rule 144 under the Securities Act or under any agreement to register under the
Securities Act for sale by security holders. The Company is not publicly
offering equity securities and does not intend to do so.
Holders. The Company has approximately 219 holders of record of its
common stock.
Dividends. The Company has not paid any dividends on its capital stock
since its inception. The Company currently anticipates that it will retain any
available funds for use in the operation of its business and does not intend
to pay any cash dividends on its Common Stock in the foreseeable future. Any
future payment of cash dividends is subject to the discretion of the Board of
Directors of the Company and will depend upon the Company's earnings,
financial condition, capital requirements and other related factors.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company on or about November 10, 1997 issued 4,500,000 shares of
Common Stock at a stated value of $.01 per share to the R Tucker & Associates
in exchange for $45,000 cash which was invested in liquid securities as of
November 1, 1997. These securities are carried at book value. These shares
were issued pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and are "restricted" shares pursuant to Rule 144. R Tucker &
Associates, Inc., is a corporate financial consulting firm with the principal
shareholders being Ronald S. Tucker and Leticia I. Tucker, who are also the
officers and directors. It is a private company.
The issuer, on or about December 23, 1997 acquired a non-exclusive
license to develop, use, enhance, sale, and market the modem chip technology
of Sundance Design, Inc., a Texas Corporation, formerly Tensleep Design, Inc.,
in an arms length transaction, for $250,000 and a royalty to be paid on all
revenues. In exchange for the license, Tensleep of Texas agreed to accept
500,000 shares of the Company's common stock valued at $250,000 in lieu of
$250,000 in cash. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended, and are "restricted" shares pursuant to
Rule 144. Dennis Kaliher is the president, chief executive officer, and
chairman of the board, and a major shareholder of Sundance Design, Inc. At
the time the two company's entered into the two agreements, Dennis Kaliher
was not an officer, director, shareholder or promoter of the Company and there
was no agreement, commitment or understanding that he become an officer,
director, shareholder or promoter of the Company. Subsequent to executing the
acquisition agreement, the Company reached an agreement with Dennis Kaliher to
become the president and director of the Company. The two agreements were
entered into at arms length.
The issuer on or about November 10, 1997 issued 1,000,000 investment
units to Corporate Finance Company in exchange for 80,000 shares of Corporate
Finance Company common stock valued at $2.50 per share. The value of CFC
common stock was based on sales of stock for cash and non-cash consideration
to unaffiliated third persons during the preceding six months at $2.50 per
share. Each investment unit of the Company consists of one share of its
common stock and one Class A Warrant to purchase one share of its common
stock. The first 500,000 Class A Warrants have an exercise price of $.40 per
share and the last 500,000 Class A Warrants may be exercised at $.80 per
share. The Company's shares and warrants were issued pursuant to Regulation
D, Rule 504 under the Securities Act of 1933. The Company was organized by R
Tucker & Associates, Inc., and Ronald S. Tucker to engage in the specific
business of developing digital signal process technology, marketing it, and
selling it through the acquisition of either a non-exclusive perpetual license
or acquisition of ownership rights to the technology of Tensleep of Texas
(Rule 504 (a)(3)). Corporate Finance Company is a specialty finance company.
It provides financing to small companies with the expectation they will become
publicly trading companies. The primary shareholders of CFC and R Tucker &
Associates are Ronald S. and Leticia I. Tucker. They are also officers and
directors. Corporate Finance Company and R Tucker & Associates are affiliates
of the Company and the securities received by CFC are "control" securities as
the term is defined in Rule 144.
In January 1998, the Company entered into a definitive agreement to
acquire all the ownership rights to the Technology and other assets of the
Licensor in exchange for 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, pursuant to a Regulation A
Offering, an exemption under the Securities Act of 1933, as amended.
In June 1998, the Company entered into 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 exercise 100,000 Class A
Warrants at $.40 per share on behalf of 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 interests in the Company or
other subscription rights for other securities of the Company. Shares of
Common Stock are not redeemable or subject to further calls or assessments.
All of the outstanding shares of Common Stock are fully paid and nonassessable
and the shares of Common Stock to be outstanding after this offering will be
fully paid and non-assessable. The holders of shares of Common Stock are
entitled to share pro rata in such dividends, if any, as may be declared by
the Board of Directors of the Company out of funds legally available therefor.
Subject to the prior rights of holders of shares of Preferred Stock, if any,
upon liquidation, dissolution and winding up of the Company, holders of shares
of Common Stock are entitled to share ratably in the net assets available for
distributions to such holders.
Holders of Common Stock are entitled to vote upon all matters submitted
to a vote of the stockholders of the Company and shall be entitled to one vote
per share held, except in the election of directors where the holder shall be
entitled to one vote per share held times the number of directors to be
elected. Generally, the vote of the majority of the shares represented at a
meeting of the stockholders and entitled to vote is sufficient for actions
that require a vote of the stockholders.
Preferred Stock
The Board of Directors is authorized, without any further action by the
shareholders, to issue Preferred Stock from time to time in such series, in
such a number of shares and with such dividend, redemption, liquidation,
voting, conversion, sinking fund and other rights as the Board shall
establish. The Company has no present intention, commitment or understanding
to issue preferred securities of any type or kind.
The Transfer Agent and Registrar for the Common Stock is the Executive
Registrar & Transfer Agency, Inc., located at 3145 W. Lewis Ave., Suite 200,
Phoenix, AZ 85009 Its telephone number is (602) 415-1273.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide that the Company will indemnify its
Directors and officers to the fullest extent permitted by law against certain
losses which may be incurred in connection with any proceeding which arises by
reason of the fact that such person is or was an agent of the Company. The
Company believes that indemnification under the Bylaws covers at least
negligence and gross negligence by an indemnified party, and permits the
Company to advance litigation expenses in the case of stockholder derivative
actions or other actions, against an undertaking by the indemnified party to
repay those advances if it is ultimately determined that the indemnified party
is not entitled to indemnification.
In addition, the Company's Articles of Incorporation provide that,
pursuant to Colorado law, its Directors shall not be liable to the Company or
its stockholders for monetary damages for and act or omission in the
Director's capacity as a Director. This provision does not eliminate or limit
the liability of a Director to the extent the Director is found liable for a
breach of the Director's duty to loyalty to the Company, for acts or omissions
not in good faith or involving intentional misconduct, or a knowing violation
of the law, for actions leading to improper personal benefit to the Director
and for an act or omission for which the liability of the Director is
explicitly provided by applicable statute. The provision also does not affect
a Director's responsibilities under any other law, such as federal securities
laws or state and federal environmental laws.
ITEM 13. FINANCIAL STATEMENTS.
Attached as Exhibits..
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(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 By-laws
3.1 Articles of Incorporation A
3.1.1 Amended Articles for change of Name B
3.2 Bylaws A
10. Material Contracts
10.1 License Agreement with Tensleep Design, Inc.,
a Texas corporation A
10.2 Purchase Agreement and Bill of Sale with
Tensleep Design, Inc., a Texas corporation A
10.3 Warrant Agreement for Class A Warrants A
10.4 Warrant Agreement for Class B Warrants A
10.5 Stock Option Plan A
11. Statement re: Computation of Per Share Earnings **
21. Subsidiaries of the Registrant 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 of Equipment *
* 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 Previously submitted with Form 10 and 10/A
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 9, 1999
Ronald S. Tucker
/S/ Leticia I. Tucker Director, Secretary July 9, 1999
Leticia I. Tucker
/S/ Dennis Kaliher Director, COO July 9, 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.
AGREEMENT
This Agreement is made and entered into this day of August 1998 by and
between TENSLEEP DESIGN INC. ("TDI"), a corporation having its principal
place of business at 78-153 Calle Norte La Quinta, CA 92253, USA, and
Silicon Resources, Inc. ("SRI") a corporation having its principal place
of business at 800 Brazos, Suite 820, Austin Texas 78701.
PURPOSE
The purpose of this Agreement is to define the terms of the agreement
between SRI and TDI for the mutual benefit of both parties.
WHEREAS, TDI, together with its subsidiary Logical Silicon Solutions (LS2),
has integrated circuit design software, design workstations and a large
library of standard, micro-and mega -cells including 16-bit DSPs and 8-bit
microprocessors, which are not being fully utilized at the moment; further,
TDI needs to re-organized and support the DSP designs, and
WHEREAS, TDI intends to exploit the DSP intellectual property by expending
as a fabless semiconductor company into selected modem and other markets
with integrated circuit products based on the DSP and mixed-signal
technology, and to rebuild and expend LS2 by concentrating on contract
design with initial emphasis on IC layout, and
WHEREAS, SRI has a successful consulting business with hardware and software
to support present customers but has identified potential future business if
more equipment and software were available, and
WHEREAS, SRI has already started presenting its present intellectual property
to customers and intends on expending its present business to support such
customers and ideas and would need to acquire equipment and software to
support such endeavors.
THEREFORE, SRI and TDI have entered into the following agreement,
1. TDI will provide 5 or more designs workstations; not to exceed 10, five
to be used on a priority basis by SRI personnel for 18 months; SRI will
provide space and power for these workstations and up to two servers.
These workstations will be equipped as described in Appendix A.
2. TDI will leased the workstations and licensed design software for a
monthly rental to SRI as described in Appendix A. Workstations and
leased software are reserved for exclusive use by SRI and TDI.
3. SRI will make space available for up to 4 TDI personnel; 1 manager and
3 designers; TDI to compensate SRI for such space as described in
Appendix A.
4. SRI will make at leased one design engineer available to TDI for the
purpose of re-organizing the DSP designs, and supporting the transfer
of the intellectual property to TDI customers. The detailed scope of this
activity will be covered by an additional agreement to be completed
within 60 days of the date of this agreement . TDI will compensate SRI
for engineering services as outlined in the additional agreement.
5. Within a period of not to exceed 60 days, SRI and TDI will fashion an
agreement for the licensing and support of TDI intellectual property and
for the exchange of design services and design services marketing
between SRI and TDI. This agreement will address, but is not limited
to, such items as scope of competition, billing rates, royalty rates,
and customer assignments.
6. Compensation from SRI to TDI and TDI to SRI for items 1-3 above is as
outlined in Appendix A. Accounts payable and accounts receivables will
be kept per FASB rules.
7. The Terms of the Agreement is 18 months, starting on 21 Aug. 98.
8. Neither TDI nor SRI may hire the other's employees for a period of two
years after the termination of this Agreement.
9. This Agreement is limited to the items specifically stated in the
Agreement; each party is an independent business and is entering into
this agreement to facilitate their respective and separate business
interests.
For Silicon Resources, Inc. For Tensleep Design, Inc.
Date: 8/21/98 Date: 21 August 1998
Signature: /S/ Michael Taborn Signature: /S/ Dennis Kaliher
Michael Taborn Dennis Kaliher
President President
<PAGE>
Appendix A: Billings
Workstation and CAD Software Complement and Pricing:
Logic design station (pi), with $1050/month
Waveform
Composer: Analysis
Composer: IC Design
EDIFIN
Verilog Access
Logic design station (oz), with $1050/month
Waveform
Composer: Analysis
Composer: IC Design
Verilog Access
Logic design station (rush), with $1050/month
Waveform
Composer: Analysis
Composer: IC Design
Verilog Access
Logic design station (newt), with $1450/month
Waveform
Composer: Analysis
Composer: IC Design
HSPICE
Verilog Access
Logic design station (fenway), with $3900/month
Waveform
Composer: Analysis
Composer: IC Design
HSPICE
Synopsys
Verilog Access
Pi, oz and rush are Solborne SPARC5 workstations; newt and fenway are Tatung
SPARC20 workstations. Verilog is resident on nitro, the S900 Solborne server.
First payment of the workstations and licensed software is due on the date of
the signature of this Agreement ans will apply to the first month's rental.
First month will start when workstations are operational with the licensed
CAD tools as listed for each station. Subsequent invoices for workstation and
design software rental will be billed monthly in advance, and payment will be
made by the 15th of each month. Access to other tools can be arranged on an
ad hoc basis.
First workstations on rental will be newt and fenway; with a target date for
turn-on of 1 Nov. 98. The other 3 stations will be added as needed, but no
later than 1 Feb. 1999.
Office space rental $1.50/ft2/month
Invoices for office rental will be billed monthly in advanced, and payment
will be offered by the 15th of each month.
TDI requires a minimum of one office and office space for at up to 4
additional employees.
Engineer Charges:
Tensleep will be billed for Silicon Resources engineering services at a
rate of $104.05 per hour or $18,000 per month.
<PAGE>
SUBLEASE AGREEMENT
WHEREAS: SILICONE RESOURCES: SRI (landlord), and TENSLEEP DESIGN (TENANT),
entered into a Lease dated 29 October 98 for approximately 750 Sq. Ft.
(Leased Premises) situated on the 2nd floor of the building at 2201 North
Lamar Blvd., Austin, Travis County, Texas and commonly known as the Park
Place Office Building.
WHEREAS: Landlord and Tenant entered into said Lease for a period of
Month to Month beginning 1 November 98. (See copy of Lease Attached).
WHEREAS: Tensleep Design, Sub-lessee, hereby agrees to abide by the terms
of this Sublease agreement and the terms and conditions of the Lease in
all particulars, it is hereby agreed by all parties that Tensleep Design,
Inc. Sub-lessee, shall pay the sum of $1000.00 per month directly to
Silicon Resources as his sole obligation under the terms & conditions of
the Original Lease.
THEREFORE: Be it resolved that Tenant hereby subleases the Leased
Premises to Sub-lessee effective 1 November 98. It is expressly
understood that nothing in this Sublease Agreement, including the payment
of rent by Sub-lessee directly to Landlord, shall release of diminish
Tenant's responsibility to Landlord under the terms of the Lease.
In consideration of the above, we witness our signatures this 29nd
day of October.
TENANT/SUB-LESSOR: SUB-LESSEE
BY:/S/ Michael Taborn BY: /S/ Dennis Kaliher
LANDLORD SUB-LESSEE'S REAL ESTATE
AGENT:
<PAGE>
SUPPLEMENT TO THE AGREEMENT OF 21 AUGUST
BETWEEN
TENSLEEP DESIGN, INC. AND SILICON RESOURCES, INC.
The following paragraphs apply to the Appendix A of the referenced Agreement
and replace applicable elements of the Appendix:
Billing for the reservation and usage of the referenced workstations will be
as follows:
1. Five workstations as listed in the Appendix A will be reserved for
the use of SRI in exchange for a credit to TDI of $9,650 per month. $1,000.00
of this credit will be returned to SRI in exchange for which SRI will provide
TDI with approximately 750 square feet of office space co-located with SRI;
space to be made available no later than 1 January 1999. In the interim, SRI
will make one office available for TDI personnel and provide common space for
CAD equipment to support the workstations.
2. TDI will use the remainder of the credit to employ SRI engineering
personnel on TDI projects at a rate of $104.00 per hour. Credit not used in
one month will be accumulated and available for use in future months. Excess
usage of the credit (overages) will be deducted from the following months
credit.
3. Workstations will be taken off reserved status when assigned to
a project. Billing for usage of the station commence with the start of the
project and will continue for the duration of the project. Minimum billing
is one month. The amount of the billing is deducted from the reservation
credit for each month the billing occurs.
4. Billing rates are as follows:
a. Logic design station (pi), $1200/month
b. Logic design station (oz), $1200/month
c. Logic design station (rush), $1200/month
d. Logic design station (newt), $1650/month
e. Logic design station (fenway), $4500/month
Signed this 29 day of October, 1998.
For Silicon Resources, Inc. For Tensleep Design, Inc.
Date: 10/29/98 Date: 23, Oct. 98
Signature: /S/ Michael Taborn Signature: /S/ Dennis Kaliher
Michael Taborn Dennis Kaliher
President President
