U. S. SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO _________________
Commission Fine Number 0 - 30164
TENSLEEP CORPORATION
(formerly 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.)
86025 52nd Avenue, Coachella, CA 92236-2701
(Address of Principal Executive offices, Zip Code)
(888) 443-2656
(Issuer's Telephone Number, including area code)
Securities registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on
Which
to be so Registered Each Class is to be
Registered
None
None
Securities registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
Class B Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $1,537,044.
Based on the average of bid and asked prices on November 30, 2000, the
aggregate market value of common stock held by non-affiliates (4,567,508) of
the registrant on November 30, 2000 was approximately $1,628,316.
The number of shares outstanding of issuer's only class of Common
Stock, no par value, was 12,032,023 on November 30, 2000.
INDEX
PART I.
ITEM 1. DESCRIPTION OF BUSINESS. . . . . . . . . . . . . . . . . .
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PATENTS AND PROPRIETARY RIGHTS. . . . . . . . . . . . . . . . .
MARKETS AND PRODUCTS. . . . . . . . . . . . . . . . . . . . . .
PRODUCT - FAST RESPONSE MODEM/CONTROLLER. . . . . . . . . . . .
MARKET - INFORMATION APPLIANCES . . . . . . . . . . . . . . . .
PRODUCT - iMODULE . . . . . . . . . . . . . . . . . . . . . . .
PRODUCT - iCAMERA CRADLE. . . . . . . . . . . . . . . . . . . .
PRODUCT - iCONTROLLER . . . . . . . . . . . . . . . . . . . . .
PRODUCT - VF - DRIVE . . . . . . . . . . . . . . . . . . . . .
SALES AND DISTRIBUTION. . . . . . . . . . . . . . . . . . . . .
COMPETITION . . . . . . . . . . . . . . . . . . . . . . . . . .
RAW MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . .
RESEARCH AND DEVELOPMENT. . . . . . . . . . . . . . . . . . . .
EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . .
ENVIRONMENTAL COMPLIANCE. . . . . . . . . . . . . . . . . . . .
GOVERNMENTAL REGULATION . . . . . . . . . . . . . . . . . . . .
INVESTMENT POLICIES . . . . . . . . . . . . . . . . . . . . . .
ITEM 2. DESCRIPTION OF PROPERTY. . . . . . . . . . . . . . . . . .
ITEM 3. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . .
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. . . .
PART 2.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..
ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW. . . . . . . . . . . . . . . . . . . . . . . . . . . .
RISKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PLAN OF OPERATION . . . . . . . . . . . . . . . . . . . . . . .
Operations . . . . . . . . . . . . . . . . . . . . . . . .
Research and Development . . . . . . . . . . . . . . . . .
Purchase and Sale of Equipment . . . . . . . . . . . . . .
Employees. . . . . . . . . . . . . . . . . . . . . . . . .
STRATEGIC RELATIONSHIPS AND NEW TECHNOLOGY. . . . . . . . . . .
YEAR 2000 ISSUES. . . . . . . . . . . . . . . . . . . . . . . .
CREDIT FACILITY . . . . . . . . . . . . . . . . . . . . . . . .
ITEM 7. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.. . . . . . . . . . . . . . . . . . .
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. . . . .
DIRECTORS AND EXECUTIVE OFFICERS. . . . . . . . . . . . . . . .
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES. . . . . .
ITEM 10. EXECUTIVE COMPENSATION.. . . . . . . . . . . . . . . . . .
SUMMARY COMPENSATION TABLE. . . . . . . . . . . . . . . . . . .
QUALIFIED AND NON QUALIFIED STOCK OPTIONS . . . . . . . . . . .
EMPLOYMENT AGREEMENT. . . . . . . . . . . . . . . . . . . . . .
SALES COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . .
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . .
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . .
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
GENERAL
The Company is an Integrated Internet Company based in Austin, Texas.
The Company was founded in October 1997, in the State of Colorado, under the
name Tensleep Design, Inc. The company's name was changed In April 1999 to
Tensleep Technologies, Inc, in November 1999 to Tensleep.com, Inc., and in
August 2000 to Tensleep Corporation (the "Company").
The Company is an integrated Internet company that acquires and
licenses technology; identifies, acquires, and develops development-stage
technology and service companies; and focuses on the Internet infrastructure
market-PC, application-ready devices which simplify the operation, improve the
reliability, and lower the cost of computing over public and local networks.
The first-generation products-contained units or modules that connect
the primary device or system to the Internet without the use of a PC-on-a-chip
appliance solution.
Tensleep Technologies, a wholly owned subsidiary, is chartered with
continuing to focus on Tensleep's original business and bringing-to-market
penetration of the Internet appliances and developed integrated systems
through strategic relationships, joint ventures, and international marketing
alliances.
Appliance Partners, an affiliate, is dedicated to developing the
hardware and software required to develope Information Appliances and to
educating customers and bundling and marketing appliance solutions to
corporate and individual consumers. In addition to designing and developing
IA's and the software to drive them, Appliance Partners is establishing
relationships with leading manufacturers of IA consumer electronics, IA
distributors and marketing organizations to bring IA solutions to buyers
through its market focused eCommerce portal. The company believes that this
focus will result in solutions tailored to the requirements of individual
countries and markets.
China Net, an affiliate, is a high-technology and Internet-related
company that specializes in developing strategic relationships with
emerging-growth, high-technology companies in China.
Silicon Resources, an affiliate, is a chip design consulting firm that
specializes in designing special features in micro-computer chips.
Internet Integration Group
The goal of the Internet Integration Group-commerce and
e-tailing programs; commission-based revenue from strategic commercial
partnerships, news and sales opportunities, banner advertising, and profit-
sharing arrangements. As a result, Whisk will provide Tensleep with another
source of revenue.
The Company in November formed and organized Tensleep Europe, Inc.,
and plans to place its acquired interest in Whisk in this company. The
Company's purpose is to develop Tensleep Europe through the acquisition of
European companies and exportation of the Compan's technology.
Financial Services Group
The goal of the Financial Services Group Master Financial Group (Master
Financial) in April
2000, as a wholly owned subsidiary, provided Tensleep with a strong revenue
source with profits during Tensleep's last fiscal year. Master Financial
provides financial services to small public growth companies.
Besides being responsible for developing an investor's financial
informational web site for Tensleep at www.otcbbworld.com, Master Financial
publishes www.analystgroup.com and provides comprehensive services to help
small high-tech businesses grow.
Amcor, an affiliate, is a specialty finance company providing merchant
banking services in the form of real estate financing and financing of
emerging growth companies.
PATENTS AND PROPRIETARY RIGHTS.
The Company seeks to protect and maintain its intellectual property,
including its trade secrets and technical knowledge. The Company, when
appropriate, plans to file patent applications for key designs, innovations
and inventions that it believes are most relevant to its product line and
most valuable as cost and technological advantages. The Company prevents
the loss of valuable proprietary information, such as trade secrets and
technical knowledge, through non disclosure agreements and the strict
enforcement of its license agreements.
The Company requires employees, consultants, and independent
contractors to execute confidentiality and invention/copyright assignment
agreements before engaging in any service to the Company. The Company
requires other companies, when engaged in sensitive discussions involving
the Company's proprietary technologies, to execute non disclosure
agreements. These agreements are intended to protect the Company's trade
secrets, technical knowledge, and patents and copyrights by restricting
disclosure of this information. No assurance can be made, however, that
such contracts will give the Company adequate protection if such agreements
are breached through the unauthorized disclosure or use of such intellectual
property.
MARKETS AND PRODUCTS
PRODUCT - FAST RESPONSE MODEM/CONTROLLER
The Company's Fast Response Modem/Controller is a highly integrated
single-chip device. It is specifically designed for use in embedded
applications where space, and performance and low power are key requirements.
It is ideally suited for applications coupling communications with machine
control. It contains both a modem and micro controller. They give this
product a capability to control the machine functions directly. It could be the
only integrated circuit required in many applications.
This controller can be connected to most electronic or electro-mechanical
devices, such as vending machines, ATMs, power line monitors and other devices
that require low-cost communication and control. Embedded programs include
software that enables communications over both the dial-up network and the
Internet. Other software provides an operating system that enables the
integration of embedded programs and customer-provided machine control
programs.
The Company does not have a fabricator for its fast response
modem/controller and does not plan or expect to market this developed product
within the next twelve months.
MARKET - INFORMATION APPLIANCES
Dataquest, an independent and unrelated computer market information
publisher, estimates that the information appliance or thin server market will
exceed $17 billion by 2002 and represent an estimated 13.5 million units sold
annually. The thin server market has seven segments that include the
following: Enterprise, Departmental, Workgroup, Industrial, Small office,
Device, and Consumer/Home. A Merrill Lynch research report projects that
Internet appliances will exceed the personal computer in sales and revenues by
2005. Merrill Lynch says that the next wave of demand will be for information
and real-time data access and the next product categories will be appliances.
Information Appliances have been defined as specialized, single, or limited
function devices that are inexpensive and intuitive.
Information Appliances can generally be placed into two main categories:
client appliances and server appliances. Client appliances allow people to
view information from a public network. These include devices like handheld
Palm or Pocket PCs, other PDAs, smart phones, Internet tablets, and Internet
terminals. Appliance servers host information on the network.
The growing market penetration of mobile appliance clients combined with
the future impact of new wireless communication standards will lead to the
exponential rise in market demand for appliances. In short, the trend and
momentum behind the appliance market is increasing as both wireless
connectivity and the Internet grow. Furthermore as the number of appliance
clients increases the demand for content, and the number of appliance servers
will need to grow to meet market demand.
PRODUCT - iMODULE (WEB-MODEM)
The Company's first Information Appliance is an Internet modem/controller
(the "Web-Modem") module ("iModule"). The iModule is a modular unit providing
an addressable website for an attached appliance or collection of appliances.
The iModule allows the appliance(s) to be monitored and controlled remotely
using standard Internet and website protocols. It constructs a web page from
data received (or solicited) from the attached appliance(s) and makes this data
available to remote browsers that have approved access capability. It also
accepts commands from the remote browser, reformats the commands and presents
them to the appliance. Pre-determined aspects of the web page, covering
content and format, may be changed over the Internet from remote locations.
The iModule offers connection to the Internet via a number of interfaces and
offers multiple connections to the appliance(s) via a variety of interfaces.
The iModule will be marketed to original equipment manufacturers ("OEMs")
for use in the research and development of the OEM's appliances or equipment.
Through the use of the iModule, the OEM is able to develop and define
specifications for the specific Information Appliance to be embedded and used
in its appliances or equipment (the "Customer's IA"). Typical appliances or
equipment includes but are not limited to electric meters, vending machines,
monitors of traffic, security devices, factory production machinery, etc. Once
the OEM developed its specific Information Appliance and decided to include it
within its products, the Company will develop, fabricate and supply the
Customer's IA to the OEM.
The Company plans to miniaturize the systems used in the Customer's IA
into integrated circuits that combine both the communications and micro-
controller functions with the Internet protocol and appliance
control/functions. The integrated circuits developed in the second phase will
have a digital signal processor, a microprocessor and an analog front end with
an associated set of peripherals for connecting to the Ethernet or the
Internet.
The Company has completed the iModule and delivered two units to a
Japanese manufacturer as ordered and that company is in the process of
developing its Customer IA. The Company has no other sales of the iModule.
PRODUCT - iCAMERA CRADLE
The Company, through Appliance Partners, is developing an IA to serve as
an accessory for digital cameras manufactured by, but not limited to, Kodak,
Olympus and Nikon (the "iCamera Cradle"). The iCamera Cradle is a picture
server designed to communicate pictures (and audio) from a digital camera
directly to the Internet. The iCamera Cradle provides a direct link to the
Internet through a network, dial-up or wireless connection. Once connected to
the Internet the iCamera Cradle can transfer the images to a personalized
online web-site or allow others to view the images directly from the products
built in web-server. The product can transfer images through its wireless
Bluetooth interface to other Bluetooth-enabled systems such as PCs, PDAs, and
printers. The product will also contain a digital photo album capable of
storing pictures and allowing users to rename pictures and orgnize them into
categories and directories. The built-in web server provides the tools to
view, edit, organized and share the images with others over the Internet.
The Company is continuing to develop the iCamera Cradle, but has no sales
as of the date of this document, and does not anticipate a completed prototype
until the end of June 2001.
PRODUCT - iCONTROLLER (Home Controller)
The Company, through Appliance Partners, is developing an IA to serve as
a a home portal. The iController is a server, sub-pc computer, that allows the
home owner to access and control directly, through the home network, or
indirectly, through the Internet, all the smart devises or appliances within
his/her home. The iController will provide an inexpensive interface between
the Internet and various existing and future home system control units. The
intent is to allow the systems and the devices within those systems to be
monitored and controlled remotely using standard Internet and website
protocols. The Portal has a direct connection to the Internet.
The iController can be addressed, via the Internet, from any remote
computer, desktop, laptop or handheld, or from a competent cellular telephone.
It also provides sample web pages that display data about the status and
performance of systems and equipment within a house. The web page also
provides the vehicle for remotely controlling these same systems and equipment.
The Company is continuing to develop the iController, but has no sales
as of the date of this document, and does not anticipate a completed prototype
until the end of 2001.
PRODUCT - VF-DRIVE (Variable Frequency Drive)
The Company, through independent contractors, has developed a variable
frequency drive ("VF-Drive") for heating, ventilating, and air-conditioning
systems ("HVAC") . The VF-Drive provides a continuous variable drive
capability to Air Conditioner and Heat Pump compressors and blowers. The
purpose of this product is to allow the HVAC climate control to operate
continuously (no start and stop) at the rate or speed necessary to keep the
temperature in the room or building constant within that set by the user. The
use of the VF-Drive reduces the (on time) noise of the blower and compressor
motors, and the speed of air movement ("draftiness") in the climate controlled
area. Thus it greatly improves the energy efficiency and cost savings in the
HAVC (air conditioning or heat pump) systems, and results in an improved
comfort level for people in the climate-controlled area. This type of system
has been shown to provide energy savings in the range of 25 to 35% over
existing on-off HVAC units. The VF-Drive accepts the normal control input of
drive signals from the room or building thermostat.
The Company has completed the development of the VF-Drive and is
continuing testing, but has no sales as of the date of this document. The
Company is evaluating the niche markets for this product and the requirements
or requisites for entering those markets. Marketing efforts are tentatively
planned to begin after June 2001.
SALES AND DISTRIBUTION
The Company uses independent manufacturers' representatives to distribute
products developed by Tensleep Technologies. The manufacturer's
representatives were selected based on Mr. Kaliher's previous relationships
with these sales organizations. The Company has three representatives: one in
California, one in Illinois and one in Japan. The Company is currently seeking
additional reps in Asia, Europe and the United States.
COMPETITION
The Internet Appliance is a shift to Internet computing where specialized
devices are connected by the Internet and supported by a sophisticated
infrastructure. The Company believes, based on reports by Merrill Lynch, that
Internet appliances will be the next waves of demand for information and real-
time data access, and three existing vendor groups will compete for the
appliance market: computer makers, consumer appliance companies, and mobile
telecom vendors. Merrill Lynch further states that market sizes will be
limited due to specific applications and not general purpose usage, resulting
in many successful companies and no dominant one.
The Company has identified potential niche markets for thin Internet
servers with little competition at the present time, but if these markets
develop Tensleep Technologies will face substantial direct and indirect
competition from international and national competitors, many of which are well
established and have greater marketing, financial and other resources than the
Company.
MATERIALS AND COMPONENTS
The Company's products are currently made from the electronic components
manufactured by others, e.g. capacitors, resistors, modem chips, and micro-
controllers. Some of the components are high demand items and there is no
assurance these components will be available in sufficient quantities.
RESEARCH AND DEVELOPMENT
The Company has accounted for the acquisition of the Technology from
Sundance Design, Inc., for $1,577,052, as a cost to the research and
development account. In addition, the Company has not incurred direct costs
to its research and development, but it incurred indirect costs and its
management has spent uncompensated time in the development of the new
products.
However, no accounting has been made. Management estimates that if research
and development time and expenses had been accounted for, the cost would
approximate $80,000.
EMPLOYEES
As of November 1, 2000 the Company, subsidiaries and affiliates had eight
full time employees and three part time employees. The Company is currently
negotiating with unrelated companies and individuals for consulting
engineering, marketing, and other services. None of the Company's,
subsidiaries' or affiliates' 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.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's headquarters is located in Coachella, California in a
building owned by an affiliate company which charges no rent. Tensleep
Technologies is located in an industrial office building in Austin, Texas
and rents approximately 1,500 square feet with Appliance Partners. The
Company intends to lease additional facilities as required.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any litigation incidental to its
business or material to the business activities or financial performance of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted to a vote of security holders
during the last quarter of the fiscal year ended September 30,
2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common Stock has traded in the over-the-counter
market since September 1999 and is currently trading on the Over-The-Counter
Bulletin Board. Set forth below are the high and low bid prices of the
Common Stock for each quarter since reported by a member firm of the
National Association of Securities Dealers, Inc. that effects transactions
in Bulletin Board stocks and acts as one of the market makers for the
Company's Common Stock. The quotations listed below reflect inter-dealer
prices, without retail mark-up, mark-down or commissions, and may not
represent actual transactions.
Stock Prices
High Low
September 1999 $4.00 $2.50
December 1999 $4.75 $1.35
March 2000 $7.38 $1.69
June 2000 $3.75 $1.25
September 2000 $1.56 $0.56
(b) On September 30, 1999, there were approximately 230 stockholders
of record of the Company's Common Stock.
(c) The Company has paid no dividends on its Common Stock.
(d) During the period coved by this report the Company has issued
unregistered securities pursuant to Section 4(2) of the Securities Act of
1933 (the "Act"), Regulation A under the Act. Each transaction has been
fully described in the accompanying financial statements or the Form 10SB
filed under the Securities Exchange Act of 1934, as amended, both of which
are hereby incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
OVERVIEW
The Company, originally founded as fab-less semiconductor company, is
being reorganized and restructured into an Integrated Internet company that
intends to build an economic and financial foundation on which to establish
an international business that provides specialized services and develops,
manufactures and distributes specialized Internet and other types of
electronic appliances and their embedded modular systems.
The Company's Strategic Plan is to build its business through a
combination of internal business development and strategic acquisitions and
affiliations. The Company is consolidating its current and to be acquired
subsidiaries and affiliates into groups relating to the market sector of
each subsidiary and affiliate. Individually, each company within each group
will continue to develop its own operations and build its own revenue
streams, but when possible subsidiaries and affiliates will be merged,
combined or consolidated.
The implementation of the Company's operational plan for the next
twelve months, requires limited additional personnel and financial
resources. The Company has and will continue to engage one or more
independent third party organizations or affiliates to provide the quality
and number of personnel and services required for the development of and to
upgrade the Company's products and services. The development and upgrading
services provided by these organizations will be supervised and directed by
Mr. Kaliher. The Company, with limited financial resources, will seek third
party service providers willing to provide services in 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.
Market Evaluation
The Company is in a continual process of identifying and evaluating
new niche markets, but there is no assurance that the Company will correctly
identify or evaluate any niche market. Even if the Company should correctly
identify and evaluate new niche markets, there is no assurance the Company
can develop any products or services that would be accepted in those markets
or that the products or services would be developed in a timely manner.
In order to reduce this risk the Company's plans (1) to develop
products with embedded standard modular systems capable of being used in
products that cross market segments, (2) to develop and provide
manufacturing and distribution to independent third party companies
developing their own niche market products, and (3) to acquire all or part
of businesses that have developed and are distributing products in
identified markets.
Dependence upon new products
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 may require
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. To reduce this risk the Company is developing modular
designed sub-products, which may reduce the cost of development and time to
market.
There is no assurance the Company will be able to introduce new
products on a timely basis. There is no assurance the Company can produce
the new or old products or services, nor achieve any significant degree of
market acceptance for them, nor sustain acceptance for any significant
period. Failure to produce or achieve or sustain market acceptance of its
products or services would affect the Company's operating results.
Competition
The markets in which the Company operates or will attempt to operate
may be characterized by competition among a number of small and potentially
large companies that are well financed with a long history. They will have
substantial advantages in terms of breadth of technology, sales, marketing ,
resources and support capability.
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 and ability of the
management of the Company and its affiliates to identify and develop its
technology, products and services. If the Company and its affiliates severe
their relationship, the effect would have a serious effect on the Compan's
operations.
The Company recognizes that some people believe that the high
technology industry, in which the Company plans 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 and the Company's affiliates. The loss of Mr. Kaliher and
the services of the Company's affiliates 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 not established a consistent source of revenues. The
Company has experience revenues in the form of single payment License fees
and royalties, but there is no assurance the Company will be able to
Licences its technology in the future or that the Royalties will continue at
their present level. There is also no assurance that the Company can earn
revenues beyond the current minimal level for the next twelve months.
Lack of Funds
The Company to market its products and services effectively 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 has or 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 for the next twelve months
are directed toward developing or acquiring a regular source of revenues,
arranging for the manufacturing and distribution of its products in China,
and distributing its products and services in Europe.
Operations
The Company is currently operating and will continue to operate with
its available funds. The current burn rate for the company is approximately
$7,500 to $10,000 per month. The Company is now and will continue to limit
its expenses and not incur debt. The Company's expenses are limited to
phone bills, limited travel, office supplies, accounting services, repairs
and maintenance, outside services and other small but ordinary business
expenses.
The Company believes that it can continue operating over the next
twelve months. It can do so by continuing the current level of expenditure
and not increasing the expenditure of cash without having the cash on hand.
The Company during the next twelve months, at this level of expenditure,
believes that it will be able to complete its plan of operation.
The Company, as part of its operational plan, is consolidating its
current subsidiaries and affiliates into groups relating to the their market
sector: the Appliance Technology Group, Internet Integration Group, and
Financial Services Group.
Appliance Technology Group
Tensleep Technologies, a wholly owned subsidiary, was recently
organized and is chartered with continuing to focus on Tensleep's original
business and bringing-to-market penetration of the Internet appliances and
developed integrated systems through strategic relationships, joint
ventures, and international marketing alliances. Tensleep has transferred
its interest in its computer design software and hardware, and ownership
interest in Silicon Resources to Tensleep Technologies. Tensleep
Technologies has completed the development and testing of a motor
controller, a non-Internet product.
Appliance Partners, an affiliate, provides the technical engineering
and design services to Tensleep in developing and prototyping Tensleep's
Internet-related products. These products, CyberServers, are special-purpose
modular appliance servers. This product line will be expanded to include the
iCamera Cradle, a digital camera server, the iController, a home controller,
and the iModule. Appliance Partners will continue to engineer and design
technologies with unique applications in the Internet Access Device (IAD)
market, consumer and small office home office (SOHO) appliance market.
The iModule is now part of the CyberServer product line and Tensleep
is prototyping two additional applications for its thin-Internet servers-alone
profit center and allow that business to focus on its own
business and corporate development.
The transfer of the CyberServer business allows the Company to focus
on identifying and developing strategic relationships with emerging growth
companies in related businesses that will aid the Company in its business
and corporate development. Tensleep Technologies' business plan is to
acquire new product technology, establish manufacturing relationships and to
distribute products to consumers and original equipment manufacturers.
Appliance Partners' business plan is to develop a series of special purpose
computers or servers, referred to as appliances and/or thin Internet
servers.
Tensleep believes that continued implementation of its general plan of
operation requires few additional personnel, if any, for the development and
upgrading of its various products. Tensleep will also 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 and to upgrade its other developed products. The
development and upgrading that are provided by these organizations will be
supervised and directed by Tensleep's vice president, Dennis Kaliher. In
addition, Tensleep will also seek strategic relationships with independent
third-party organizations to participate in the development and upgrading
services.
China Net, an affiliate, is a high-technology and Internet-related
company that specializes in developing strategic relationships with
emerging-growth, high-technology companies in China. China Net has acquired
a license to manufacture and distribute Tensleep's iModule in China and is
seeking Chinese companies to manufacture and distribute that product.
Silicon Resources, an affiliate, is a chip design consulting firm that
specializes in designing special features in micro-computer chips.
Internet Integration Group
Tensleep, in November 2000, formed Tensleep Europe, Inc., a wholly
owned subsidiary, to focus on Internet company acquisition, integration, and
growth acceleration. Tensleep Europe will not confine its activities solely
to the North American market, where it considers the current market for
undervalued opportunities to be extensively mined, but it will look
increasingly to the international market for the opportunity to add
stockholder value and go-to-market services to Internet service and
infrastructure companies. These emerging companies will be development-stage
companies that have a proven e-business model or Internet infrastructure but
lack the kind of services and the level of resources that Tensleep can
provide or help them obtain.
In December 2000 Tensleep completed the acquisition of a majority
interest in Whisk.co.uk, Limited, a unique Internet vertical community and
business-to-business e-commerce site in the hotel and restaurant industry.
Tensleep Europe expects to confirm the appointment of a board of advisors
consisting of several individuals experienced in the Internet industry
environment and to open operational offices in London in early 2001.
Financial Services Group
The focus of the financial services group is to develop strategic
relationships with financial service providers.
The acquisition of Master Financial Group (Master Financial) in April
2000, as a wholly owned subsidiary, provided Tensleep with a strong revenue
source with profits during Tensleep's last fiscal year. Master Financial
provides financial services to small public growth companies. Services
include distribution of financial information on small public growth
companies through the Internet and investment relations web sites that
disseminate information about public companies through Internet newsletters.
Master Financial plans to add to its customer base by expanding the range of
online services for North American companies. Tensleep plans to reach
investor groups, develop new market opportunities, in both Southeast Asia
and Europe, and complement these online services with the acquisition or
development of a leading, independent investor relations company in Europe.
Besides being responsible for developing an investor's financial
informational web site for Tensleep at www.otcbbworld.com, Master Financial
publishes www.analystgroup.com and provides comprehensive services to help
small high-tech businesses grow.
Amcor, an affiliate, is a specialty finance company providing merchant
banking services in the form of real estate financing and financing of
emerging growth companies.
Research And Development
The Company, Appliance Partners, within the next twelve months plans
to develop prototypes of the iCamera Cradle and iController.
Purchase And Sale of Equipment
The Company does not expect to purchase or sale equipment during the
next 12 months.
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.
YEAR 2000 ISSUES
The Company failed to have a material effect from any Year 2000
issues.
CREDIT FACILITY
The management does not have a credit facility.
ITEM 7. FINANCIAL STATEMENTS
Auditor's Report
BRABO, CARLSEN & CAHILL
Certified Public Accountants
1111 E. Tahquitz Canyon Way, Suite 203, Palm Springs, CA 92262
Ph: 760-320-0848 fax: 760-322-4626
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
of Tensleep Corporation
We were engaged to audit the accompanying consolidated balance sheets of
Tensleep Corporation (formerly Tensleep.com, Inc., Tensleep Technologies,
Inc. and Tensleep Design, Inc.) (A Colorado Corporation) and subsidiaries,
as of September 30, 2000 and 1999, and the related consolidated statements
of operations, changes in stockholders equity (deficit), and cash flows for
the years then ended. We were also engaged to audit the individual 1999
financial statements of Tensleep Corporation. We were also engaged to
audit the individual 2000 financial statements of Tensleep Corporation
and each subsidiary except Master Financial Group Inc., whose financial
statements we complied, as discussed in the forth paragraph of this report.
These financial statements are the responsibility of the Company's
management.
We were unable to obtain adequate detailed books and records and supporting
data in order to complete the audit of the subsidiary Master Financial
Group, Inc. Therefore, we were not able to satisfy ourselves about the
amount that goodwill is recorded at in the accompanying consolidated balance
sheet at September 30, 2000 (stated at $337,352), the amount of goodwill
amortization expense (stated at $16,868), and goodwill asset impairment
(stated at $150,000) and impact on the consolidated accrued income taxes and
income tax expense of Tensleep Corporation for the year then ended.
Additionally, we were unable to obtain adequate financial information to
satisfy ourselves about the recorded amount of the investment in Silicon
Resources, Inc. included on the accompanying consolidated balance sheet at
September 30, 2000 (stated at $1,103,800) and the amount of related license
fee revenue (stated at $750,000) including the impact of applying the equity
method to this investment and the impact on the consolidated accrued income
taxes and income tax expense of Tensleep Corporation for the year then ended.
Because of the significance of the matters discussed in the preceding
paragraph, the scope of our work was not sufficient to enable us to express,
and we do not express, an opinion on the consolidated financial statements
referred to in the first paragraph of Tensleep Corporation and subsidiaries,
as of September 30, 2000 and the results of their operations, changes in
stockholders equity (deficit) and its cash flows for the years then ended of
Tensleep Corporation and each subsidiary except Master Financial, whose
financial statements we complied as discussed in the following paragraph,
as in conformity with generally accepted accounting principles.
We have compiled the accompanying balance sheet of Subsidiary Master
Financial as of September 30, 2000, and the related statements of operations,
changes in stockholder equity (deficit), and cash flows for the year then
ended, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited
or reviewed the financial statements of Subsidiary Master Financial and,
accordingly, do not express an opinion or any other form of assurance on them.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company has been in the development stage from its
inception on October 23, 1997 through September 30, 1999. 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 operating results. 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.
Palm Springs, California
January 9, 2001
<PAGE>
TENSLEEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
ASSETS
2000 1999
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 524,255 $ 65
Marketable Securities (See note 1) 33,203 -
Prepaid Expenses (See note 15) 250,000 510,000
Other Receivables (See note 20) 112,000 -
Due from Tensleep Appliance (See note 23) 50,000 -
License Fee Receivable (See note 19) 100,000 -
Royalty Receivable (See note 18) 35,291 -
Note Receivable - 60,000
Loan Receivable 30,000 -
----------- -----------
Total Current Assets 1,134,749 570,065
----------- -----------
PROPERTY AND EQUIPMENT
Machines & Equipment 105,757 102,014
Software 186,728 172,371
----------- -----------
292,485 274,385
Less accumulated depreciation and amortization 230,715 137,194
----------- -----------
Net Property and Equipment 61,770 137,191
OTHER ASSETS
Goodwill - net of accumulated amorization of $16,868
(See note 20) 320,484 -
Investment in China Net & Technologies, Inc., at
equity (See note 2) 1,672,135 322,918
Investment in Amcor Financial Corp., at equity
(See note 3) 1,283,768 -
Investment in Silicon Resources, at cost (See note 4) 1,103,800 -
Receivable (See note 5 and 12) - 103,800
----------- -----------
Total Other Assets 4,380,187 426,718
----------- -----------
TOTAL ASSETS $ 5,576,706 $ 1,133,974
=========== ===========
</TABLE>
<PAGE>
TENSLEEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 755 $ 4,693
Loan payable to China Net & Technologies, Inc.
(See nOTE 6) 2,291 14,442
Accrued consulting fees (See note 11) - 140,000
----------- -----------
Total Current Liabilities 3,046 159,135
----------- -----------
TOTAL LIABILITIES 3,046 159,135
STOCKHOLDERS' EQUITY
Preferred stock, no stated value, 10,000,000 shares - -
authorized no shares issued and outstanding
Common stock, $.01 stated value, 50,000,000 shares 83,583 70,450
authorized 8,358,266 and 7,045,016 shares issued and
outstanding at September 30, 2000 and 1999,
respectively
Treasury stock, 1,000,000 and 0, at cost, for - -
September 30, 2000 and 1999, respectively
Additional paid-in capital 7,869,689 3,580,966
Allowance for Unrealized Gains (Losses) on (41,468) -
Marketable Equity Securities (See note 1)
Note Receivables for common stock - (610,200)
(See note 11 and 16)
Retained Earnings (Accumulated Deficit) (2,338,144) (2,066,377)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,573,660 974,839
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,576,706 $ 1,133,974
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Lease income (See note 12) $ - $ 115,800
Design Fees 22,400 -
Memberships 21,219 -
License Fees (See note 19) 950,000 -
Stock Promotion 419,692 -
Royalty Income (Note 18) 122,177 -
Other Income 1,556 15,668
----------- -----------
1,537,044 131,468
EXPENSES
Advertising 75,025 30,103
Automobile expense 3,484 8,205
Bank service charges 2,571 343
Compensation 14,375 -
Consulting expense 406,833 157,550
Depreciation and Amortization 110,389 91,462
Dues and subscriptions 2,512 1,598
Filing fees 950 604
Insurance 3,855 1,852
Interest 329 -
License & permits 50 110
Other expenses 14,416 4,723
Office supplies 6,322 1,576
Outside services 142,014 9,071
Payroll & Payroll Taxes 19,549 -
Postage & delivery 1,649 639
Printing and reproduction 154 66
Professional fees 28,537 7,650
Promotion 13,091 -
Rent (See note 12) - 12,000
Repairs 1,053 1,945
Product development costs 95,926 -
Supplies 1,159 -
Telephone 8,280 7,234
Travel & Entertainment 32,926 4,838
Utilities 670 264
----------- -----------
986,118 341,833
----------- -----------
INCOME (LOSS) FROM OPERATIONS 550,926 (210,365)
----------- -----------
OTHER INCOME (EXPENSE)
Interest Income 10,419 -
Income (loss) on equity investments (87,682) (42,877)
Asset Impairment (See note 20) (750,000) -
Net Realized gain on marketable
securities (See note 1) 10,419 -
----------- -----------
(816,794) (42,877)
----------- -----------
PROVISION FOR INCOME TAXES (See note 22) - -
----------- -----------
NET INCOME (LOSS) $ (265,868) $ (253,242)
=========== ===========
EARNINGS PER COMMON SHARE (SEE NOTE 13) $ (0.30) $ (0.31)
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
F0R THE YEARS ENDED SEPTEMBER 30, 2000 and 1999
<TABLE>
<CAPTION>
Allowance
for Unrealized
Note Gains and
Additional Receivable Losses on
See Number of Common paid-in Retained for Marketable
Note Date shares Considera stock capital Earnings stock Equity Sec Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance 9/30/1998
as prev. reported 6,103,016 $ 61,030 $ 535,186 $(1,780,930) $ - $ - $ (1,184,714)
Adjustments:
Prior prd adj - - (32,205) - - (32,205)
cost to equity
method - Note 2 --------- ---------- --------- ---------- ------------ --------- ----------- -------------
Balance, 10/1/1998
as restated 6,103,016 $ 61,030 $ 535,186 $(1,813,135) $ - $ - $ (1,216,919)
Stock issued 7A 12/15/98 35,000 Cash/Note 350 174,650 - - - 175,000
Stock issued 7B 12/15/98 8,000 Non-cash 80 39,920 - - - 40,000
Stock issued 7C 12/15/98 300,000 Non-cash 3,000 1,497,000 - - - 1,500,000
Stock issued 7B 12/15/98 4,000 Non-cash 40 19,960 - - - 20,000
Stock issued 7B 12/15/98 4,000 Non-cash 40 19,960 - - - 20,000
Stock issued 7B 12/15/98 4,000 Non-cash 40 19,960 - - - 20,000
Stock issued 7B 12/15/98 4,000 Non-cash 40 19,960 - - - 20,000
Stock issued 7D 12/15/98 4,000 Non-cash 40 19,960 - - - 20,000
Stock issued 7E 12/15/98 137,000 Note 1,370 683,630 - - - 685,000
Exercise A Warrants 7E 12/15/98 88,000 Note 880 34,320 - - - 35,000
Exercise B Warrants 7F 03/31/99 4,000 Non-cash 40 19,960 - - - 20,000
Exercise A & B Warr 7G 09/13/99 350,000 Non-cash 3,500 496,500 - - - 500,000
Note Rec for stock 16 - - - (610,200) - (610,200)
Net income (loss)
1999 - - ( 253,242) - - (253,242)
--------- --------- --------- ---------- ------------ ---------- ------------ -------------
Balance 9/30/1999 7,045,016 $ 70,450 $3,580,966 $(2,066,377) $(610,200) $ - $ 974,839
Exercise B Warrants 7H 10/11/19 15,000 Non-cash 150 74,850 - - - 75,000
Exercise A Warrants 7I 10/26/19 20,000 Non-cash 200 19,800 - - - 20,000
Stock issued 7J 10/29/19 35,000 Non-cash 350 27,650 - - - 25,000
Exercise A Warrants 7K 11/01/19 5,000 Cash 50 3,950 - - - 4,000
Exercise A Warrants 7L 11/03/19 1,000 Cash 10 790 - - - 800
Exercise A Warrants 7M 11/03/19 1,000 Cash 10 790 - - - 800
Exercise A Warrants 7N 12/07/19 10,000 Non-cash 100 7,900 - - - 8,000
Exercise A Warrants 7O 12/07/19 50,000 Non-cash 500 49,500 - - - 50,000
Exercise A Warrants 7P 12/07/19 13,000 Non-cash 130 12,870 - - - 13,000
Stock issued 7Q 12/08/19 60,000 Non-cash 600 59,400 - - - 60,000
Erercise B Warrants 7R 12/13/19 25,000 Non-cash 250 122,250 - - - 122,500
Stock issued 7S 12/14/19 20,000 Cash 200 35,282 - - - 35,482
Exercise B Warrants
& stock issued 7T 12/30/19 300,000 Non-cash 3,000 597,000 - - - 600,000
Erercise B Warrants 7U 12/30/19 50,000 Non-cash 500 249,500 - - - 250,000
Exercise A Warrants 7V 12/30/19 253,960 Non-cash 2,540 197,460 - - - 200,000
Exercise A Warrants 7W 12/30/19 100,000 Non-cash 1,000 79,000 - - - 80,000
Shares cancelled 7X 12/30/19 (1,000,000) Non-cash (10,000) 10,000 - - - -
Note Rec canceled 16 12/30/19 - Non-cash - - - 610,200 - 610,200
Stock issued 7Y 02/24/20 340,000 Non-cash 3,400 30,600 - - - 34,000
Erercise B Warrants 7Z 03/07/20 100,000 Cash 1,000 449,000 - - - 450,000
Stock issued 7AA 04/22/20 400,000 Non-cash 4,000 996,000 - - - 1,000,000
Exercise B Warrants
& stock issued 7AB 04/22/20 500,000 Non-cash 5,000 1,245,000 - - - 1,250,000
Stock issued 7AC 06/07/20 10,000 Non-cash 100 14,275 - - - 14,375
Stock dividend 14 06/02/20 4,290 Non-cash 43 5,856 (5,856) - - -
Net income for 2000 - - - (265,868) - - (265,868)
Net Unrealized loss
on marketable
equity securities - - - - - (41,468) (41,468)
--------- -------- --------- --------- --------- ----------- -----------
Balance 9/30/2000 8,358,266 $ 83,583 $7,869,689 $(2,338,144) $ - $ (41,468) $5,573,660
========= ======== ========== ============ ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net Income (Loss) $ (265,868) $ (253,242)
Adjustments to reconcile net loss to
net cash used in operations:
Depreciation and amortization 110,389 91,462
Expenses (income) incurred in exchange for commo (890,070) 30,000
Equity in earnings of affiliated companies 87,682 42,877
Write down of impaired asset 750,000 -
(Increase) decrease in assets:
Prepaid expenses 260,000 -
Accounts Receivable - (103,800)
License Fee Receivable (100,000) -
Royalty Receivable (35,291) -
Note Receivable 60,000 -
Loan Receivable (30,000) -
Increase (decrease) in liabilities:
Accounts Payable (3,938) 4,693
Accrued consulting fees (66,800) 140,000
----------- -----------
Net cash used by operating activities (123,896) (48,010)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to affilate (50,000) -
Net (purchases) sales of marketable securities 219,155 -
----------- -----------
Net cash used by investing activities 169,155 -
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loan payments on borrowings from affilate (12,151) -
Proceeds from pooled investment account - 22,693
Proceeds from sale of stock warrants 491,082 25,000
----------- -----------
Net cash provided by financing activities 478,931 47,693
----------- -----------
NET INCREASE (DECREASE) IN CASH 524,190 (317)
CASH, beginning of period 65 382
----------- -----------
CASH, end of year $ 524,255 $ 65
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP C0RPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Tensleep Corporation (formerly Tensleep.com, Inc., Tensleep Technologies, Inc.
and Tensleep Design, Inc.) (A Colorado Corporation) (The Company) is an
integrated Internet company that acquires and licenses technology; identifies,
acquires, and develops, development stage technology and service companies; and
that focus on the Internet infrastructure market - Internet related appliances
and the integration of those products with services provided through the
Internet. The Company is consolidating its current subsidiaries and
affiliates into groups relating to the market sector of each subsidiary and
affiliate. Individually, each company within each group will continue to
develop its own operations and build its own revenue streams: collectively, the
subsidiaries and affiliates now owned and those to be acquired, will enable
the Company to become an international provider of specialized electronic
appliances and Internet services. The Company is located in Austin, Texas.
Consolidation Policy
The consolidated financial statements include the accounts of The Company and
all of its wholly owned and majority-owned subsidiaries. All intercompany
transactions and balances have been eliminated. The Company's investments in
17% to 50% owned affiliates in which it has the ability to exercise significant
influence over operating and financial policies are accounted for using the
equity method. Accordingly, the Company's share of the earnings of these
companies is included in consolidated net income. Investments in other
companies are carried at cost.
Development Stage Company
The Company was formed on October 23, 1997 and was in the development stage
through September 30, 1999. During this period of time the Company did not
generate any income from operations. The Company's activities were devoted to
raising capital and obtaining financing. The current year ending September 30,
2000 is the first fiscal year during which the Company began active operations
pertaining to technology and license agreements.
Product Development Costs
Product development costs are expensed as incurred. At September 30, 2000
such costs were approximately $96,000. Prior to commencing operations the
Company incurred research and development costs which were also charged to
operations when incurred. Research and development costs were $0 for the year
ending September 30, 1999.
Marketable Securities
Marketable Securities currently consist of common stock. Marketable
securities are stated at market value as determined by the most recently
traded price of each security at the balance sheet date. The Company's
investment in marketable equity securities are held for an indefinite period
and thus are classified as available for sale. Available-for-sale securities
are carried at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. The cost of
investments sold is determined on the specific identification or the first-in-
first out method.
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 cash
equivalents.
Concentration of Credit Risk
The Company maintains its operating cash accounts at commercial banks in
California, Texas and Minnesota. The accounts at the banks are guaranteed by
the Federal Deposit Insurance Corporation (FDIC) up to $100,000 per bank. At
times some accounts may exceed FDIC limits. The Company limits the amount of
credit exposure with any one financial institution and believes that no
significant concentration of credit risks exists with respects to cash and cash
equivalents.
Property and Equipment, Depreciation and Amortization
Property and equipment obtained in exchange for stock are carried at the fair
market value of the equipment on the date of exchange. Property and equipment
purchased is carried at cost as of the date of purchase.
Depreciation and amortization are computed using the straight-line method over
the assets' expected useful lives. The useful lives of property and equipment
for purposes of computing depreciation are:
Machinery & Equipment 3 years
Software 3 years
Repairs and maintenance are charged to operations when incurred. Costs of
betterments, which materially extend the useful lives of the assets, are
capitalized. Gains and losses from sales or disposition of assets are included
in the statement of operation.
Goodwill, which represents the excess of the cost of purchased companies over
the fair value of the underlying net assets at dates of acquisition, is being
amortized over a 10 year period.
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, prepaid expenses 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
Income Taxes are recognized during the year in which transactions enter into
the determination of consolidated financial statement income, with deferred
taxes being provided for temporary differences between amounts of assets and
liabilities for financial report purposes and such amounts as measured by tax
laws. See Note 22.
The consolidated financial statements of the Company include a provision for
(benefit from) income taxes based on the consolidated results of operations for
the parent company and its subsidiaries. As of September 30, 2000 adequate
detailed books and records and supporting data for the subsidiary Master
Financial Group, Inc. were not available and as such the impact on consolidated
accrued income taxes and income tax expense could not be determined. For
consolidated financial reporting purposes the provision for income taxes using
the consolidated results of operations was offset through the utilization of
the parent company's net operating loss carryover.
Adjustments
In the opinion of management the data reflects all adjustments necessary for a
fair consolidated 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 as 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.
Reclassifications
Certain reclassifications were made to the 1999 financial statements in order
for them to be in conformity with the 2000 presentation.
NOTE 1: MARKETABLE SECURITIES
Investments in marketable securities are summarized as follows at September 30,
2000:
Stockholders' equity includes an unrealized holding loss on available-for-sale
securities of $41,468.
Realized gains and losses are determined on the basis of specific
identification. As of September 30, 2000, sales proceeds and gross realized
gains and losses on securities classified as available for sale were:
Sales proceeds $ 295,162
Gross realized gains 26,006
Gross realized losses 15,587
Net realized gain $ 10,419
NOTE 2: INVESTMENT IN CHINA NET & TECHNOLOGIES, INC.
In 1997 the Company acquired 80,000 shares of China Net & Technologies, Inc.
(formerly Corporate Finance Company) ("CN&T") common stock valued at
$200,000 or $2.50 per share. CN&T is an affiliate company. CN&T is a high-
technology and Internet-related company that specializes in developing
strategic relationships with emerging-growth, high-technology companies in
China. CN&T has acquired a license to manufacture and distribute the
Company's Web-modem in China and is seeking Chinese companies to manufacture
and distribute that product. In 1999 the Company acquired an additional
80,000 shares (see note 5) also valued at $200,000 or $2.50 per share. In 1998
the Company sold 800 shares of CN&T common stock for $2,000 to unrelated
parties. The proceeds from the sale were given directly to CN&T to reduce the
Company's loan payable to CN&T. In April 2000 the Company entered into an
agreement with CN&T to license technology to it on a case by case basis, where
CN&T 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 CN&T to manufacture the product and distribute it
in China. As part of this agreement the Company exchanged 400,000 shares
valued at $1,000,000 or $2.50 per share of restricted common stock for
2,000,000 shares of CN&T restricted common stock. In addition CN&T issued the
Company 500,000 shares of its restricted common stock to reimburse the Company
for promotional services valued at $320,667 For a total initial investment of
$1,718,667. Based on the additional shares acquired during the current fiscal
year the Company's interest in CN&T represent approximately a 33% ownership. A
major shareholder of the Company is also a major shareholder of CN&T.
Accordingly, the Company changed its method of carrying the investment from
cost to equity as required by generally accepted accounting principles. Under
the cost method, income is recorded when dividends are received. Under the
equity method, the
Company records its proportionate share of the earnings or losses of CN&T. The
financial statements for 1999 have been restated for the change which resulted
in a decrease in net income for 1999 by $42,877 ($.01 per share).
Retained Earnings as of October 1, 1998 has been adjusted in the amount of
$32,205 for the effect of retroactive application of the new method.
The impact of the equity method on this investment for the period ending
September 30, 2000 was a increase of $28,550 resulting from certain income and
amortization.
At September 30, 2000 and 1999, the investment in CN&T as adjusted for the
equity method exceeded the company's share of the underlying net assets by
507,252 and 550,129, respectively, which amount is being amortized on the
straight line method over 10 years.
NOTE 3: INVESTMENT IN AMCOR FINANCIAL CORP.
During the current fiscal year the Company acquired 700,000 shares in Amcor
Financial Corp. (Amcor). Amcor is a specialty finance company providing
merchant banking services in the form of real estate financing and financing of
emerging growth companies. A major shareholder of the Company is also a major
shareholder of Amcor. Shares acquired represent approximately a 17% ownership
in Amcor. Based on the 17% ownership interest in Amcor and since the Company
can exercise significant influence over Amcor's operating and financial
activities, the Company has accounted for the investment under the equity
method. Under the equity method, the Company records its proportionate share of
the earnings of Amcor. The shares were obtained in cash-free exchanges. The
valuation of the shares obtained was an agreed-upon value as of the date of the
exchange based upon the market value of the Company's common stock on the
closing date.
The Company exchanged 300,000 shares (100,000 shares by the exercise of
100,000 Class B Warrants and 200,000 shares of common stock) for 300,000 shares
of Amcor valued at $600,000. The Company also exchanged 253,960 shares
(253,960 shares by the exercise of 253,960 Class A Warrants) for 100,000
restricted shares of Amcor common stock valued at $200,000. In addition the
Company received an additional 300,000 shares of Amcor common stock from R
Tucker and Associates (A related entity) valued at $600,000 in cancellation of
a note receivable owed to the Company from R Tucker and Associates. For a
total initial investment of $1,400,000. The impact of the equity method on
this investment for the period ending September 30, 2000 was a reduction of
$116,232 resulting from certain losses and amortization.
At September 30, 2000, the investment in Amcor as adjusted for the equity
method exceeded the Company's share of the underlying net assets by 616,062
which amount is being amortized on the straight line method over 10 years.
NOTE 4: INVESTMENT IN SILICON RESOURCES
During the current fiscal year the Company acquired 1,900,452 shares in
Silicon Resources. Shares acquired represent approximately an 35% ownership
in Silicon Resources. Silicon Resources provides integrated circuit design
consulting services. The Company has accounted for this investment under the
cost method because the Company has not been able to get the necessary
financial information to apply the equity method. Under the cost method,
income is recorded when dividends are received. The shares were obtained in the
cash-free exchanges described in Note 5 and 12. The valuation of the shares in
the amount of $1,103,800 was obtained was an agreed-upon value as of the date
of the exchange based upon the market value of the Company's common stock on
the closing date. The Company transferred this investment to its wholly owned
subsidiary in July 2000 (See Note 21).
NOTE 5: NON CASH TRANSACTIONS
As explained in Note 2, the original investment of 80,000 shares of China Net &
Technologies, Inc. (formerly Corporate Finance Company) in 1997 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. The Company obtained an additional 80,000 shares of China Net
& Technologies, Inc. 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. In April 2000 the Company entered into an agreement with CN&T to
license technology to it on a case by case basis, where CN&T 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 CN&T to manufacture the product and distribute it in China. As part
of this agreement the Company exchanged 400,000 shares valued at $1,000,000 or
$2.50 per share of restricted common stock for 2,000,000 shares of CN&T
restricted common stock. In addition CN&T issued the Company 500,000 shares of
its restricted common stock to reimburse the Company for promotional services
valued at $320,667.
As explained in Note 3 the Company acquired 700,000 shares of Amcor in exchange
for stock and warrants and cancellation of a note receivable.
As explained in Note 4 and 12 the Company acquired 1,900,452 shares of Silicon
Resources valued at $1,103,800. The Company agreed to exchange 50,000 shares
from the exercise of 50,000 Class B Warrants (unrestricted common stock) valued
at $250,000, cancel a note in the amount of $103,800 owed to the Company for an
equipment lease and a one time non-exclusive license fee with a value of
$750,000.
As explained in Note 7B, the Company issued 24,000 shares of common stock to
pay off $120,000 in accrued consulting fees.
As explained in Note 7C, the Company issued 300,000 shares of common stock to
pay off $1,500,000 in convertible debt.
As explained in Note 7D, 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 7F the Company exchanged 4,000 shares from the exercise of
4000 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 7G the Company exchanged 300,000 shares from the exercise
of 300,000 Class A warrants and 50,000 shares from the exercise of 50,000 Class
B warrants for advertising and promotional services. The common stock was
valued at the agreed-upon price of $500,000.
NOTE 6: LOAN PAYABLE TO CHINA NET & TECHNOLOGIES, INC.
China Net & Technologies, Inc. (formerly Corporate Finance Company) has loaned
the Company certain funds to cover operating expenses. The balance due on the
loan is $2,291 and $14,442 as of September 30, 2000 and 1999 and is covered by
a non-interest bearing demand note.
NOTE 7: CAPITAL FUNDING
In 1997 the Board of Directors authorized private offerings pursuant to
Regulation S, Section 3(b) and/or 4(2) of the Securities Act of 1933, as
amended. In 1997 and 1998 the Company issued 1 million investment units to
China Net & Technologies, Inc. pursuant to Regulation D, Rule 504 and 500,000
investment units to R Tucker and Associates, Inc. and Sundance Design, Inc.
pursuant to Regulation A. During fiscal year 2000, October 1, 1999 to
September 30, 2000 the Company's common stock commenced trading on the Over-
the-Counter Bulletin Board (TENS). The following summarizes the various stocks
and warrant transactions as reported in the accompanying Statement of Changes
in Stockholders' Equity for periods October 1, 1998 and 1999, through September
30, 1999 and 2000.
Note A - 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 E).
Note B - 24,000 shares of common stock were issued for $120,000 to pay off
accrued consulting fees.
Note 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 $172,948
and Research & Development expenses of $1,327,052.
Note D - 4,000 shares of common stock were issued for $20,000 in exchange for
advertising.
Note E - 137,000 shares of common stock were issued for $685,000 and 88,000
Class A warrants exercised in exchange for a $765,200 promissory note, secured
by 200,000 shares of common stock. The $765,200 note included $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.
Note F - 4,000 Class B warrants were exercised for $20,000 in exchange for
advertising and promotional services in accordance with a contract for
advertising that expired on March 31, 2000.
Note G - 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 H - 15,000 Class B warrants were exercised for $75,000 in exchange for
promotional services performed for China Net & Technologies, Inc. (a related
entity) over 6 months commencing October 11, 1999 through April 10, 2000.
Note I - 20,000 Class A warrants were exercised for $20,000 in exchange for
advertising services to be performed over three months commencing October 28,
1999 through January 24, 2000.
Note J - 35,000 Class A warrants were exercised for $28,000 in exchange for
advertising services to be performed over six months commencing October 29,
1999 through April 29, 2000.
Note K - 5,000 Class A warrants were exercised for cash at $.80 per share.
The cash from these warrants was deposited into the Company's checking account.
Note L - 1,000 Class A warrants were exercised for cash at $.80 per share.
The cash from these warrants was deposited into the Company's checking account.
Note M - 1,000 Class A warrants were exercised for cash at $.80 per share.
The cash from these warrants was deposited into the Company's checking account.
Note N - 10,000 Class A warrants were exercised for $8,000 in exchange for
consulting services.
Note O - 50,000 Class A warrants were exercised for $50,000 in exchange for a
partial payment owed to China Net & Technologies, Inc. for accrued consulting
fees.
Note P - 13,000 Class A warrants were exercised for $13,000 in exchange for a
partial payment owed to China Net & Technologies, Inc. for accrued consulting
fees.
Note Q - 60,000 restricted shares were issued in exchange for
consulting services to be performed over 30 days and valued at $60,000.
Note R - 25,000 Class B warrants were exercised for $122,500 in exchange for
consulting services performed for China Net & Technologies, Inc. (a related
entity) to be performed over three months
Note S - 20,000 Class A warrants were exercised for an aggregate value of
$35,200. The cash from these warrants was deposited into the Company's checking
account.
Note T - 100,000 Class B warrants were exercised and 200,000 shares
were issued for $600,000 in exchange for 300,000 shares of Amcor's common
stock.
Note U - 50,000 Class B warrants were exercised for $250,000, a note in the
amount of $103,800 owed to the Company for an equipment lease was canceled, and
a one time non-exclusive license fee with a value of $750,000 was exchanged for
1,900,452 shares of Silicon Resources (See Note 4).
Note V - 253,960 Class A warrants were exercised for $200,000 in exchange for
100,000 shares of Amcor.
Note W - 100,000 Class A warrants were exercised for $80,000 in exchange for
services performed for China Net & Technologies, Inc. (a related entity) to
be performed over the next year.
Note X - 1,000,000 shares of the Company's common stock was contributed to
the Company, canceled, and returned to the Company's authorized but unissued
shares.
Note Y - 340,000 restricted shares valued at $34,000 were issued in exchange
for services performed for China Net & Technologies, Inc. (a related entity).
Note Z - 100,000 Class B warrants were exercised to a related party for cash
at $4.50 per share. The cash from these warrants was deposited into the
Company's checking account.
Note AA - 400,000 shares of common stock were exchanged for 2,000,000
restricted shares of common stock in China Net & Technologies, Inc.
Note AB - 500,000 shares of common stock were exchanged for all the issued
and outstanding common stock of Master Financial, Inc.
Note AC - 10,000 shares were issued to a chip designer as a signing bonus.
Note AD - 4,290 shares were issued to qualified investors pursuant to the
special 10% stock dividend (See note 14)
NOTE 8: 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. On
April 30, 1998 the Company granted the options to purchase 250,000 shares at 50
cents per share (the same as the then current market price) 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.
On October 26, 1999, the Company granted options to purchase 120,000 additional
shares at $1.25 per share (the same as the then current market price) to the
majority and controlling shareholders. On July 28, 2000, the Company granted
options to purchase 160,000 additional shares at $1.00 per share (the same as
the then current market price) to four directors of the Company.
NOTE 9: WARRANTS
As part of its funding activities, the Company has issued warrants for the
purchase of common stock. Additional warrants may be issued in the future
during additional offerings. As of September 30, 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 10: RISKS AND UNCERTAINTIES
As discussed in "Organization and Summary of Significant Accounting
Policies", the Company was in the development stage from its inception on
October 23, 1997 to September 30, 1999. 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.
NOTE 10: RISKS AND UNCERTAINTIES (Continued)
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 affiliate common
stock, held by the Company.
The investments in marketable securities are held available-for-sale. As of
September 30, 2000 the account balance is $33,203. The investments in
marketable securities 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
$33,203 interest in the account is at risk and subject to loss.
NOTE 11: RELATED PARTY TRANSACTIONS
A director of the Company is also a director and major shareholder of R Tucker
& Associates, Amcor Financial Corp. and China Net & Technologies, Inc.
(formerly Corporate Finance Company). Transactions between the Company and
these entities above have been described in Notes 2 and 3.
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 1998 R Tucker & Associates, a related party, issued a promissory
note for $765,200 to the Company in exchange for 137,000 shares of common stock
and 88,000 shares of Class A warrants and the cancellation of a $50,000 note
previously issued (See note 7E).
The accrued consulting fee as of September 30, 1999 is payable to China Net &
Technologies, Inc. for services performed by Dennis Kaliher and Ronald S.
Tucker. This liability was canceled during the current fiscal year in exchange
for 63,000 shares of common stock (See note 7O&P) valued at $63,000, a cash
payment of $66,800 and a $10,200 reduction in a note receivable from an
affiliated company (See note 3).
In March 1999 the Company reduced a Note Receivable from R. Tucker and
Associates in exchange for 80,000 shares of common stock in China Net &
Technologies, Inc. valued at $200,000 (See note 2). In December 1999 the
Company issued China Net & Technologies, Inc. 100,000 shares of common stock
valued at $80,000 for promotional services. In March 2000 China Net &
Technologies, Inc. issued to 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 China Net & Technologies, Inc. restricted common stock.
The Company also entered into a license agreement with China Net &
Technologies, Inc. to manufacture and distribute its "web-modem" in China.
The license was valued at $200,000. $100,000 was paid on signing the license
agreement and the balance is due when engineering drawings are delivered for
manufacturing the product.
In December 1999 the Company exchanged shares with Amcor, a related entity,
whose President and a Director is also the President and a Director of the
Company (See note 3). The Company exchanged 300,000 shares of its common
stock for 300,000 shares of Amcor's common stock valued at $600,000. The
Company also exchanged 253,960 shares (253,960 Class A Warrants) for 100,000
restricted shares of Amcor common stock valued at $200,000. In addition the
Company received an additional 300,000 shares of Amcor common stock from R
Tucker and Associates (A related entity) valued at $600,000 in cancellation of
a note receivable owed to the Company from R Tucker and Associates
NOTE 12: LEASE INCOME
The Company entered into an agreement to lease equipment to a previously
unrelated third party, Silicon Resources, Inc., dated August 21, 1998 and
received a partial payment in the amount of $5,350. During the current fiscal
year the Company acquired 35% of Silicon Resources, Inc (See note 4). The
original agreement had the following terms:
18 months
$8500 per month if all the workstations are installed
Silicon Resources, Inc. was to bill the Company for office space rental at
$1.50 a 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 at a 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
would 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 prior fiscal year Silicon Resources, Inc. was billed $115,800 for
equipment leasing which was reported as lease income in the fiscal year 1999
statement of operations. During the current fiscal year 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 and entered into an
agreement 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 that was executed and completed during
the current fiscal year 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 entered into a non-exclusive
license agreement for the Company's technology with a value at the time the
agreement was entered into in the amount of $750,000, for which the Company
will receive Silicon Resources, Inc. common stock. As of the date of the audit
report the value of the investment in Silicon Resources could not be determined
due to the lack of adequate financial information. The Company, Ron Tucker,
president, and Silicon Resources, Inc. agreed to exchange 50,000 shares of its
unrestricted common stock, cancel the indebtedness owed to the Company by
Silicon Resources in the amount of $103,800 pursuant to the aforementioned
Equipment lease, and the license fee in the amount of $750,000 for a total of
1,900,452 shares of Silicon Resources restricted common stock (See note 4).
NOTE 13: EARNINGS (LOSS) PER SHARE
As of September 30, 2000 and 1999 The Company had 8,358,266 and 7,045,016
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 September 30, 2000 and 1999 was 7,692,768 and 6,587,722 shares
respectively.
NOTE 14: STOCK DIVIDEND
On August 2, 1999 the Board of Directors authorized a 10% stock dividend
payable to those investors who purchase the corporation's 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.
On June 2, 2000, the Company distributed 4,290 shares of common stock in
connection with the 10% stock dividend that was authorized on August 2, 1999.
As a result of the stock dividend, common stock was increased by $43,
additional paid in capital was increased by $5,856, and retained earnings was
decreased by $5,899. All references in the accompanying consolidated
financial statements to the number of common shares and per-share amounts for
September 30, 1999 have been restated to reflect the stock dividend.
NOTE 15: PREPAID EXPENSES
As explained in Note 7F, 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 2000. Advertising and promotional services
charged to operations for 2000 and 1999 was $10,000 and $10,000, respectively.
As explained in Note 7G, the Company exercised 300,000 Class A warrants and
50,000 Class B warrants in exchange for $500,000 in advertising and
promotional services for the two year period starting October 1, 1999
(beginning of fiscal year 2000). Advertising and promotional services charged
to operations for fiscal years 2000 and 1999 was $250,000 and 0, respectively,
leaving $250,000 as a prepaid expense as of September 30, 2000.
NOTE 16: 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. During the current fiscal year the Company collected $60,000 in
cash on this note receivable. The Company's accounting policy requires the
Company to report the prior year $60,000 in the current asset section as a
note receivable and the balance of $45,000 in the stockholders' equity section
as of September 30, 1999.
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 prior year the note was
reduced by $200,000 in exchange for 80,000 shares of common stock in a related
party transaction. The balance due of $565,200 as of September 30, 1999 is
reported in the stockholders' equity section together with note receivable for
common stock. During the current fiscal year this note receivable for common
stock was reduced to zero. The Company received 300,000 shares of Amcor
common stock from R Tucker and Associates valued at $600,000 (See note 5) and
reduced accrued consulting fees $10,200 from an affiliated company (See note
11).
NOTE 17: 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 of 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".
NOTE 18: ROYALTY INCOME
In April 2000 the Company learned that pursuant to a license agreement entered
into by and between Zilog and Sundance Design, Inc., which was purchased by
the Company, from Sundance Design, Inc. a nonaffiliate, that the Company was
entitled to royalties in the amount of $72,320. These royalities accumulated
from 1997 through March 2000. Royalty Income for April 2000 through September
2000 amounted to $49,857. The Company collected $86,887 during the current
year leaving a balance due of $35,290 which was collected in December 2000.
Sundance Design, Inc., is a Company owned by Dennis Kaliher and was the
previous owner of the technology purchased by the Company.
NOTE 19: LICENSE FEES
In November 1999 the Company provided Silicon Resources, Inc., an unaffiliated
company, a non-exclusive license to use the Company's technology valued at
$750,000 (See note 5 and 12).
In March 2000 the Company granted a license to manufacture and distribute its
"web-modem" in China to China Net & Technologies, Inc., an affiliate. The
license was valued at $200,000, of which $100,000 was received on signing the
license agreement and the balance is due during the next operating period when
engineering drawings are delivered for manufacturing the product.
NOTE 20: ACQUISITION OF MASTER FINANCIAL GROUP, INC.
On March 31, 2000 the Company acquired 100% of Master Financial Group, Inc.
for 500,000 shares of the Company's common stock valued at $2.50 per share in
a business combination accounted for as a purchase. Master Financial Group,
Inc. is an Internet financial services company. The results of operations of
Master Financial Group, Inc. is included in the accompanying consolidated
financial statements since the date of acquisition. The total cost of the
acquisition was $1,250,000 which exceeded the fair value of the net assets of
Master Financial Group, Inc. by $1,087,352. The excess is reported as
goodwill in the accompanying consolidated balance sheet and is being amortized
on the straight line method over 10 years. An additional 200,000 shares of
the Company's common stock may be issued to Master Financial Group, Inc. based
on an earnings contingency. 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.
We were unable to obtain adequate detailed books and records and supporting
data in order to complete the audit of the subsidiary Master Financial Group,
Inc. Therefore, we were not able to satisfy ourselves about the amount that
goodwill is recorded at in the accompanying consolidated balance sheet at
September 30, 2000 (stated at $337,352), the amount of goodwill amortization
expense (stated at $16,868), and goodwill asset impairment (stated at
$150,000) and impact on the consolidated accrued income taxes and income tax
expense of Tensleep Corporation for the year then ended.
Subsequent to year-end the Company evaluated the recoverability or this
investment. Due to change in market conditions and inadequate performance the
Company has written down goodwill $750,000. The write-off of goodwill is
included in the September 30, 2000 consolidated statement of operations as
asset impairment.
The Company is owed $112,000 from a prior shareholder of Master Financial.
This amount is reported on the consolidated balance sheet as an other
receivable.
NOTE 21: INVESTMENT IN TENSLEEP TECHNOLOGIES, INC.
In July 2000 the Company exchanged net assets valued at $1,199,631 for
5,000,000 shares of Tensleep Technologies, Inc., a wholly owned subsidiary
under common control in a business combination accounted for as a pooling.
Tensleep Technologies, Inc., will complete the development of a motor
controller, a non-Internet product and focus on bringing-to-market penetration
through strategic relationships, joint ventures and international marketing
alliances
NOTE 22: 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. For income tax purposes, the Company had available, at September
30, 2000 and 1999, net operating loss ("NOL") carryforwards of approximately
$2,257,163 and $1,991,295 respectively, which will expire in various years
from 2018 through 2019. A valuation allowance was provided in full against
the net deferred tax assets resulting from the losses because the utilization
of the NOL is dependent on future taxable profits.
NOTE 23: DUE FROM TENSLEEP APPLIANCE
The Company has loaned Tensleep Appliance, a related entity, certain funds to
cover start-up expenses. The balance due to the Company is $50,000 and $0 as
of September 30, 2000 and 1999 and is secured by 1,700,000 shares of Tensleep
Appliance stock. When the loan is paid back by Tensleep Appliance there is an
agreement providing the opportunity for the Company to purchase the 1,700,000
shares of Tensleep Appliance stock for $100,000.
NOTE 24: SUBSEQUENT EVENTS
In December 2000 the Company formed a wholly owned subsidiary corporation,
Tensleep Europe, Inc., and completed the acquisition of a majority interest in
Whisk.co.uk, Limited, which is located in London. The Company intends to
transfer its interest in Whisk.co.uk, Limited to Tensleep Europe. The Company
has exchanged 2,600,000 shares of its common stock for an approximate 60%
interest in that Company valued at $.50 per share.
In November 2000 the Board of Directors authorized the accrual of a consulting
fee of $75,000 for the services of Ronald Tucker payable to China Net &
Technologies, Inc.
INDEPENDENT AUDITOR'S REPORT
ON CONSOLIDATING INFORMATION
To the Board of Directors and
Stockholders of Tensleep Corporation
Our report on our audit of the consolidated financial statements of Tensleep
Corporation and subsidiaries for 2000 appears on pages 1 and 2. This audit
was made for the purpose of forming an opinion on the consolidated financial
statements taken as a whole. The consolidating information in Schedules l
and ll has been subjected to the auditing procedures applied in the audits
of the consolidated financial statement with the exception of the scope
limitations as reported on page 1 and 2 and is presented for purposes of
additional analysis of the consolidated financial statements rather than to
present financial position, results of operations, and cash flows of the
individual companies. Accordingly, we do not express an opinion on the
financial position, results of operations, and cash flows of the individual
companies. However, in our opinion, the consolidating information in
Schedules l and ll is fairly stated in all material respects in relation to the
consolidated financial statements taken as a whole.
Palm Springs, California
January 9, 2001
<PAGE>
TENSLEEP CORPORATION
Schedule 1
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000
ASSETS
<TABLE>
<CAPTION>
Parent Subsidiary Subsidiary
Tensleep Tensleep Master Consolidating Consolidated
Corporation Technology Financial Entries Totals
----------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 209,552 $ 15,129 $ 299,574 $ - $ 524,255
Marketable Securities
(See note 1) - - 33,203 - 33,203
Prepaid Expenses
(See note 15) 250,000 - - - 250,000
Other Receivable
(See note 20) - - 112,000 - 112,000
Due From Tensleep Appliance
(See note 23) 50,000 - - - 50,000
License Fee Receivable
(See note 19) 100,000 - - - 100,000
Royalty Receivable
(See note 18) 35,291 - - - 35,291
Due From Tensleep Technology 95,306 - - (95,306) -
Loan Receivable 30,000 - - - 30,000
----------- ---------- ---------- -------------- ------------
Total Current Assets 770,149 15,129 444,777 (95,306 1,134,749
----------- ---------- ---------- -------------- ------------
PROPERTY AND EQUIPMENT
Machines & Equipment - 102,014 3,743 - 105,757
Software - 172,371 14,357 - 186,728
----------- ---------- ---------- -------------- ------------
- 274,385 18,100 - 292,485
Less accumulated depreciation
and amortization - 228,655 2,060 - 230,715
----------- ---------- ---------- -------------- ------------
Net Property and Equipment - 45,730 16,040 - 61,770
----------- ---------- ---------- -------------- ------------
OTHER ASSETS
Goodwill - net of accumulated
amorization of $16,868 - - - 320,484 320,484
Investment in China Net &
Technologies, Inc. (See note 2) 1,672,135 - - - 1,672,135
Investment in Amcor Financial
Corp. (See note 3) 1,283,768 - - - 1,283,768
Investment in Master Financial
Group, Inc. (See note 20) 500,000 - - (500,000) -
Investment in Silicon
Resources (See note 4) - 1,103,800 - - 1,103,800
Investment in Tensleep
Technologies (See note 21) 1,199,631 - - (1,199,631) -
----------- ---------- ---------- -------------- ------------
Total Other Assets 4,655,534 1,103,800 - (1,379,147) 4,380,187
----------- ---------- ---------- -------------- ------------
TOTAL ASSETS $ 5,425,683 $1,164,659 $ 460,817 $ (1,474,453) $ 5,576,706
=========== ========== ========== =============== ============
</TABLE>
<PAGE>
TENSLEEP CORPORATION
CONSOLIDATED BALANCE SHEETS
Schedule 1
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Parent Subsidiary Subsidiary
Tensleep Tensleep Master Consolidating Consolidated
Corporation Technology Financial Entries Totals
----------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts Payable $ 488 $ 267 $ - $ - $ 755
Loan payable to China 2,291 - - - 2,291
Net & Technologies,
Inc. (See note 6)
Due to Tensleep Corp. - 95,306 - (95,306) -
----------- ---------- ---------- -------------- ------------
Total Current LiabilitiES 2,779 95,573 - (95,306) 3,046
----------- ---------- ---------- -------------- ------------
TOTAL LIABILITIES 2,779 95,573 - (95,306) 3,046
----------- ---------- ---------- -------------- ------------
STOCKHOLDERS' EQUITY
Preferred stock - - - - -
Common stock
Tensleep Corporation 83,583 - - - 83,583
Tensleep Technology - 50,000 - (50,000) -
Master Financial - - 10,000 (10,000) -
Treasury stock - - - - -
Additional paid-in capital
Tensleep Corporation 7,869,689 - - - 7,869,689
Tensleep Technology - 1,149,631 - (1,149,631) -
Master Financial - - 8,100 (8,100) -
Allowance for Unrealized
Gains (Losses) Marketable
Equity Securities - - (41,468) - (41,468)
Retained Earnings (2,530,366) (130,545) 484,185 (161,416) (2,338,144)
----------- ---------- ---------- -------------- ------------
TOTAL STOCKHOLDERS' EQUITY 5,422,904 1,069,086 460,817 (1,379,147) 5,573,660
----------- ---------- ---------- -------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,425,683 $1,164,659 $ 460,817 $ ( 1,474,453) $ 5,576,706
========== ========== ========== =============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
TENSLEEP CORPORATION
Schedule 2
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Parent Subsidiary Subsidiary
Tensleep Tensleep Master Consolidating Consolidated
Corporation Technology Financial Entries Totals
----------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C>
REVENUES
Memberships $ - $ - $ 21,219 $ - $ 21,219
Design Fees - 22,400 - - 22,400
Stock Promotion - - 419,692 - 419,692
License Fees (See note 19) 950,000 - - - 950,000
Royalty Income (See note 18) 122,177 - - - 122,177
Other Income 1,556 - - - 1,556
----------- ---------- ---------- -------------- ------------
1,073,733 22,400 440,911 - 1,537,044
----------- ---------- ---------- -------------- ------------
EXPENSES
Advertising 75,025 - - - 75,025
Automobile expense 3,362 122 - - 3,484
Bank fees & brokerage charges 451 17 2,103 - 2,571
Compensation 14,375 - - - 14,375
Consulting expense 406,833 - - - 406,833
Depreciation and Amortization 68,596 22,865 2,060 16,868 110,389
Dues and subscriptions 2,512 - - - 2,512
Filing fees 950 - - - 950
Insurance 1,539 1,868 448 - 3,855
Interest 329 - - - 329
License & permits 50 - - - 50
Other expenses 2,345 8,439 3,632 - 14,416
Office supplies 6,322 - - - 6,322
Outside services 39,211 303 102,500 - 142,014
Payroll & Payroll Taxes - 19,549 - - 19,549
Postage & delivery 1,466 182 - - 1,648
Printing and reproduction 60 - 94 - 154
Professional fees 28,537 - - - 28,537
Promotion 13,091 - - - 13,091
Repairs 1,053 - - - 1,053
Product development costs - 95,926 - - 95,926
Supplies 1,089 - - - 1,159
Telephone 7,343 - 896 - 8,280
Travel & Entertainment 25,299 3,566 4,131 - 32,926
Utilities 670 - - - 670
----------- ---------- ---------- -------------- ------------
700,438 152,948 115,864 16,868 986,118
----------- ---------- ---------- -------------- ------------
INCOME (LOSS) FROM OPERATIONS 373,295 (130,548) 325,047 (16,868) 550,926
----------- ---------- ---------- -------------- ------------
OTHER INCOME (EXPENSE)
Interest Income 6,295 3 4,171 - 10,469
Income (loss) on equity
investment (87,682) - - - (87,682)
Asset Impairment
(See note 20) (750,000) - - - (750,000)
Realized gain on marketable
securities (See note 1) - - 10,419 - 10,419
----------- ---------- ---------- -------------- ------------
(831,387) 3 14,590 - (816,794)
----------- ---------- ---------- -------------- ------------
PROVISION FOR INCOME TAX - NOTE 22 - - - - -
----------- ---------- ---------- -------------- ------------
NET INCOME (LOSS) (458,092) (130,545) 339,637 (16,868) (265,868)
=========== ========== ========== ============== ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The following are the Officers, Directors, and Key Management of the
Company.
Name Position
Ronald S. Tucker Director and Chief Executive Officer and Chief
Financial Officer
Christopher Rayne Director and Chief Operating Officer
James Y. Wang Director and Vice President
Gary Magee Director
H Glen Leason Director
Dennis Kaliher Vice President
Ronald S. Tucker, 62, Chief Executive Officer, Chief Financial Officer
and Director, is the founder of the Company. In 1996, Mr. Tucker founded
China Net & Technologies, Inc. and is now its President. Since 1990. to
present, Mr. Tucker was the founder and has been the President and director
of R Tucker & Associates, Inc, a financial and corporate development
consulting firm. 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. 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.
Christopher Rayne, age 53, Chief Operating Officer and and served as a
Director since April 2000, since 1989 has been an international management
consultant, assisting and advising numerous development stage and emerging
growth companies (both public and privately held) in the USA and in Europe.
James Y. Wang, age 39, is the President, Chief Operating Officer and
director of the Company. Mr. Wang from 1994 to 1999 was the President of
International Trading System Company. In addition from January 2000 to
November 2000 Mr. Wang was a director and the President of Master Financial
Group, Inc., a wholly owned subsidiary of the Company, and which is the
publisher of analystgroup.com a financial Internet newsletter. Between 1994
and 1999 Mr. Wang was a research scientist and Assistant Professor, Lab
Director at the University of Minnesota School of Medicine. Mr. Wang
received a Bachelor of Science degree from the University of Science and
Technology in Hefei, China in 1985, a Master of Science Degree from the
Shanghai Second Medical Immunology University, Shanghai, China in 1988, and
his Ph.D. degree from the University of Arizona in 1994.
Gary E. Magee, 59, has served as a Director since July 2000. Mr.
Magee has more than 35 years experience in Banking, Mortgage Banking and
Consumer Finance in the midwest and Calfiornia financial markets. He is s
co-founder and Executive Vice President for a nationwide manufactured
housing lend and a California Mortgage Company. Vice President Crocker
National Bank, and President, Chief Executive Officer of a mortgage company.
Since September 1997 he has been the Regional Vice President with Mobile
Consultants, Inc., a nationwide manufactured housing finance company. He is
a licensed California real estate broker, Fire/Casualty Broker/Agent and
Life Agent. He attended the University of Wisconsin, Madison, Wisconsin.
H Glen Leason, 75, has served as a director of the Company since July
2000. From February 1999 to present he has served as a director of USA
Biomass Corporation ("USBC"). From 1984 to the present, Mr. Leason has
served as a Senior Vice President with Torrey Pines Securities. Prior to
that, Mr. Leason served in the United States Navy Submarine Service From
1943 to 1946. He was a securities broker with Leason & Company in Chicago,
Illinois from 1946 through 1960, eventually becoming Vice President for its
initial public offering department in Newport Beach, California, was a Vice
President in the initial public offering department atR.J. Henderson & Co.,
in Newport Beach, California from 1960 to 1966, was an Emerging Growth Stock
Vice President with Jefferies & Co. in Newport Beach, California from 1966
until Jefferies & Co., was purchased in 1969, and rejoined Leason & Company
as President until 1973. From 1973 to 1984, Mr. Leason worked with Wedbush
Securities and then with McDonald, Krieger & Bowyer in Beverly Hills,
California. Mr. Leason completed various courses at Northwestern University
and Loyola Marymount University, is a registered representative with the
NASD and holds a principal's license.
Dennis E. Kaliher, age 64, is a Vice President of the Company and the
President of Tensleep Technologies, Inc., founded Sundance Design, Inc., in
1987 and has served as its President and Director since its inception. He
has more than thirty years of experience in telecommunications and
semiconductor product design, engineering, marketing and corporate
management with Collins Radio Co., Rockwell International, and Advanced
Micro Devices and founding the Company. From 1963 to 1986, Mr. Kaliher's
experience at Collins and Rockwell ranged from developing and marketing
communications switching systems to managing the development and growth of
large and very large IC components. He also participated in the growth of
data modems, fax modems and other communications devices for the
telecommunications industry. Mr. Kaliher received his BEE from the
University of Minnesota.
Each director serves for a term of one year and is subject to
reelection at the annual meeting of shareholders.
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING RULES
Section 16(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), requires the Company's executive officers and directors
and persons who beneficially own more than 10% of a registered class of the
Company's Common Stock ("reporting persons") to file initial reports of
ownership and reports of changes in ownership with the SEC. Such reporting
persons are required by SEC regulations to furnish the Company with copies
of all such reports that they file.
Based solely upon a review of copies of such reports furnished to the
Company during its fiscal year ended September 30, 2000 and thereafter, or
any written representations received by the Company from reporting persons
that no other reports were required, the Company believes that, during the
Company's 2000 fiscal year, all Section 16(a) filing requirements applicable
to the Company's reporting persons were complied with.
ITEM 10. EXECUTIVE COMPENSATION.
The Company's officers and directors, during this time, to conserve
capital, have agreed to work for no compensation but reimbursement of
business expenses, out of pocket costs and consulting fees as cash is
available. At a time the Board determines is appropriate, the Company will
enter employment agreements with the officers and establish compensation for
the directors. The Company, at its year end September 30, 1999 and 2000,
authorized the accrual and payment of a consulting fee of $140,000 and less
than $60,000, respectively, for services provided by Ronald S. Tucker valued
at $100,000 and less then $60,000, respectively, and Dennis Kaliher valued
at $40,000 and less than $60,000, respectively.
The following table reflects the Executive Compensation for the year
ending September 30, 1999 and 2000:
SUMMARY COMPENSATION TABLE
Other Annual
Name and Compensation
Principal Position 1999 2000
----------------- ----------- ------------
Ronald S. Tucker, CEO $ 107,380(1) N/A
Dennis E. Kaliher, COO $ 40,500(2) N/A
(1) For 1999 this represents cash of $7,380 and an accrual of
$100,000.
(2) For 1999 this represents cash of $500 and an accrual of
$40,000.
QUALIFIED AND NON QUALIFIED STOCK OPTIONS
The board of directors and shareholders for the Company have adopted a
Qualified and Non Qualified Stock Option Plan pursuant to Sections 421-424
of the Internal Revenue Code. The Plan authorizes the granting of up to
500,000 and 800,000 options to purchase Company common stock under the
Qualified and Non Qualified Plan, respectively. The Plan is administered by
the Board of Directors or by a committee appointed by the Board. As of
September 30, 2000 Non Qualified Options exercisable within five years have
been granted as follows:
Ronald S. Tucker 100,000 @ $0.50 per share
80,000 @ $1.25 per share
Dennis Kaliher 100,000 @ $0.50 per share
40,000 @ $1.25 per share
Gary Magee 40,000 @ $1.00 per share
H. Glen Leason 40,000 @ $1.00 per share
Christopher Rayne 40,000 @ $1.00 per share
James Y. Wang 40,000 @ $2.00 per share
To date non of the options have been exercised.
EMPLOYMENT AGREEMENTS
The Company at this time has not entered an employment agreement with
any of the officers or directors. The management does not believe that an
agreement will be entered until after September of 2001.
SALES COMMISSIONS
Sales are to be made either through manufacturers' representatives or
internal sales personnel. The Company policy will be to award sales
commissions ranging from three to ten percent, depending upon the type and
size of sales transaction. The Company has not had any sales or paid any
sales commission.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company, as of November 30, 2000, had 12,032,023 shares of its
Common stock and 56,000 Class B Warrants to purchase common stock issued and
outstanding with 480,000 options granted. The following schedule tabulates
holders of Common Stock of the Company by each person who holds or record or
is known by Management of the Company to own beneficially more than five
percent (5%) of the Common Stock outstanding, and, in addition, by all
Officers and Directors of the Company Individually, and as a group. The
Shareholders listed below have sole voting and investment power.
Ownership more than 5%
<TABLE>
<S> <C> <C> <C>
Class Securities Name Number of Percent of
Shares Outstanding
Common Stock Shira Investments,Inc. 2,600,000 20.7%
90490 Vaduz
Leichstenstein
Common Stock R Tucker & 2,492,388 19.8%
AssociateS, Inc.1
78153 Calle Norte
La Quint, CA
Common Stock Dennis Kaliher2 1,222,127 9.7%
3802 Frodo Cove
Austin, TX
Common Stock James Wang3 740,000 5.8%
400 Mary Lane
Maplewood MN
Common Stock Amcor Financial Corp 630,000 5%
89025 52nd Avenue
Coachella, CA
Total 7,684,515 61.1%
</TABLE>
1 Ronald S. and Leticia I. Tucker are majority shareholders of both R
Tucker & Associates, Inc. and China Net & Technologies, which owns
403,428 shares that are included above. These shares include 21,000
Class B Warrants in name of R Tucker and Associates, Inc.
2 Dennis Kaliher is the majority stockholder of Sundance Design, Inc.,
a Texas corporation, which owns 200,000 shares which are included.
This also includes 140,000 options.
3 Includes 400,000 shares in the name of Lei Li, Mr. Wang's wife, and
40,000 options.
Management
<TABLE>
<S> <C> <C> <C>
Class Securities Name Number of Percent of
Shares Outstanding
Common Stock Ronald S. Tucker1 2,676,838 21.3%
79860 Tangelo
La Quint, CA
Common Stock Dennis Kaliher2 1,222,127 9.7%
3802 Frodo Cove
Austin, TX
Common Stock James Wang3 740,000 5.8%
400 Mary Lane
Maplewood, MN
Common Stock Chris Rayne4 290,000 2.3%
Surrey
London, UK
Common Stock Gary Magee5 200,000 1.6%
1298 Hiatte Street
La Habra
Heights, CA
Common Stock H. Glen Leason5 200,000 1.6%
77955 Calle Arroba
La Quinta, CA
All Directors & 5,328,965 42.4%
Officers As a
Group(6)
</TABLE>
1 These shares include 4,450 shares in their names as joint tenants,
2,088,960 shares by R Tucker & Associates,403,438 shares by Corporate
Finance Company, 180,000 options and 21,000 Class B Warrants held by R
Tucker & Associates, Inc.
2 These shares include 200,000 in the name of Sundance Design, Inc., a
Texas corporation, and 140,000 options.
3 Includes 400,000 shares in the name of Lei Li, Mr. Wang's wife, and
40,000 options.
4 Includes 40,000 options and 250,000 shares in the name of Capital
Reserve Management, LLC.
5 Includes 40,000 options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company on or about November 10, 1997 issued 4,500,000 shares of
Common Stock at a stated value of $.01 per share to the R Tucker &
Associates in exchange for an assignment of $45,000. The $45,000 was
invested in liquid securities as of November 1, 1997. These securities are
carried at book value. R Tucker & Associates, Inc., is a corporate
financial consulting firm. Ronald S. and Leticia I. Tucker are principal
shareholders and are also officers and directors. It is a private company.
The issuer on or about November 10, 1997 issued 1,000,000 investment
units to Corporate Finance Company in exchange for 80,000 shares of
Corporate Finance Company common stock valued at $2.50 per share. The value
of CFC common stock was based on sales for cash and non-cash consideration
to unaffiliated third persons, during the preceding six months, at $2.50 per
share. Each investment unit of the Company consists of one share of its
common stock and one Class A Warrant to purchase one share of its common
stock. The first 500,000 Class A Warrants has an exercise price of $.40 per
share and the last 500,000 Class A Warrants may be exercised at $.80 per
share. Corporate Finance Company is a specialty finance company. It
provides financing to small companies that expect to become publicly trading
companies. The primary shareholders of CFC and R Tucker & Associates are
Ronald S. and Leticia I. Tucker. They are also officers and directors.
Corporate Finance Company and R Tucker & Associates are affiliates of the
Company.
In October 1997, during negotiations for the acquisition of the
Licensor's technology, Mr. Kaliher agreed and authorized Mr. Tucker to use
the name "Tensleep Design, Inc." for a Colorado corporation. Mr. Tucker
formed the Company to acquire either a nonexclusive license or all the
ownership rights to the technology.
The Company through Mr. Tucker and the Licensor through Mr. Kaliher
executed the license agreement on December 23, 1997. The license agreement,
negotiated at arms length, granted a non exclusive perpetual license to the
"Licensed Technology." The licensed Technology included Licensor's Previous
Results, Firmware, Services, Technical Information, and Products, including
the DSP Core (a/DSC321, a/DSC421, a/DSC521 technology), and any and all
items related thereto, and any and all derivatives, improvements, revisions,
versions, and/or modifications of the Licensed Technology owned by Licensor.
At the time of entering the license agreement, Mr. Kaliher was not
associated or affiliated with the Company. Mr. Kaliher had entered no
agreement, understanding, or commitment that he would become affiliated with
or become an officer, director or shareholder of the Company. The value of
the license was set at $250,000 and was payable by the issuance of 500,000
shares of the Company's common stock. The transaction, the value of the
license and the consideration was approved by the board of directors of both
companies. The license was valued at more than 1/5 of the license fee paid
by Zilog for a similar license from the Licensor approximately two years
earlier. Besides the license fee the Company was to pay a royalty based on
the gross revenues of the Company from sales of the Licensed products.
The Company and the Licensor executed the "Purchase Agreement" on
January 23, 1998. Mr. Tucker negotiated this agreement with Mr. Kaliher.
The Licensor agreed to sell all its rights, title and ownership interests in
its technology. This included all Research and Development Property,
equipment and software listed on its balance sheet as of the year end for
1996. In addition, it included all contracts re sales of licenses and
Products or engineering services, all molds, prototypes, tooling and/or
dies, and production credits subject to existing licenses. It also included
the release of the royalties provided for in the License Agreement. The
value for all the described assets was placed at $1,500,000 and the Purchase
Agreement if the purchase price would be paid with the issuance of 300,000
investment units of the Company's securities issued pursuant to a qualified
Regulation A offering under the Securities Act of 1933, as amended (the
"Act"). The transaction, the value of the assets and the consideration was
approved by the board of directors of both companies. At the time of
entering the Purchase Agreement, Mr. Kaliher was not associated or
affiliated with the Company. There was no agreement, understanding, or
commitment that Mr. Kaliher would become affiliated with or an officer,
director or shareholder of the Company. The total development cost of the
Licensor's technology was in excess of $7,000,000 and the cost of the
Licensor's equipment and integrated circuit design software was in excess of
$500,000. The agreed to value of $1,500,000 considered the development
costs of the technology, the cost of the equipment and design software, and
the license fee of $1,200,000 paid by Zilog, Inc.
On January 30, 1998, the Licensor executed and delivered the Company a
Bill of Sale pursuant to the Purchase Agreement and issued an invoice in the
aggregate of $1,500,000 apportioned among the assets purchased pursuant to
the Purchase Agreement.
On January 31, 1998, Mr. Tucker asked Mr. Kaliher to become the
President, chief executive officer and a director of the Company, which Mr.
Kaliher accepted.
On June 18, 1998, the Company acquired technology and
equipment/software to support integrated circuit design from LS Squared,
Inc. ("LS2"), an unaffiliated company, valued at $100,000 and Mr. Tucker
acquired all the issued and outstanding common stock of LS2 with a payment
of $100. This technology and equipment and integrated circuit design
software was received by the Company in exchange for 100,000 shares of the
Company's common stock. CFC facilitated this transaction by assigning and
exercising 100,000 Class A Warrants and the Company acquired the technology,
equipment and integrated circuit design software from LS2 as consideration
for the purchase of the shares.
The Company, as of the year end in 1998, authorized the accrual of a
consulting fee of $120,000 for the services of Ronald S. Tucker valued at
$80,000 and Dennis Kaliher valued at $40,000 for the year ending September
30, 1998. In December 1998 common stock was issued in cancellation of the
indebtedness. The cancellation was based on $5 per share and assigned the
shares to others designated by Ronald S. Tucker and Dennis Kaliher. The
shares were issued for the cancellation of indebtedness pursuant to the
Regulation A Offering that became effective November 6, 1998.
In December 1998 R Tucker & Associates, a related party, issued a
promissory note for $765,200 to the Company in exchange for the purchase of
137,00 investment units pursuant to the Regulation A Offering, the exercise
of 88,000 Class A warrants, and the cancellation of a $50,000 note
previously issued to a third party and transferred to the Company.
In March 1999 the Company reduced a Note Receivable from R Tucker and
Associates in exchange for 80,000 shares of the common stock in Corporate
Finance Company valued at $200,000.
The Company, as of the year end in 1999, authorized the accrual of a
consulting fee of $140,000 payable to Corporate Finance Company for the
services of Ronald S. Tucker valued at $100,000 and Dennis Kaliher valued at
$40,000 for the year ending September 30, 1999.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit No. Description Method of
Filing
3. Charter and Bylaws
3.1 Articles of Incorporation A
3.1.1 Amended Articles for change of Name C
3.1.2 Amended Articles for change of Name D
3.1.3 Amended Articles for change of Name *
3.2 Bylaws A
10. Material Contracts
10.1 License Agreement with Tensleep Design, Inc.,
a Texas corporation A
10.2 Purchase Agreement and Bill of Sale with
Tensleep Design, Inc., a Texas corporation A
10.3 Warrant Agreement for Class A Warrants A
10.4 Warrant Agreement for Class B Warrants A
10.5 Stock Option Plan A
10.6 Distribution Agreement C
11. Statement re: Computation of Per Share Earnings **
21. Subsidiaries of the Registrant *
27. Financial Data Schedule *
99. Additional Exhibits
99.1 Audited Financial Statement for the
Company date December 31, 1997 A
99.2 Agreement with Silicon Resources for
Rental B
99.3 Stock Purchase Agreement - Master Financial E
99.4 Audited Financial Statement for the
Company for the year ending 9/30/98 C
99.5 Audited Financial Statement for the
Company for the year ending 9/30/99 D
99.6 Stock Exchange Agreement - Whisk *
* Included herewith.
** Contained in Financial Statements included herewith.
A Incorporated by reference to the Company's Form 1 - A Registration
Statement No. 24-3960.
B Filed with original Form 10SB, Accession Number:
0001006024-99-000010
C Filed with Form 10SB/A which became effective August 2, 1999.
D Filed with Form 10KSB for year ending 9/30/1999
E Filed with Form 8KSB on 5/8/2000
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed by the undersigned, there unto
duly authorized.
Tensleep.com, Inc.
(Registrant)
Signature Title Date
/S/ Ronald S. Tucker Director, CEO and CFO January 15, 2001
Ronald S. Tucker
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
/S/ H. Glen Leason Director January 15, 2001
H. Glen Leason
/S/ Gary Magee Director January 15, 2001
Gary Magee
S/ Chris Rayne Director January 15, 2001
Chris Rayne
