SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______TO ___________
Commission Fine Number 0 - 30164
TENSLEEP.COM, INC.
(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 201, AUSTIN, TEXAS 78705
(Address of Principal Executive offices, Zip Code)
(512) 236-8140
(Issuer's Telephone Number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes [X] No [ ]
The number of shares outstanding of issuer's only class of Common Stock,
no par, $0.01 stated value, was 8,558,266 on June 30, 2000.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Financial Statements for Tensleep.com, Inc.:
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . .
Statements of Operations . . . . . . . . . . . . . . . . . . .
Statements of Shareholders' Equity . . . . . . . . . . . . . .
Statements of Cash Flows . . . . . . . . . . . . . . . . . . .
Notes to the Financial Statements . . . . . . . . . . . . . .
Item 2. Management's Discussion and Analysis or Plan of Operations
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan of Operation . . . . . . . . . . . . . . . . . . . . . . .
Part II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . .
Item 2. Changes in Securities . . . . . . . . . . . . . . . . .
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . .
Item 4. Submission of Matters to Vote of Security-Holders . . .
Item 5. Other Information . . . . . . . . . . . . . . . . . . .
Item 6. Exhibits and Reports on Form 8 - K . . . . . . . . . . .
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Introduction
The consolidated financial statements have been prepared by Tensleep.com,
Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. The Company believes that the
disclosures are adequate to make the information presented not misleading when
read with the Company's audited
financial statements for the years ended September 30, 1999 and 1998. The
financial information presented reflects
all adjustments, consisting only of normal recurring adjustments, which are,
in the opinion of management
necessary for a fair statement of the results from the periods presented.
TENSLEEP.COM, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
2000 1999
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 539,693 $ 25
Accounts Receivable 124,965 77,850
Prepaid Expenses (See note 16) 312,395 15,000
Investment in Pooled Account,
(See note 1) 6,033
Tradeable Securities (See note 1) 10,752
Note 30,000
------------ -----------
Total Current Assets 1,017,805 98,908
------------ -----------
PROPERTY AND EQUIPMENT:
Machines & Equipment 121,878 102,014
Software 172,371 172,371
------------ -----------
294,249 274,385
Less accumulated Depreciation
and amortization 206,819 114,330
------------ -----------
Net Property & Equipment 87,430 160,055
------------ -----------
OTHER ASSETS:
Investment in AFC (See note 9) 1,400,000 -
Investment in CFC (See note 2 & 9) 1,718,667 398,000
Investment in Silicon Resources
(See note 12) 1,103,800 -
Note Receivable - 60,000
Investment in Tensleep Appliances 53,899 -
Technology License 18,790 -
Investment in Restricted Shares 65,000 -
Investment in Shanghai Company 112,000 -
Goodwill from Consolidation 1,626,898 -
------------ -----------
Total Other Assets 6,099,054 458,000
------------ -----------
TOTAL ASSETS $ 7,204,289 $ 716,963
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 16,739 $ 250
Loan Payable (See Note 4) 2,291 14,442
------------ -----------
Total Current Liabilities 19,030 14,692
------------ -----------
TOTAL LIABILITIES; 19,030 14,692
------------ -----------
STOCKHOLDERS' EQUITY:
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,
8,558,266 and 6,691,016 shares
issued and outstanding at June
30, 2000 and 1999, respectively 85,583 66,950
Notes Receivable for common stock
(See note 17) - ( 610,200)
Unrealized (Gain) Loss (9,082)
Additional paid-in capital 8,347,415 3,084,466
Net Loss (Deficit accumulated during
the development stage) ( 1,238,657) (1,838,946)
------------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,185,259 702,271
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 7,204,289 $ 716,963
============= ===========
The accompanying notes are an integral part of these statements.
</TABLE>
TENSLEEP.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
June 30, 2000 June 30, 1999
----------------- --------------
<S> <C> <C>
REVENUES:
Design Fees $ 21,000 $ -
Financial Service Fees 184,113 -
Lease Income (See note 12) - 28,950
Other Income 1,653 362
Royalty Income (See note ) 14,566 -
Sale of Securities 26,630 -
----------------- -------------
Total Revenues 247,962 29,312
COST OF GOODS SOLD:
Cost of Securities Sold 28,793 -
----------------- -------------
Total COGS 28,793 -
----------------- -------------
GROSS PROFIT 219,169 29,312
OPERATING EXPENSES:
Operating Expenses 203,024 44,829
----------------- -------------
NET INCOME (LOSS) $ 16,145 ($ 15,517)
================= =============
EARNINGS (LOSS) PER COMMON
SHARE (See Note 14) $ .002 ($ .02)
================= =============
</TABLE>
The accompanying notes are an integral part of these statements.
TENSLEEP.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION> For the period
From Inception
For the Six For the Six (October 23, 1997)
Months Ended Months Ended through
June 30, 1999 June 30, 2000 June 30, 2000
----------------- -------------- -----------------
<S> <C> <C> <C>
REVENUES:
License Fees (See note ) $ 950,000 $ - 950,000
Lease Income (See note 12) - 86,850 121,150
Other Income 3,233 14,847 21,050
Royalty Income (See note ) 86,886 - 86,886
Financial Service Fees 324,586 - 324,586
Sale of Securities 26,631 - 26,631
Design Fees 21,000 - 21,000
----------------- ------------- -----------------
Total Revenues 1,412,336 101,697 1,551,303
COST OF GOODS SOLD:
Cost of Securities Sold 28,793 - 28,793
----------------- ------------- -----------------
Total COGS 28,793 - 28,793
----------------- ------------- -----------------
GROSS PROFIT 1,383,543 - 1,522,510
OPERATING EXPENSES:
Operating Expenses 630,905 159,713 2,754,957
----------------- ------------- -----------------
NET INCOME (LOSS OR DEFICIT
ACCUMULATED DURING THE
DEVELOPMENT STAGE) $ 752,638 ($ 58,016) ($ 1,232,447)
================= ============= =================
EARNINGS (LOSS) PER COMMON
SHARE (See Note 14) $ .098 ($ .087) ($ .171)
================= ============= =================
</TABLE>
The accompanying notes are an integral part of these statements.
TENSLEEP.COM, INC.
(A Development Stage Company)
(Unaudited)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the period from Inception (October 23, 1997) through December 31, 1999
<TABLE>
Deficit
Accumulated
Additional during the
See Number of Common Paid-In Development
Note Date Shares Consideration Stock Capital Stage Total
---- -------- --------- ------------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stock issued 5A 11/10/97 4,500,000 Non-cash $ 45,000 $ - $ - $ 45,000
Stock issued 5B 11/10/97 1,000,000 Non-cash 10,000 190,000 - 200,000
Stock issued 5C 12/23/97 500,000 Non-cash 5,000 245,000 - 250,000
Exercise A 5D 4/1/98 400 Non-cash 4 156 - 160
Exercise A 5D 4/1/98 400 Non-cash 4 156 - 160
Exercise A 5D 5/27/98 2,000 Non-cash 20 780 - 800
Exercise A 5E 6/2/98 200 Cash 2 78 - 80
Exercise A 5D 6/17/98 16 Non-Cash - 16 - 16
Exercise A 5F 6/23/98 100,000 Non-Cash 1,000 99,000 - 100,000
Net Loss for
the period
from October
23, 1997 to
September 30,
1998) (1,780,930) (1,780,930)
--------- -------- ---------- ----------- -------------
Balance, 6,103,016 $61,030 $ 535,186 $(1,780,930) $(1,184,714)
September 30,1998
Stock issued 5G 12/15/98 35,000 Cash/Note 350 174,650 - 175,000
Stock issued 5H 12/15/98 8,000 Non-Cash 80 39,920 - 40,000
Stock issued 5I 12/15/98 300,000 Non-Cash 3,000 1,497,000 - 1,500,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - 20,000
Stock issued 5H 12/15/98 4,000 Non-Cash 40 19,960 - 20,000
Stock issued 5J 12/15/98 4,000 Non-Cash 40 19,960 - 20,000
Stock issued 5K 12/15/98 137,000 Note 1,370 683,630 - 685,000
Exercise A 5K 12/15/98 88,000 Note 880 34,320 - 35,200
Exercise B 5L 03/31/99 4,000 Non-Cash 40 19,960 - 20,000
Exercise A,B 5M 09/13/99 350,000 Non-Cash 3,500 496,500 - 500,000
Net Loss - - - (210,365) (210,365)
for 1999
--------- -------- ---------- ------------ -------------
Balance, 7,045,016 $ 70,450 $3,580,966 $(1,991,295) $ 1,660,121
September 30,
1999
Exercise B 5N 10/11/99 15,000 Non-Cash 150 74,850 - 75,000
Exercise A 5O 10/26/99 20,000 Non-Cash 200 19,800 - 20,000
Exercise A 5P 10/29/99 35,000 Non-Cash 350 27,650 - 28,000
Exercise A 5Q 11/01/99 5,000 Cash 50 3,950 - 4,000
Exercise A 5R 11/03/99 1,000 Cash 10 790 - 800
Exercise A 5S 11/03/99 1,000 Cash 10 790 - 800
Exercise A 5T 12/07/99 10,000 Non-Cash 100 7,900 - 8,000
Exercise A 5U 12/06/99 13,000 Non-Cash 130 12,870 - 13,000
Exercise A SV 12/07/99 50,000 Non-Cash 500 49,500 - 50,000
Stock Issued 5W 12/08/99 60,000 Non-Cash 600 59,400 - 60,000
Exercise A 5X 12/10/99 20,000 Cash 200 35,283 - 35,483
Exercise B 5Y 12/13/99 25,000 Non-Cash 250 122,250 - 122,500
Exercise A & 5Z 12/30/99 300,000 Non-Cash 3,000 597,000 - 600,000
Stock Issued
Exercise B 5AA 12/30/99 50,000 Non-Cash 500 249,500 - 250,000
Exercise A 5AB 12/30/99 253,960 Non-Cash 2,540 197,460 - 200,000
Exercise A 5AC 12/30/99 100,000 Non-Cash 1,000 79,000 - 80,000
Stock
Canceled 5AD 12/30/99 1,000,000 Non-Cash ( 10,000) 10,000 - 0
Stock Issued 5AE 2/24/00 340,000 Non-Cash 3,400 30,600 - 34,000
Stock Issued 5AF 3/07/00 100,000 Cash 1,000 449,000 - 450,000
Stock Issued 5AG 4/22/00 400,000 Non-Cash 4,000 996,000 - 1,000,000
Stock Issued 5AH 4/22/00 700,000 Non-Cash 7,000 1,743,000 - 1,750,000
Stock Issued 5AI 6/15/00 4,290 Stock Div. 43 (43) - -
Stock Issued 5AJ 6/07/00 10,000 Non-Cash 100 (100) - -
Net Income
for 9 months
6/30/2000 - - - 752,638 752,638
--------- -------- ---------- ------------ ------------
Balance,
6/30/2000 8,558,266 $ 85,583 $8,347,416 $(1,238,657) $ 7,185,259
========= ======== ========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
TENSLEEP.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the period
from Inception
(October 23,1997)
For the Nine Months Ended through
June 30, June 30, June 30,
2000 1999 2000
----------------- -------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) (Deficit
accumulated during
the development stage) $ 752,638 ($ 74,974) $ (1,232,447)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 69,626 68.598 206,819
Expenses incurred in exchange for 211,907 40,000 464,542
common stock
Income earned in exchange for stock (65,000) - ( 65,000)
Income earned in exchange for
Investment in Silicon Res (750,000) - (750,000)
Non cash expense for Investment
In Silicon Res (103,800) - (103,800)
Non cash expense for accrued - 2,800 120,000
consulting fees
Non cash expense for purchase of - - 1,327,062
technology, products, goodwill,
and cancellation of royalties
Non cash exchange for equip Master 18,100 - 18,100
Payment collected on note receivable 60,000 - 60,000
(Increase) decrease in assets
Accounts Receivable ( 21,165) - ( 124,965)
Note Receivable (30,000) - ( 30,000)
Prepaid expenses 197,605 - 197,505
Increase (decrease) in liabilities
Accounts payable 12,471 - 16,739
Accrued Consulting Fees (140,000) - -
Accrued Equipment rental - (77,850) -
-------------- -------------- --------------
Net cash provided (used)
by operating Activities 212,382 (41,426) 104,555
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Tensleep Appl ( 53,899) - (53,899)
Investment in CFC ( 50,000) - (50,000)
Investment in Shanghai Co (112,000) - (112,000)
Investment in Tradeable Securities ( 19,835) - (10,752)
Purchase of Technology License ( 18,790) - (18,790)
Purchase of property and equipment ( 1,765) ( 91) (3,202)
-------------- -------------- --------------
Net cash provided (used)
by investing activities (256,289) ( 91) (248,643)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from CFC (12,568) - 17,578
Proceeds from Pooled Investment Acct - 16,660 45,000
Proceeds from sale of stock 596,103 25,000 621,103
Proceeds from Exercise of warrants - - 80
-------------- ------------- --------------
Net cash provided by financing 583,535 41,600 683,781
activities
-------------- ------------- --------------
NET INCREASE (DECREASE) IN CASH 539,628 143 539,693
CASH, beginning of period 65 382 -
-------------- ------------- --------------
CASH, end of year $ 539,693 $ 525 $ 539,693
============== ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
TENSLEEP.COM, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the Three Months Ended
June 30, June 30,
2000 1999
----------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 16,145 $ (28,831)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 22,865 22,866
(Increase) decrease in assets
Accrued Equipment Rental - (25,950)
Accounts Receivable 57,957 -
Prepaid expenses 62,500 -
Increase (decrease) in liabilities
Accounts payable 15,017 -
Accrued consulting fees - 18,813
Deferred Income (10,601)
-------------- --------------
Net cash provided (used)
by operating Activities 163,883 (13,102)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Tensleep Appl - -
Investment in Marketable Securities (19,853) -
Investment in CFC - -
Purchase of Technology License (13,790) -
Purchase of property and equipment ( 1,765) -
Loan Receivable (30,000) -
-------------- --------------
Net cash provided (used)
by investing activities (65,408) -
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Pooled Investment Acct - 12,511
Proceeds from sale of stock 23,999 -
-------------- -------------
Net cash provided by financing 23,999 12.511
activities
-------------- -------------
NET INCREASE (DECREASE) IN CASH 122,474 (501)
CASH, beginning of period 417,219 1,116
-------------- -------------
CASH, end of year $ 539,693 $ 525
============== =============
The accompanying notes are an integral part of these statements.
TENSLEEP.COM, INC.
(Formerly Tensleep Technologies, Inc.)
(A Development Stage Company)
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000 AND
FOR THE PERIOD FROM INCEPTION (OCTOBER 23, 1997)
THROUGH JUNE 30, 2000
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Tensleep.com, Inc. (formerly Tensleep Technologies, Inc. and Tensleep
Design, Inc.) (see note 18) (A Colorado Corporation) is a development stage
integrated Internet company. (The Company) is developing both a series of
Internet Products, ("CyberServers") and Investor and financial service
providers on the Internet. The financial service providers have a consumer
focus and the Internet Products have a business focus. The Company's
business focus is directed toward the business of designing, developing,
and marketing Internet Appliances and miniaturizing the systems used in the
appliances into integrated circuits with a specific focus on digital signal
processors. The business is being conducted through wholly owned
subsidiaries and strategic relationships. The Company is located in
Austin, Texas.
DEVELOPMENT STAGE COMPANY
The Company is currently in its development stage, and has not
generated income from the marketing and sale of its Internet Appliances.
The Company has received revenues through granting of licenses to it
technology, royalties from the licensing its technology, and fees for
promotional services performed by Master Financial Group, Ltd., which was
acquired in April 2000. The Company was incorporated in October 1997, and
is currently obtaining funding to proceed with the development and
marketing its technologies and products. 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 continue to operate profitably in the future. 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 account.
PROPERTY AND EQUIPMENT, DEPRECIATION AND AMORTIZATION
Property and equipment obtained in exchange for stock is carried at
the fair market value of the equipment on the date of exchange, if
purchased it is carried at cost as of the date of purchase.
Depreciation and amortization is computed using the straight-line
method over the assets' expected useful lives. The useful lives of
property and equipment for purposes of computing depreciation and
amortization are:
Machinery & Equipment 3 years
Software 3 years
Repairs and maintenance are charged to operations when incurred. Cost
of betterments which materially extend the useful lives of the asset are
capitalized. Gains and losses from sales or disposition of assets are
included in the statement of operation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
For the Company's financial instruments, the carrying value is
considered to approximate the fair value. Cash and accounts payable are
settled so close to the balance sheet date that fair value does not differ
significantly from the stated amounts.
INCOME TAXES
The Company has not generated any taxable income and therefore a
provision for income taxes is not necessary. Similarly, a provision for
deferred taxes is not necessary. The Company has available at September
30, 1999, unused operating loss carry forwards that may be applied against
future taxable income and that expire as follows:
Amount of Unused Operating Expiration During Year
Loss Carry forwards Ended September 30:
State -
Federal Colorado Federal State
---------- ---------- ------- ------
$1,991,295 $1,991,295 2019 2014
ADJUSTMENTS
In the opinion of management the data reflects all adjustments
necessary for a fair statement of results for this period. All adjustments
are of a normal and recurring nature.
ADVERTISING
Advertising costs, except for costs associated with direct-response
advertising, are charged to operations when incurred. The costs of
direct-response advertising, if any, are capitalized and amortized over the
period during which future benefits are expected to be received. Note
Receivable for common stock
The Company reports notes received in payment for the Company's stock
a deduction from stockholders' equity (deficit). A note will be recorded
as an asset if collected in cash prior to the issuance of the financial
statements.
NOTE 1: INVESTMENT IN POOLED EQUITY ACCOUNT
The Company owns an interest in a personal brokerage account held by a
shareholder. At June 30, 2000 and 1999, the account has a balance of zero
and $6,003, respectively. Originally, the Company received a $45,000
interest in the account which was obtained in exchange for 4.5 million
shares of common stock, as described in Note 3.
NOTE 2: INVESTMENT IN CORPORATE FINANCE COMPANY
In 1997 the Company acquired 80,000 shares of Corporate Finance
Company ("CFC") common stock valued at $200,000 or $2.50 per share. CFC is
an affiliate company. The Company acquired an additional 80,000 shares in
1999 (see note 3)valued at $200,000 or $2.50 per share. A major
shareholder of the Company is also a major shareholder of CFC. 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).
In April 2000 the Company entered into an agreement with CFC to
license technology to it on a case by case basis, where CFC will engage in
joint ventures with Chinese Company's for the manufacture of and
distribution of electronic products and developing and maintaining web-
sites for business-to-business and business-to-consumers in China. The
Company licensed its "web-modem" to CFC to manufacture the product and
distribute it in China. As part of this agreement the Company exchanged
400,000 shares of restricted common stock for 2,000,000 shares of CFC
restricted common stock. In addition CFC issued the Company 500,000 shares
of its restricted common stock to reimburse the Company for promotional
services.
In April CFC also distributed a stock dividend in shares of CFC on
the basis of one new share for each share held by the Company. These
shares are not restricted.
NOTE 3: NON CASH TRANSACTIONS
As explained in Note 1, 4.5 million shares of common stock were sold
for $45,000. In lieu of cash, a $45,000 shared interest in a personally
held brokerage account was granted. The account has been funded by a
shareholder with cash payments totaling $77,000.
As explained in Note 2, the investment of 80,000 shares of Corporate
Finance Company was obtained in exchange for 1 million investment units.
Each unit is composed of one share of common stock and one warrant to
purchase one share of common stock at a specified price (see note 7). The
Company obtained an additional 80,000 shares of Corporate Finance company
in 1999 from R Tucker and Associates in exchange for a $200,000 reduction
to a note receivable owed to the Company by R Tucker and Associates (see
note 17).
As explained in Note 5C, the Company obtained its licensing agreement
in exchange for 500,000 shares of common stock. The common stock was
valued at the agreed-upon price of $250,000, or 50 cents per share.
As explained in Note 5F and Note 11, the Company acquired from LS2
equipment and software in exchange for 100,000 shares of common stock.
As explained in Note 5F and Note 11, the Company acquired from LS2
equipment and software in exchange for 100,000 shares of common stock.
As explained in 5H, the Company issued 24,000 shares of common stock
to pay off $120,000 in accrued consulting fees.
As explained in Note 5I, the Company issued 300,000 shares of common
stock to pay off $1,500,000 in convertible debt.
As explained in Note 5J, the Company exchanged 4,000 shares of common
stock for advertising. The common stock was valued at the agreed-upon
price of $20,000, or $5.00 per share.
As explained in Note 5L, the Company exchanged 4,000 shares exercise
from Class B Warrants for advertising and promotional services. The common
stock was valued at the agreed-upon price of $20,000, or $5.00 per share.
As explained in Note 5M the Company exchanged 300,000 shares exercised
from Class A Warrants and 50,000 shares from Class B Warrants for
advertising and promotional services. The common stock was valued at the
agreed-upon price of $500,000.
As explained in Note 5N the Company exchanged 15,000 shares exercised
from Class A Warrants for promotional services to be performed over six
months commencing October 11, 1999 through April 10, 2000. The common
stock was valued at $75,000, the agreed-upon value of the services to be
received.
As explained in Note 5O the Company exchanged 20,000 shares exercised
from Class A Warrants for consulting services to be performed over three
months commencing October 28, 1999 though January 24, 2000. The common
stock was valued at $40,000, the agreed-upon value of the services to be
received.
As explained in Note 5P the Company exchanged 35,000 shares exercised
from Class A Warrants for designing and consulting services to be performed
over six months commencing October 29, 1999 through April 29, 2000. The
common stock was valued at $28,000, the agreed-upon value of the services
to be received.
As explained in Note 5T the Company exchanged 10,000 shares exercised
from Class A Warrants for consulting services. The common stock was valued
at $8,000, the agreed-upon value of the services to be received.
As explained in Note 5U the Company exchanged 13,000 shares exercised
from Class A Warrants in cancellation of an indebtedness of the Company in
the amount of $13,000.
As explained in Note 5V the Company exchanged 50,000 shares exercised
from Class A Warrants in cancellation of an indebtedness of the Company in
the amount of $50,000.
As explained in Note 5W the Company exchanged 60,000 shares,
restricted, for consulting services to be performed over 30 days. The
common stock was valued at $60,000, the agreed-upon value of the services
to be received.
As explained in Note 5Y the Company exchanged 25,000 shares exercised
from Class B Warrants for consulting services to be performed over three
months. The common stock was valued at $122,500, the agreed-upon value of
the services to be received.
As explained in Note 5Z the Company exchanged 300,000 shares of which
100,000 were exercised from Class B Warrants and 200,000 shares were issued
and exchanged for 300,000 shares of Amcor Financial Corp. common stock and
were valued at $600,000.
As explained in Note 5AA the Company exchanged 50,000 shares exercised
from Class B warrants for shares of stock in Silicon Resources, Inc. (see
note 12).
As explained in Note 5AB the Company exchanged 253,960 shares
exercised from 253,960 Class A Warrants in exchange for 100,000 restricted
shares of Amcor Financial Corp. common stock valued at $200,000.
As explained in Note 5AC the Company exchanged 100,000 shares
exercised for 100,000 Class A Warrants in exchange for prepaid services to
be performed over the next 12 months.
As explained in Note 5AD the Company received 1,000,000 shares of its
common stock as a contribution for cancellation and to be added to the
authorized but unissued common stock.
As explained in Note 5AE the Company exchanged 340,000 shares of
restricted common stock for services, which were reimbursed by CFC with the
issuance of 500,000 shares of CFC restricted common stock. Additional
shares issued, note 5N and 5Y were also reimbursed.
As explained in Note 5AG the Company exchange 400,000 shares of its
restricted common stock for 2,000,000 restricted shares of China Net &
Technologies, Inc. in a transaction valued at $1,000,000.
As explained in Note 5AH the Company exchange 600,000 shares of its
restricted common and 100,000 shares exercised for 100,000 Class B Warrants
in exchange for all the issued and outstanding common stock of Master
Financial Group, Inc.
As explained in Note 5AI the Company issued 4,290 shares of its common
stock pursuant to the special 10% stock dividend to qualified investors.
As explained in Note 5AJ the Company issued 10,000 shares of its
restricted common stock to a design engineer as a signing bonus.
NOTE 4: LOAN PAYABLE TO CORPORATE FINANCE COMPANY
CFC has loaned the Company certain funds to cover operating expenses.
As of March 31, 2000 the loan from CFC had been paid off. Ronald S.
Tucker, the President of the Company has loaned it $2,300.
NOTE 5: CAPITAL FUNDING
The Board of Directors authorize private offerings pursuant to
Regulation S, Section 3 (b) and/or 4(2) of the Securities Act of 1933, as
amended, and/or Rule 504 of Regulation D promulgated thereunder. The Board
of Directors authorized a public offering pursuant to Regulation A, an
exemption under the Securities Act of 1933, as amended. These offerings
can be composed of common stock and/or warrants. Such offerings could
result in dilution to Company stockholders prior to each offering.
Additionally, dilution could also result from the exercising of warrants,
incentive stock options, and non-incentive stock options. Stock option
plans are described in Note 6. The following summarizes the various stock
and warrant transactions as reported in the accompanying Statement of
Changes in Stockholders' equity (deficit):
Note A - 4.5 million shares of common stock were sold for $45,000.
In lieu of cash, a $45,000 shared interest in a
personally held brokerage account was granted. The
account had been originally funded by the shareholder
with cash payments totaling $77,000.
Note B - 1 million investment units were exchanged for 80,000
shares of Corporate Finance Company. Each investment
unit is composed of one share of common stock and one
warrant to purchase one share of common stock at a
specified price (See note 7). The valuation of the
shares obtained was an agreed-upon value as of the date
of exchange.
Note C - The Company obtained a technology licensing agreement in
exchange for 500,000 shares of common stock. The common
stock was valued at the agreed-upon price of $250,000, or
50 cents per share. The original agreement made in 1997
required a royalty be paid to the licensor based upon
sales. In 1998 the Company acquired from the licensor
machinery and equipment, software, technology, goodwill
and cancellation of royalties (See note 10).
Note D - 2840 warrants were exercised. The exercise price of the
warrants was $.40 per share and the cash from the
exercise of these warrants was received by CFC and was
used to reduce the Company's loan payable to CFC. The
warrants were exercised by unrelated third parties.
Note E - 200 warrants were exercised. The exercise price of the
warrants was $.40 per share. The cash from these
warrants was deposited into the Company's checking
account and were exercised by unrelated third parties.
Note F - In exchange for 100,000 warrants the Company acquired
testing equipment, design software, hardware, and
intellectual property from LS Squared, Inc. a California
corporation, valued at $100,000 and appearing on LS2
books and records at approximately $120,000. The common
stock was valued at $100,000, the agreed-upon value of
the property received from LS Squared, Inc.
Note G - 35,000 shares of common stock were sold for $175,000.
The Company received $25,000 in cash and promissory notes
in the amount of $155,000. One of the promissory notes
received was for $50,000 and R Tucker & Associates was
the payee (see note K)
Note H - 24,000 shares of common stock were issued for $120,l000
to pay off accrued consulting fees.
Note I - 300,000 shares of common stock were issued for $1,500,000
to pay off the convertible note, which was issued in
exchange for fixed assets of $172,948 and Research &
development expenses of $1,327,052 (see note 10).
Note J - 4,000 shares of common stock were issued for $20,000 in
exchange for advertising.
Note K - 137,000 shares of common stock were issued for $685,000
and 88,000 Class A warrants exercised in exchange for
$765,200 promissory note, secured by 200,000 shares of
common stock. The $765,200 note includes $50,000
resulting from the cancellation of a $50,000 note
previously issued by R Tucker & Associates to an
unrelated in an unrelated transaction (see note G).
Note L - 4,000 Class B Warrants were exercised for $20,000 in
exchange for advertising and promotional services for the
year ending March 31, 2000.
Note M - 300,000 Class A Warrants and 50,000 Class B Warrants were
exercised for $500,000 in exchange for advertising and
promotional services for the years ending September 30,
2000 and 2001.
Note N - 15,000 Class B warrants were exercised for $75,000 in
exchange for promotional services to be performed over
six months commencing October 11, 1999 through April 10,
2000.
Note O - 20,000 Class A warrants were exercised for $20,000 in
exchange for consulting services to be performed over
three months commencing October 28, 1999 though January
24, 2000.
Note P - 35,000 Class A warrants were exercised for $28,000 in
exchange for designing and consulting services to be
performed over six months commencing October 29, 1999
through April 29, 2000.
Note Q - 5,000 Class A Warrants were exercised for cash at $0.80
per share. The cash from these was deposited into the
Company's checking account and exercised by unrelated
third parties.
Note R - 1,000 Class A Warrants were exercised$0.80 per share.
The cash from these was deposited into the Company's
checking account and exercised by unrelated third
parties.
Note S - 1,000 Class A Warrants were exercised $0.80 per share.
The ash from these was deposited into the Company's
checking account and exercised by unrelated third
parties.
Note T - 10,000 Class A Warrants were exercised for $8,000 in
exchange for consulting services.
Note U - 13,000 Class A Warrants were exercised for $13,000 in
exchange for the cancellation of an indebtedness of the
Company.
Note V - 50,000 Class A Warrants were exercised for $50,000 in
exchange for the cancellation of an indebtedness of the
Company.
Note W - 60,000 shares, restricted, were issued in exchange for
consulting services to be performed over 30 days and
valued for $60,000.
Note X - 20,000 Class A Warrants were exercised for an aggregate
value of $35,200. The cash from these was deposited into
the Company's checking account and exercised by unrelated
third parties.
Note Y - 25,000 Class B Warrants were exercised for $122,250 in
exchanged for consulting services to be performed over
three months.
Note Z - 100,000 Class A Warrants were exercised and 200,000
shares were issued for $600,000 in exchange for 300,000
shares of Amcor's common stock.
Note AA - 50,000 Class B Warrants were exercised for $250,000 in
exchange A shares of common stock in Silicon Resources,
Inc. (see note 12).
Note AB - 253,960 Class A Warrants were exercised for $200,000 in
exchange for 100,000 shares of Amcor Financial Corp.
Note AC - 100,000 Class A Warrants were exercised for $80,000 for
services to be performed over the next year.
Note AD - 1,000,000 shares of the Company's common stock were
contributed to the Company, canceled, and returned to the
Company's authorized but unissued shares.
Note AE - 340,000 shares, restricted, were issued in exchange for
services but reimbursed by CFC with CFC common stock, as
were the shares issued per note 5N and 5Y.
Note AF - 100,000 Class B Warrants were exercised for $450,000 in
cash.
Note AG - 400,000 shares of the Company's common stock was
exchanged for 2,000,000 shares of the restricted common
stock of China Net & Technologies, Inc. (CFC).
Note AH - 600,000 shares of the Company's common stock and 100,000
shares exchanged for the exercise of 100,000 Class B
Warrants were exchanged for all the issued and
outstanding common stock of Master Financial Group., Inc.
Note AI - 4,290 shares were issued to qualified investors pursuant
to the special 10% stock dividend.
Note AJ - 10,000 shares were issued to a chip designer as a signing
bonus.
NOTE 6: STOCK OPTION PLANS
The Company has a stock option plan pursuant to Section 422A of the
Internal Revenue Code. The plan has yet to be defined other than the
reserving of 500,000 shares of common stock for such a plan.
The Company has also adopted a non-incentive stock option plan. This
plan grants options that can be exercised at a specified price. The
Company has resolved that 800,000 shares of common stock be reserved for
this plan. As of April 30, 1998, the options to purchase 250,000 shares at
50 cents per share (same as the then current market price) had been granted
to the majority and controlling shareholders and an independent consultant.
During the year ended September 30, 1999 the company revoked 50,000 shares,
leaving 200,000 options still outstanding. These options expire December
1, 2002.
The Company on October 26, 1999, granted options to purchase 120,000
additional shares at $1.25 per share (same as the then current market
price) to the majority and controlling shareholders.
NOTE 7: WARRANTS
As part of its funding activities, the Company has issued warrants
for the purchase of common stock. Additional warrants may be issued in
the future during additional offerings. As of June 30, 2000, the following
warrants were outstanding:
Class B - one warrant can purchase one common share
R Tucker and Associates - 21,000 warrants at $4.50 per
share
George N. Haddad - 35,000 warrants at $4.50 per
share
The warrants expire on May 31, 2002. The Company has the right to
call the unexercised Class B Warrants before their expiration date at a
price of 10 cents per warrant provided the bid price for the Company's
common stock for 10 consecutive trading days is $5.50 or more.
NOTE 8: RISKS AND UNCERTAINTIES
As discussed in "Organization and Summary of Significant Accounting
Policies", the Company has been in the development stage since its
inception on October 23, 1997. Realization of a major portion of the
assets is dependent upon the Company's ability to meet its future financing
requirements, and the success of capital funding and future operations.
These factors raise substantial doubt about the Company's ability to
continue as a going concern.
The investments in the pooled equity account are held
available-for-sale. As of September 30, 1999 the account balance is zero.
As of September 30, 1998, the account consists of 4,000 shares of Torch
Energy Royalty Trust, listed on the New York Exchange, symbol "TRU", with a
value of $5 15/16 per share, bid price, 2000 shares Karzco Realty Trust,
listed on the New York Exchange, symbol "KRT", with a value of $16 11/16
per share, 500 shares of Cross Timbers Royalty Trust, listed on the New
York Exchange, symbol "CRT", with a value of $11 5/8 per share, 60 shares
of Alliance Pharmaceutical Corp., listed on the New York Exchange, symbol
"ALLP", with a value of $3.04688 per share, 4,000 shares Amtech Systems,
Inc. listed on the NASDAQ smallcap, with a value of $27/32 per share, and
1,000 Amylin Pharmaceuticals, Inc. listed on NASDAQ national market, with a
value of $3 3/32 per share, and $4,531 in cash. The aggregate value of the
account is $57,213 as of September 30, 1998.
The investment in the pooled equity account is subject to the hazards
of trading equities on the open market. The account will experience growth
and loss in varying amounts depending on the performance of the securities
traded.
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 now Chin Net &
Technologies, Inc. Transactions between the Company and these entities
above have been described in Notes 2, 3 and 4.
In November 1997 the Company issued 4,500,000 shares of its common
stock at a stated value of $.01 per share to a related party in exchange
for an assignment of a right to $45,000 in a pooled investment account.
(See Note 1, 3, 5, and 8)
In November 1997 the Company issued 1,000,000 investment units to a
related party in exchange for 80,000 shares of its common stock. (See Note
2)
In December 1997 the Company issued 500,000 shares of its common stock
to an unrelated party, which later became a related party, in exchange for
a license agreement valued at $250,000. (See Notes 3 and 5C)
In December 1998 the Company issued 300,000 of its common stock to a
related party in cancellation of an indebtedness incurred in the purchase
of technology and other assets pursuant to a purchase agreement entered
into by the Company in January 1998. (See Note 10)
In June 1998 the Company issued 100,000 shares of its common stock to
an unrelated party in exchange for technology and equipment/software valued
at $100,000. (See Note 11)
The accrued consulting fee as of September 30, 1999 is payable to R
Tucker & Associates, Inc., performed by Dennis Kaliher and Ronald S.
Tucker, the president and vice president of the Company, respectively, for
consulting services rendered. This liability was canceled December 15,
1998 in exchange for 24,000 shares of common stock (See note 15). The
accrued consulting fee as of September 30, 1999 is payable to Corporate
Finance Company for services performed by Dennis Kaliher and Ronald S.
Tucker.
In conjunction with the purchase of LS Squared, Inc. equipment by the
Company, Ronald S. Tucker, a major shareholder of the Company, also
purchased LS Squared, Inc. individually (See note 11).
In March 1999 the Company reduced a Note Receivable from R Tucker and
Associates in exchange for 80,000 shares of common stock in Corporate
Finance Company valued at $200,000 (see note 2).
In December 1999 the Company exchanged shares with Amcor Financial
Corporation ("AFC"), an independent company, whose President and a Director
is also the President and a Director of the Company. The Company exchanged
300,000 shares of its common stock for 300,000 shares of Amcor Financial's
Common stock valued at $600,000. In addition the Company received an
additional 300,000 shares of Amcor Financial's common stock in cancellation
of the indebtedness of the promissory notes for the purchase of stock in
the amount of $600,000 (See note 3 and 5)and an additional 100,000 shares
in exchange for the exercise of 240,000 Class A Warrants valued at
$200,000.
In December 1999 the Company issued Corporate Finance Company 100,000
shares of common stock valued at $80,000 in exchange for promotional
services.
In March 2000 CFC issued the Company 500,000 shares of its restricted
common stock to reimburse the Company for promotional services, and In
April 2000 the Company exchanged 400,000 shares of restricted common stock
for 2,000,000 shares of CFC restricted common stock.
NOTE 10: PURCHASE OF TECHNOLOGY
On January 30, 1998 the Company acquired from the Licensor, pursuant
to an agreement dated January 23, 1998, the following items valued as
follows:
Machines & Equipment $ 40,577.00
Software 132,371.00
Technology
A/dsc321 Digital Signal Controller
A/dsc421 Dual Processor Controller
A/dsc 521 Digital Signal Controller
V.29/V.17 Fax Modem software
V.32/V.32bis Data Modem software
Z80-compatible 8-bit Microcontroller
Products
T2901 Fax Modem
T1701 Fax Modem
T3217 Data/Fax Modem
Total Technology & Products 1,200,000.00
Goodwill and cancellation of Royalties 127,052.00
-----------------
Total $ 1,500,000.00
The Licensor received a non-interest bearing note from the Company for
specified items in the amount of $1,500,000.00. The amount representing
Technology, Products, Goodwill and cancellation of Royalties was charged to
research and development costs (See note 13) in the development stage
period as required by generally accepted accounting principles. The
convertible note payable was reported under current liabilities in the
accompanying balance sheet since the Licensor has agreed to accept the
Company's securities in cancellation of the indebtedness. The Licensor has
agreed to accept 300,000 tradable Units at $5 per unit, if qualified by
July 31, 1998 or 500,000 restricted shares of common stock if not qualified
by July 31, 1998. The date for qualifying the tradable Units was extended
until December 31, 1998. This note was canceled December 15, 1998 in
exchange for 300,000 shares of common stock (See note 15).
NOTE 11: PURCHASE OF EQUIPMENT AND DESIGN SOFTWARE
On June 19, 1998, the Company acquired testing equipment, design
software, hardware, and intellectual property from LS Squared, Inc., (LS2)
a California corporation, valued at $100,000 and appearing on LS2 books and
records with a book value of an approximate amount. LS2 was an independent
third party and a non-affiliate of the Company and none of its officers and
directors were or are affiliated with the Company at the time of the
equipment acquisition. The terms of the agreement provided that the
Company receive the assets in exchange for 100,000 shares of the Company's
common stock through the exercise of 100,000 Class A Warrants. In July
1998 Ronald S. Tucker, a major shareholder of the Company purchased LS2 as
an individual. At the time of purchase, LS2 was a California Corporation
with no assets or liabilities.
NOTE 12: LEASE INCOME
The Company entered into an agreement to lease equipment to an
unrelated third party, Silicon Resources, Inc., dated August 21, 1998 and
received a partial payment in the amount of $5,350. The original agreement
had the following terms:
18 months
$8500 per month if all the workstations are installed
Silcon Resources, Inc. was to bill the Company for office space rental
at $1.50 square foot per month and provide engineering services at a rate
of $104.05 per hour or $18,000 per month as requested by the Company as a
credit for the lease of the equipment.
The above lease agreement was amended on October 22, 1998 to provide
for the following terms:
Silicon Resources, Inc., rented equipment from the Company for a
rental rate of $9,650 per month for five work stations payable in the form
of a credit. Silicon Resources would provide the Company with office space
for $1,000 per month and the Company will credit Silicon Resources for
$1,000 of the equipment rental payment. The remainder of the credit will
be used to employ Silicon Resources, Inc. to provide engineering personnel
on the Company's projects at a rate of $104 per hour. Any unused credit in
a month would be accrued and could be used in subsequent months.
During the current fiscal year Silicon Resources, Inc. was billed
$115,800 for equipment leasing. This amount was reduced by $12,000 that
the Company owed to Silicon Resources, Inc. for office space rental,
leaving a balance due to the Company of $103,800 as of September 30, 1999.
On September 1, 1999 the "Company began negotiations with Silicon
Resources, Inc. to purchase a portion of Silicon Resources, Inc. a
consulting business. On November 30, 1999 the Company entered into a
modification agreement with Silicon Resources, Inc. modifying the agreement
entered into on September 1, 1999. Under the terms of the modification
agreement Silicon Resources and the Company will enter into a non-exclusive
license agreement for the Company's technology with a value of $750,000 for
which the Company will receive Silicon Resources, Inc. common stock.
The Company, R Tucker and Associates, and Silicon Resources, Inc.
agreed to exchange 50,000 shares of its unrestricted common stock and
60,000 Class A Warrants to purchase 60,000 shares of the Company's common
stock with an exercise price of $0.80 per share, all valued at $250,000,
cancel the indebtedness owed to the Company by Silicon Resources in the
amount of $103,800 pursuant to the Equipment lease, and the license fee in
the amount of $750,000, aggregating $1,103,800 for a total of 1,900,452
shares of Silicon Resources restricted common stock. In addition the above
Lease Agreement was terminated as of 9/30/99.
NOTE 13: RESEARCH AND DEVELOPMENT COSTS
Research and Development costs are charged to operations when incurred
and are reported separately in the accompanying Statement of Operations.
The components of research and development costs for the period from
inception (October 23, 1997) through September 30, 1998 consist of the
following:
Technology license $ 250,000
Purchase of technology, products,
goodwill, and cancellation of royalties 1,327,052
------------
$ 1,577,052
============
NOTE 14: EARNINGS PER SHARE
As of June 30, 2000 and 1999, for three months, the Company had
8,558,266 and 6,691,016 common shares outstanding, respectively, and no
preferred shares outstanding. The earnings (loss) per share amount is
based on the weighted average number of shares actually outstanding. The
number of shares used in the computation for June 30, 2000 and 1999, for
nine months, was 7,662,331 and 6,691,016 shares, respectively. The number
of shares used in the computation for the period from Inception (October
23, 1997) through June 30, 2000 was 7,204,000.
NOTE 15: STOCK DIVIDEND
On August 2, 1999 the Board of Directors authorized a 10% stock
dividend payable to those investors that purchase the corporations common
stock in the open market between August 2, 1999 and October 31, 1999,
register the shares in their name and are the registered shareholder on
July 31, 2000. The Shares to be distributed by August 31, 2000. On
October 2, 1999 the Board of Directors extended the date for purchasing
common stock in the open market from October 31, 1999 to December 31, 1999.
On December 1, 1999 the Board of Directors extended the date for purchasing
common stock in the open market from December 31, 1999 to January 31, 2000
and advanced the record date to March 31, 2000 from July 31, 2000.
NOTE 16: PREPAID EXPENSES
As explained in Note 5L the Company exercised 4,000 Class B warrants
in exchange for $20,000 in advertising and promotional services for the one
year period from April 1999 to March 1999. During the current fiscal year
the Company expensed $10,000 as advertising expenses.
As explained in Note 5M the Company exercised 300,000 Class A Warrants
and 50,000 Class B Warrants in exchange for $500,000 in prepaid advertising
and promotional services to be amortized over the two year period starting
October 1, 1999. During the current fiscal 3 month period the Company
expensed $62,500 as advertising expenses.
NOTE 17: NOTE RECEIVABLE FOR COMMON STOCK
In December 1998, the Company issued 35,000 shares of common stock to
an unrelated investor in exchange for $25,000 in cash and a $105,000 note
receivable. After September 30, 1999 the note was paid off with cash and
shares of Amcor Financial Corp.
Also, in December 1998, the Company issued 137,000 shares of common
stock and 88,000 Class A Warrants were exercised in exchange for a $765,200
note receivable from a related party. In March 1999 of the current year
the note was reduced by $200,000 in exchange for 80,000 shares of common
stock in a related party transaction (see note 2). The balance of this
note and the one above was paid off with the payment of 300,000 shares of
Amcor Financial Corp common stock.
NOTE 18: NAME CHANGE
In April 1999 of the current year the Board of Directors voted to
change the Company's name from Tensleep Design, Inc. to Tensleep
Technologies, Inc. After year end, the Board of Directors voted to change
the Company's name to Tensleep.com, Inc. The purpose for changing the name
was to reflect the focus of the Company in developing Internet technologies
and E-Commerce Portal Sites. At the annual meeting of Shareholders held in
July 2000 the shareholders proposed and approved a change in the Company's
name to "Tensleep Corporation." The Company will be filing its change of
name with the Colorado Secretary of State shortly.
NOTE 19: ROYALTY INCOME
In -modem" in China to Corporate Finance Company, an
affiliate. The license was valued at $200,000 and was $100,000 was paid on
signing the license agreement and the balance was due when engineering
drawings are delivered for manufacturing the product.
NOTE 21: ACQUISITION OF MASTER FINANCIAL
The Company acquired 100% of Master Financial Group, Inc., a non-
affiliate, in exchange for 700,000 shares of the Company's common stock
with a valuation of $1,750,000. Master Financial Group, Inc., is an
Internet financial services company. The Company is retaining 200,000
shares of its common stock and delivery is conditioned upon Master
Financial Group's net earnings from operations for the Calender year 2000
equaling $1,000,000 or more. If the net earnings are more than $500,000
but less than $1,000,000 a portion of the 200,000 shares will be delivered.
NOTE 22: SUBSEQUENT EVENTS
The shareholders at the annual meeting of shareholders in July 2000
elected five persons to its board of directors and proposed and approve a
name change for the Company to "Tensleep Corporation."
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company, founded as a fab-less semiconductor company in November
1997, has been reorganized into an Integrated Internet Development Stage
Company. The Company's Internet Technology Division, Tensleep Technologies,
Inc. ("Design"), is focusing on both designing, developing, marketing and
selling products used in the Internet infrastructure and providing Internet
services and solutions. The E-Commerce Division, Tensleep Finance.com, Inc.
("Finance.com"), is focused to developing and managing E-Commerce services,
including Financial Services. The Company currently has no revenues or
sales from its Internet products or E-Commerce Divisions, but has revenues
from royalties, licensing its technology and investor informational
services provided by its wholly owned subsidiary Master Financial Group.
Master Financial Group was acquired in April 2000.
Design is marketing a family of facsimile products, and through an
affiliate developing the prototypes for several Internet-based products.
The facsimile products are fabricated by Samsung Electronics Co., Ltd.
("Samsung"). The Internet based products (the "CyberServers") are special
purpose modular computers or servers. These products include an "icradle,"
a "home controller," and a "web-modem". The Company is also developing a
non Internet product called a "motor controller." The Company has no sales
from any of these products.
Design's technology includes a combination of hardware and digital
signal processing software integrated into an integrated circuit. Digital
signal processing technology coverts analog signals to data in a digital
format, the data is then mathematically processed for use in that format or
converted back into analog signals. Digital signal processing has many
uses, e.g. modems, motor controls, disk file head positioning systems,
sonars, and many others.
Finance.com's focus is directed to developing Investor and financial
service providers, developing an Internet hub or portal and providing
E-Commerce technical development services to others. Financial and
Investment services are planned to be provided to small business's and
individuals.
The Company to enhance its business is seeking strategic relationships
with companies that design, market and sell consumer Internet and
communications products and use products and/or technology similar to the
Company's, and are developing Internet service provider businesses.
OBJECTIVES
The Company's management, since its inception has engaged in a
continual process of assessing and evaluating the strengths and weaknesses
of its technology, products and management to establish and update its
objectives. Based on its assessments and evaluations, management has
established the following objectives:
1. Identify niche markets for the use of its Technology and the
sale of its products.
2. Identify new products and other sources of revenue for business
expansion.
3. Initialize and sustain revenues from the thin Internet server
market, fax-modem market, and licensing of Intellectual
property.
4. Develop the Tensleep design center for the design and
development of the Company's technology and products into
integrated circuits.
5. Establish the E-Commerce operating division and develop or
acquire a Financial Services Provider.
6. Commence the development of a prototype for the CyberServer
product line and begin marketing it to original equipment
manufacturers.
7. Complete the prototypes of the motor control device (the "Motor
Controller").
8. Complete the prototype of a device to transfer digital pictures
from a digital camera to a central web-site (the "iCradle").
9. Develop a Financial and Investors services web-site.
10. Develop a joint venture with a Chinese company to manufacture
and distribute one or more of the Company's products.
11. To obtain a commitment for a private placement and/or a
secondary public offering.
The first objective has been met by identifying three markets upon
which management believes it can build the Company's business. They are
the thin internet server, internet communication, and facsimile modem
markets. A "thin internet server" is a server that can process only a few
requests from customers at a time, as opposed to regular servers that many
have to accommodate thousands of simultaneous requests.
The second objective has been met by identifying new products using
the Company's technology and other sources of revenues. Identified new
products include power and motor control devices, Internet devices for the
power industry, Internet devices for the transfer of digital pictures to a
centralized web site. Other sources of revenue include the licensing of
intellectual property, and acquiring or developing e-commerce service
providers.
The third objective has been met in part, in that the Company has
engaged three independent representatives and is now marketing its
facsimile products, and a web-modem chip in the United States and Japan.
At this date there have been no sales, however, the Company has receive an
order for two prototypes of its "web-modem," which are about to be
delivered. In November 1999, the Company granted the first license to its
technology and in March another license to manufacture and distribute its
"web-modem" in China.
The fourth objective has been met through the acquisition of a
minority interest in an integrated circuit design services company, Silicon
Resources, Inc. and the establishment of the Tensleep design center.
The fifth objective has been met, in part, with the incorporation of
Finance.com and the acquisition of a financial service provider, Master
Financial Group, Inc., and a contract with an independent company to
provide e-commerce development services for the company, its subsidiaries,
and other third parties.
The sixth objective is being met with the development of prototypes
through an affiliated company, which is expected to be completed within 30
to 60 days of the date of this document.
The seventh objective is being met with the development of a Motor
Controller prototype which is being completed by an independent third
party.
The eighth objective is being met with the development of a prototype
for the iCradle and Home Controller by Tensleep Appliances, Inc., an
affiliate.
The ninth objective is being met with the acquisition of Master
Financial Group, Inc., an Internet Financial Service Provider.
The tenth objective is being met through China Net & Technologies,
Inc. (formerly Corporate Finance Company), an affiliate. China Net is
seeking joint ventures with Chinese companies for the manufacturing and
distribution of the Company's products in China and the development of e-
commerce sites in China. China Net has acquired an 80% ownership interest
in a Chinese company that is developing a reverse auction web-site.
In order to met the eleventh objective the Company, in light of
current market conditions, is studying its alternatives to secure a private
placement or secondary public offering.
The Company believes that the continued implementation of its general
plan of operation, for the next twelve months, requires few additional
personnel, if any, for the development and up grading of the Company's
various products. The Company, because of limited personnel and financial
resources. will continue to engage one or more independent third party
organizations to provide the quality and number of personnel and services
required for the development of its Internet products, other products and
to upgrade its other developed products. The development and upgrading
services provided by other organizations will be supervised and directed by
Mr. Kaliher. In addition, the Company will also seek strategic
relationships with independent third party organizations to participate in
the development and upgrading services. The Company, with limited
financial resources, is seeking third party service providers willing to
invest in the Company. The investment in services would be exchanged for
shares of the Company's common stock and/or other non-cash consideration.
Other non cash consideration could include licenses to use or sell the
Company's intellectual property. Any shares issued in exchange for
services will be pursuant to Section 4(2) of the Securities Act of 1933, as
amended, and will be subject to Rule 144.
RISKS
The factors, which follow, make the Company's Plan of Operation for
the next twelve months risky.
ACCESS TO WAFER PRODUCTION TECHNOLOGY
The Company, to produce and sell its integrated circuits, is dependent
upon developing a relationship with a semiconductor foundry or fabricator.
At this time, the Company has no source of production for its integrated
circuits. The Samsung fax modem/controller chips, currently sold by the
Company are produced by Samsung, are an exception. To produce its own
integrated circuit products, the Company will require significant funds to
initialized production once a relationship with a fabricator is
established. There is no guaranty, the Company can obtain sufficient
funds, or even develop a relationship with a fabricator.
DEPENDENCE UPON NEW PRODUCT AND PRODUCTION DEVELOPMENT
The communications and Internet markets are characterized by rapid
technological change, evolving industry standards, changes in customer
needs and frequent new product introductions, and are therefore highly
dependent upon timely product and production innovation. In particular,
data communication products are subject to continuous changes in the
fabrication process. Each change in technology and the fabrication process
requires a concomitant change in design and developed of the Company's
products. The Company may not have the resources to make those changes.
The Company's future success is dependent in part upon its ability to
anticipate changes in technology and industry standards and to develop
successfully and introduce new and enhanced products on a timely basis.
The Company will be required to replace declining revenues from older
products with new products. The Company's developed products are modular in
design, which may reduce the cost and time to market.
There is no assurance the Company, even if it has sufficient funds,
will be able to introduce new products on a timely basis. There is no
assurance the Company can produce the new or old products, nor achieve any
significant degree of market acceptance for them, nor that it can sustain
acceptance for any significant period. Failure to produce or achieve or
sustain market acceptance of its products would affect the Company's
operating results.
COMPETITION
The markets in which the Company operates are characterized by
competition among a small number of large companies that enjoy the major
share of the market. The large companies are well financed with a long
history. They have substantial advantages in terms of breadth of
technology, sales, marketing and support capability and resources. Most,
if not all, have their own fabrication facilities that cost hundreds of
millions of dollars, if not billions. The Company has limited capital and
no fabrication facilities.
ABILITY TO MANAGE A RAPIDLY CHANGING BUSINESS
The Company is anticipating significant growth, which will place a
substantial strain on its operational, administrative and financial
resources. The Company's officers have experience in managing companies as
large and as rapidly changing as is anticipated. However, there is no
assurance that the experience will prove beneficial to the new situation
posed by the Company's challenges. The Company's ability to manage any
future changes effectively will require it to have sufficient funds to
attract, train, motivate and manage its employees effectively.
DEPENDENCE ON KEY PERSONNEL
The value of the Company lies in the experience of Mr. Kaliher, its
affiliates 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 "Conexant").
The Company recognizes that some people believe that the high
technology industry, in which the Company hopes to compete, is one where
significant developments are in new technology and "expertise" is a
quantity that dates and loses value quickly.
The Company's success depends greatly on the continued contributions
of Mr. Kaliher. The loss of Mr. Kaliher's services could have a material
adverse impact on the Company's operating results. The Company has no
employment agreement with Mr. Kaliher and no keyman life insurance on his
life.
The Company believes its future success will depend in large part upon
its ability to attract and retain additional highly skilled management,
technical, marketing, research and development, product development and
operations personnel. Competition for such personnel is intense, and no
assurance can be given that the Company will be successful in attracting
and retaining such personnel.
LACK OF REVENUES
The Company has no revenues from the sale of integrated circuits and
foresees no revenues from the sale of integrated circuits for more than 12
months in the future. The Company is not dependent on sales of integrated
circuits to exist, but there is no assurance that the Company can earn
revenues or obtain sufficient funds to sustain its planned operations
beyond the current minimal level for the next twelve months.
LACK OF FUNDS
The Company, in order to effectively market its integrated circuits
and other products, will require significant cash to cover specific
marketing costs, costs of prototypes and technical and specific design
services to be done for potential customers. No assurance can be given
that the Company can obtain sufficient funds to enable it to conduct an
adequate marketing and sales program.
PLAN OF OPERATION
The Company's business and operational plan, based on the described
objectives, for the next twelve months are directed toward (1) completing
the prototypes of its Internet Products and non Internet product, (2)
commence marketing these products, (3) commence manufacturing the products
in China, and (4) define the systems, within the products, to be integrated
into an integrated circuit.
OPERATIONS
The Company is currently operating profitably with a $16,145, or
$0.002 per share, profit for the three months ending June 30, 2000 and
$752,638, or $0.098 per share, for nine months ending on the same date.
These results compare to losses of $15,517, or $0.02 per share, and
$58,016, or $0.087 per share, for the same periods in the prior year.
The Company's revenues for the three months ending June 30, 2000
totaled $247,962 with operating expenses of $203,024. The revenues include
$21,000 from design fees, $184,113 from financial service fees, $14,566
from royalties, and $1,653 from interest. In addition the Company sold
tradeable securities for $26,630, during the same period, which cost
$28,793. For the same period in the prior year the Company had lease
income of $28,950 and Interest of $362 for a total of $29,312. Its
operating expenses for the prior period was $44,829.
The Company's revenues for the nine months ending June 30, 2000
totaled $1,412,336 with operating expenses of $630,905. The revenues
include license fees of $950,000, financial service fees of $324,586,
royalties of $86,886, design fees of $21,000, sale of tradeable stock of
$26,631, with a cost of $28,793, and interest of $3,233. For the same
period in the prior year the Company had lease income of $86,850 and other
income of $14,847 for a total of $101,697. Its operating expenses for the
prior period was $159,713.
The Company anticipates that it revenues from design services and
financial service fees will increase and be sufficient to continue its
operations, but there is no assurance that the Company will be able to
generate any revenues from the sale of its Internet products or other
hardware within the next twelve months.
The Company is under strict financial controls and will continue to
limit its expenses and not incur debt.
The Company believes that it can continue operating over the next
twelve months by continuing the current level of expenditure and not
increasing the expenditure of cash without having the cash on hand.
INTERNET TECHNOLOGY DIVISION
The Company during the next twelve months, at this level of
expenditure, will be able to (1) continue marketing the facsimile modem and
facsimile controller integrated circuits through its network of independent
sales representatives, as described herein; (2) develop CyberServer
prototypes for the iCradle, Home Controller and "web-modem," (3) complete
the development of the Motor Controller; (4) negotiate agreements with
independent parties to develop new products using the Companies technology;
(5) seek additional products manufactured by others that can be sold by the
Company's sales network; (5)seek private Placements with accredited
investors; and (6) identify and negotiate the manufacture and distribution
of one or more of the Company's products in China and Asia.
INTERNET DIVISION
The Company during the next twelve months, at this level of
expenditure, will be able to (1) setup one or more of its financial
services and E-Commerce web-sites, (2) setup and establish the
organizational structure for becoming an internet service provider, (3)
identify and negotiate for third party content providers, (4) seek third
parties to perform design and development services in exchange for cash or
non-cash consideration, (5) seek to acquire or enter strategic
relationships with service providers with non-cash consideration, and (6)
seek private placements with accredited investors. Non-cash consideration
includes, but is not limited to, an exchange of the Company's common stock.
CAPITAL STRUCTURE
Management believes that its present capital structure is sufficient
to provide the funds necessary to carry out the operational plan. Raising
funds from new offerings will not be necessary for the next 12 months but
will be
required for the subsequent period. In order to raise those funds the
Company is evaluating its capital structure and the capital structure of
its subsidiaries and affiliates.
FINANCING
The operational plan calls for the Company to seek private placements
and/or a public offering to raise $5,000,000 to $15,000,000 within the next
twelve months. However, there is no assurance the Company will be able to
obtain this financing, even though discussions are being conducted with
independent third parties.
RESEARCH AND DEVELOPMENT
The Company within the next twelve months plans to complete the
prototypes for its CyberServer products and non CyberServer products and
commence the conversion of the systems contained in the prototypes into an
integrated circuit. The Company is formulating plans and seeking personal
to market and sell its CyberServer products.
PURCHASE AND SALE OF EQUIPMENT
The Company does not expect to purchase or sale equipment during the
next 12 months.
AVAILABILITY OF PRODUCTS
The Company is now marketing the facsimile modem and facsimile
controller integrated circuits. The CyberServer products, the iCradle,
Home Controller, web-modem, and other products are expected to be ready to
market by the end of the year.
The Company is seeking products manufactured by others that it can
market through its established independent sales network.
EMPLOYEES
The Company does expect to add additional management personnel to the
Company and to retain independent third parties to perform design and
development and other services for the Company during the next 12 months.
The number of independent parties will depend on (1) the funds on hand and
(2) the sales of the facsimile modems and facsimile controller integrated
circuits. The number of new personnel and independent consultants' engaged
depends on the above factors and the Company's ability to negotiate the
exchange of non-cash consideration for their services. The number of
independent contractors currently used by the Company is nine. The number
of employees and/or consultants to be hired within the next 12 months could
range from two to four.
Currently the Company has three full time officers, two engineering and
design consultants and affiliates of the Company employ five to eight
employees.
INTERNET DEVICES
THIN INTERNET SERVERS
The operational plan provides for the Company to develop and sell a
series of products (the CyberServers) 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
servers within the next 6 months; however, the company has not completed
prototyping these products as of this date.
The first products will be thin Internet servers designed and built by
the Company and an affiliate company, Tensleep Appliances, Inc. Management
estimates that it will cost approximately $100,000 to protobype these
products over the next six to ten months. These products will be
distributed through the Company's current network of independent
representatives that are currently selling the fax modem chips and others
who are to be identified in China and Europe.
SAMSUNG ELECTRONICS
FAX MODEM CHIPS
The operational plan provides for the Company's fax modem chips,
fabricated by Samsung, to be distributed through its network of independent
sales representatives. These representatives sell to fax machine
manufacturers in Japan and the United States. Presently the Company has
one representative in Japan and two in the United States. Management
estimates that the marketing costs will be approximately $25,000 over the
next 12 months. Once the orders are received, the Company will incur the
costs of buying the chips, providing product support, and commissions. The
customer will pay the Company upon invoicing when the customer receives the
chips.
STRATEGIC RELATIONSHIPS AND NEW TECHNOLOGY
The operational plan provides for seeking strategic relationship with
other companies in consumer internet and communications consumer products
and the acquisition of new products. The development of strategic
relationship and acquisition of new technologies is to exploit and enhance
the Company's business. Management intends to acquire other companies and
acquire technology by exchanging shares of its common stock or, in limited
cases, when sufficient funds are on hand to use cash. Management believes
that its cost to find and negotiate its acquisitions of business or
technology and joint ventures indirectly cost not more than $20,000.
YEAR 2000 ISSUES
The Company has completed the Year 2000 assessment and has experienced
no interruptions or problems.
CREDIT FACILITY
The management does not have a credit facility.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has been name as a co-defendant in a case filed in the
Superior Court of the State of California County of Riverside, Indio
Judicial District, case No. INC 018584. The case relates to a transaction
in which the Company was not a participant and legal counsel believes the
suit against it is without merit. Management believes that the suit will
have no material effect on the business activities or financial performance
of the Company.
ITEM 2. CHANGE IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's annual meeting shareholders held in July 2000, the
shareholders proposed and approved a name change for the Company. The
shareholders approved the name "Tensleep Corporation." The Company is
currently in the process of filing the appropriate documents to effect the
name change.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8 - K.
(A) EXHIBITS.
Exhibit 27 Financial Data Schedule
(B) REPORTS ON FORM 8-K
NONE
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed by the undersigned, there unto
duly authorized.
Tensleep.com, Inc.
(Registrant)
Signature Title Date
/S/ Ronald S. Tucker President, CEO and CFO August 17, 2000
Ronald S. Tucker
