U. S. SECURITIES AND EXCHANGE COMMISSION Washington D. C. 20549 FORM 10-QSB (MARK ONE) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000. [ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________TO _________________ Commission File Number 0 - 30164 TENSLEEP CORPORATION (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) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of issuer's only class of Common Stock, no par value, was 11,832,023 on December 31, 2000. INDEX PART I. FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . Item 1. Financial Information . . . . . . . . . . . . . . . . Financial Statements for Tensleep Corporation: Balance Sheets . . . . . . . . . . . . . . . . . . . . Statements of Operations. . . . . . . . . . . . . . . . Statements of Shareholders' Eqity . . . . . . . . . . Statements of Cash Flows . . . . . . . . . . . . . . . Notes to Finanical Statements. . . . . . . . . . . . . Item 2. Management's Discussion and analysis or Plan of Operations Overview . . . . . . . . . . . . . . . . . . . . . . . Plan of Operation. . . . . . . . . . . . . . . . . . . Discussion and Analysis. . . . . . . . . . . . . . . . PART II. OTHER INFORMATION Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . Item 2. Changes in Securities. . . . . . . . . . . . . . . . . Item 3. Defaults Upon Senior Securities. . . . . . . . . . . . Item 4. Submission on Matters to Vote of Security-Holders. . . Item 5. Other Information. . . . . . . . . . . . . . . . . . . item 6. Exhibits and Reports on Form 8 - K . . . . . . . . . . PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The consolidate financial statements have been prepared by Tensleep Corporation, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading when read with the Company's audited financial statements for the rears ended September 30, 2000 and 1999. The financial information presented reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management necessary for a fair statement of the results from the periods presented. TENSLEEP CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999 ----------- ----------- CURRENT ASSETS Cash $ 197,862 $ 73,307 Marketable Securities (See note 1) 40,789 - Prepaid Expenses (See note 15) 187,500 445,100 Other Receivables (See note 20) 430,760 - Due from Tensleep Appliance (See note 23) 102,233 - License Fee Receivable (See note 19) 100,000 - Royalty Receivable (See note 18) 19,748 - Loan Receivable 36,000 - ----------- ----------- Total Current Assets 1,114,892 518,407 ----------- ----------- PROPERTY AND EQUIPMENT Machines & Equipment 106,336 102,014 Software 186,728 172,371 ----------- ----------- 293,064 274,385 Less accumulated depreciation and amortization 254,609 160,060 ----------- ----------- Net Property and Equipment 38,455 114,325 OTHER ASSETS Goodwill - net of accumulated amorization of $25,302 (See note 20) 312,050 - Investment in China Net & Technologies, Inc., at equity (See note 2) 1,656,508 634,667 Investment in Amcor Financial Corp., at equity (See note 3) 1,266,654 1,400,000 Investment in Silicon Resources, at cost (See note 4) 1,103,800 1,103,800 Receivable (See note 5 and 12) - - Investiment in Whisk.co.uk 1,300,000 - ----------- ----------- Total Other Assets 5,639,012 3,138,467 ----------- ----------- TOTAL ASSETS $ 6,792,359 $ 3,771,199 =========== ===========
TENSLEEP CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999 ----------- ----------- CURRENT LIABILITIES Accounts Payable $ 1,041 $ 5,393 Loan payable to China Net & Technologies, Inc. (See nOTE 6) 2,291 17,159 Accrued consulting fees (See note 11) 75,000 66,800 ----------- ----------- Total Current Liabilities 78,332 89,352 ----------- ----------- TOTAL LIABILITIES 78,332 89,352 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 118,321 70,040 authorized 11,832,023 and 7,045,016 shares issued and outstanding at December 31, 2000 and 1999, respectively Treasury stock, 1,000,000 and 0, at cost, for - - December 31, 2000 and 1999, respectively Additional paid-in capital 9,286,000 5,128,959 Allowance for Unrealized Gains (Losses) on (48,055) - Marketable Equity Securities (See note 1) Note Receivables for common stock (82,000) - (See note 11 and 16) Retained Earnings (Accumulated Deficit) (2,560,239) (1,517,152) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 6,714,027 3,681,847 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,792,359 $ 3,771,199 =========== ===========
The accompanying notes are an integral part of these statements. TENSLEEP CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999
2000 1999 ----------- ----------- REVENUES Design Fees $ - $ - Memberships 4,601 - License Fees (See note 19) - 750,000 Stock Promotion 87,955 - Royalty Income (Note 18) 19,748 - Other Income 117 705 ----------- ----------- 112,862 750,705 EXPENSES Advertising 500 58,305 Automobile expense 1,040 868 Bank service charges 262 62 Compensation - - Consulting expense 149,500 176,333 Depreciation and Amortization 32,238 22,866 Dues and subscriptions 15 132 Filing fees - 50 Insurance - 1,539 Interest 176 98 License & permits - 50 Other expenses 5,237 69 Office supplies 188 56 Outside services 11,156 6,637 Payroll & Payroll Taxes 4,717 - Postage & delivery 365 266 Printing and reproduction - - Professional fees 1,550 2,407 Promotion - - Rent 540 - Repairs 526 95 Product development costs - - Supplies 2,842 - Telephone 1,349 1,923 Travel & Entertainment 10,340 4,616 Utilities - 189 ----------- ----------- 222,541 276,561 ----------- ----------- INCOME (LOSS) FROM OPERATIONS (109,679) 474,144 ----------- ----------- OTHER INCOME (EXPENSE) Interest Income 4,131 - Income (loss) on equity investments (32,739) - Net Realized gain on marketable securities (See note 1) ( 7,478) - ----------- ----------- (36,086) - ----------- ----------- PROVISION FOR INCOME TAXES (See note 22) - - ----------- ----------- NET INCOME (LOSS) $ (145,765) $ 474,144 =========== =========== EARNINGS PER COMMON SHARE (SEE NOTE 13) $ (0.01) $ 0.07 =========== ===========
The accompanying notes are an integral part of these statements. TENSLEEP CORPORATION & SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY F0R THE THREE MONTHS ENDED DECEMBER 31, 2000 and 1999
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 ----------------------------------------------------------------------------------------------------------- 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) - - - Stock dividend 14 07/26/20 49,737 Non-cash 497 64,783 (65,280) - - - Stock dividend 14 08/23/20 4,020 Non-cash 40 3,728 ( 3,768) - - - Net income for 2000 - - - (265,868) - - (265,868) Net Unrealized loss on marketable equity securities - - - - - (41,468) (41,468) --------- -------- --------- --------- --------- ----------- ----------- Balance 9/30/2000 8,412,023 $ 84,120 $7,938,200 $(2,407,192) $ - $ (41,468) $5,573,660 Stock Issued 7AD 11/10/20 820,000 Non-cash 8,200 73,800 - - - 82,000 Stock Issued 7AE 12/15/20 2,600,000 Non-cash 26,000 1,274,000 - - - 1,300,000 Note for stock 16 - - - - (82,000) - (82,000) Net Loss for period - - - (145,765) - - (145,765) Net Unrealized loss on marketable equity securities - - - - - ( 6,587) ( 6,587) Adjustment Prior Pd - - - ( 7,281) - - ( 7,281) --------- -------- --------- --------- --------- ----------- ----------- Balance12/31/2000 11,832,023 $118,320 $9,286,000 $(2,560,238) $(82,000) $ (48,055) $6,714,027
The accompanying notes are an integral part of these statements. TENSLEEP CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS DECEMBER 31, 2000 AND 1999
2000 1999 ----------- ----------- CASH FLOW FROM OPERATING ACTIVITIES Net Income (Loss) $ (145,765) $ 472,852 Adjustments to reconcile net loss to net cash used in operations: Depreciation and amortization 32,238 22,866 Expenses (income) incurred in exchange for commo - 224,333 Equity in earnings of affiliated companies 32,739 - (Increase) decrease in assets: Non - cash Income - (750,000 Prepaid expenses 62,500 (2,601) Accounts Receivable (318,760) - Royalty Receivable 15,543 - Loan Receivable ( 6,000) - Increase (decrease) in liabilities: Accounts Payable 286 700 Accrued consulting fees 75,000 - ----------- ----------- Net cash used by operating activities (106,364) (504,702) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Advances to affilate (52,233) - Net (purchases) sales of marketable securities (21,452) - Purchases of Machinery & equipment (579) - ----------- ----------- Net cash used by investing activities (74,264) - ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Loan payments on Stock Purchase - 60,000 Borrowings from Corporate Finance Co. - 2,726 Proceeds from exercise of warrants - 41,083 ----------- ----------- Net cash provided by financing activities - 103,809 ----------- ----------- NET INCREASE (DECREASE) IN CASH (326,393) 71,959 CASH, beginning of period 524,255 65 ----------- ----------- CASH, end of period $ 197,862 $ 72,024 =========== ===========
The accompanying notes are an integral part of these statements. TENSLEEP C0RPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 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 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 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 three months ending December 31, 2000 and 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. NOTE 1: MARKETABLE SECURITIES Investments in marketable securities are summarized as follows at December 31, 2000: Stockholders' equity includes an unrealized holding loss on available-for-sale securities of $48,055. Realized gains and losses are determined on the basis of specific identification. As of December 31, 2000, sales proceeds and gross realized gains and losses on securities classified as available for sale were: Sales proceeds $ 66,458 Gross realized gains 490 Gross realized losses (7,968) Net realized loss $ (7,478) 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. NOTE 3: INVESTMENT IN AMCOR FINANCIAL CORP. During fiscal year 2000 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 of its common stock (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, with an amortization of $17,113 for the first quarter of 2001 endig December 31, 2000. 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 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 $17,150 as of December 31, 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 and October 1, 2000 through December 31, 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 800: 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 - 820,000 shares were issued to officer's and directors in exchange for promissory notes equaling $82,000. Note AE - 2,600,000 shares were issued in exchange for 875,000 shares of Whisk.co.uk, Limited, common stock. 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. The Company has commenced a plan of strict limits on and control over costs, expenses, compensation and capital expenditures. The investments in marketable securities are held available-for-sale. As of December 31, 2000 the account balance is $40,789. The investments in marketable securities are 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 $40,789 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 CN & T's 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 from the exerciase of Class A warrants and the cancellation of a $50,000 note previously issued (See note 7E). The accrued consulting fee as of December 31, 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 (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 The accrued consulting fee due by the Company as of December 31, 2000 is payable to China Net & Technologies, Inc. for services performed by Ronald S. Tucker valued at $75,000. NOTE 12: INVESTMENT IN SILICON RESOURCES 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 this 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 an 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 December 31, 2000 and 1999, the Company had 11,832,023 and 7,098,023 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 December 31, 2000 and 1999 was 9,825,356 and 7,237,063 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, July and August the Company distributed 58,047 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 $580, additional paid in capital was increased by $74,266, and retained earnings was decreased by $74,946. All references in the accompanying consolidated financial statements to the number of common shares and per-share amounts for December 31, 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 was $250,000 and $62,500 for the first quarter of fiscal year 2001, leaving $187,500 as a prepaid expense as of December 31, 2000. NOTE 16: NOTE RECEIVABLE FOR COMMON STOCK 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 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). In November 2000, the Company issued 820,000 shares of common stock in exchange for 82,000 notes receivable from certain officers and directors. The notes are reported in the stockholders' equity section. 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 September 30, 1999, 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 $122,177 during the the fiscal year ending September 30, 2000 and accrued a payment of $19,748 as of December 31, 2000 which was collected in Jamuary 2001. 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. The Company was unable to obtain adequate detailed books and records and supporting data from the subsidiary Master Financial Group, Inc. Therefore, the Company was not able to satisfy itself about the amount that goodwill is recorded at in the accompanying consolidated balance sheet at December 31, 2000 (stated at $337,352) and the amount of goodwill amortization expense (stated at $25,302). 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 as of the year ending September 30, 2000. The write-off of goodwill is included in the September 30, 2000 consolidated statement of operations as asset impairment. The Company is owed $430,760 from the prior owner of Master Financial. This amount is reported on the consolidated balance sheet as an other receivable. In February 2001 Master Financial Group, Inc., commenced legal action to collect the amount from the former officer and director of Master Finanical Group, Inc. 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 $102,233 and $0 as of December 31, 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: WHISK.CO.COM, LIMITED 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. CONSOLIDATED FINANCIAL STATEMENTS The consolidate financial statements have been prepared by Tensleep Corporation, with out audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading when read with the Company's audited financial statements for the rears ended September 30, 2000 and 1999. The financial information presented reflects all adjustments, consisting only of normal recurring adjustments, which are, in the opinion of management necessary for a fair statement of the results from the periods presented. TENSLEEP CORPORATION Schedule 1 CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2000 ASSETS
Parent Subsidiary Subsidiary Tensleep Tensleep Master Consolidating Consolidated Corporation Technology Financial Entries Totals ----------- ---------- ---------- -------------- ------------ CURRENT ASSETS Cash $ 153,552 $ 4,929 $ 39,381 $ - $ 197,862 Marketable Securities (See note 1) - - 40,789 - 40,789 Prepaid Expenses (See note 15) 187,500 - - - 187,500 Other Receivable (See note 20) - - 430,760 - 430,760 Due From Tensleep Appliance (See note 23) 102,233 - - - 102,233 License Fee Receivable (See note 19) 100,000 - - - 100,000 Royalty Receivable (See note 18) 19,748 - - - 19,748 Due From Tensleep Technology 103,805 - - (103,805) - Loan Receivable 36,000 - - - 36,000 ----------- ---------- ---------- -------------- ------------ Total Current Assets 702,838 4,929 510,930 (103,805) 1,114,892 ----------- ---------- ---------- -------------- ------------ PROPERTY AND EQUIPMENT Machines & Equipment - 102,593 3,743 - 106,336 Software - 172,371 14,357 - 186,728 ----------- ---------- ---------- -------------- ------------ - 274,964 18,100 - 293,064 Less accumulated depreciation and amortization - 251,520 3,089 - 254,609 ----------- ---------- ---------- -------------- ------------ Net Property and Equipment - 23,444 15,011 - 38,455 ----------- ---------- ---------- -------------- ------------ OTHER ASSETS Goodwill - net of accumulated amorization of $25,302 - - - 312,050 312,050 Investment in China Net & Technologies, Inc. (See note 2) 1,656,508 - - - 1,656,508 Investment in Amcor Financial Corp. (See note 3) 1,266,654 - - - 1,266,654 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) 1,199,632 - - (1,199,632) - Investment in Whisk.co.uk (See note 22) 1,300,000 - - - 1,300,000 ----------- ---------- ---------- -------------- ------------ Total Other Assets 5,922,794 1,103,800 - (1,387,582) 5,639,012 ----------- ---------- ---------- -------------- ------------ TOTAL ASSETS $ 6,625,632 $1,132,173 $ 525,941 $ (1,491,387) $ 6,792,359 =========== ========== ========== =============== ============
TENSLEEP CORPORATION CONSOLIDATED BALANCE SHEETS Schedule 1 DECEMBER 31, 2000
LIABILITIES AND STOCKHOLDERS' EQUITY Parent Subsidiary Subsidiary Tensleep Tensleep Master Consolidating Consolidated Corporation Technology Financial Entries Totals ----------- ---------- ---------- -------------- ------------ CURRENT LIABILITIES Accounts Payable $ 773 $ 268 $ - $ - $ 1,041 Loan payable to China 2,291 - - - 2,291 Net & Technologies, Inc. (See note 6) Accrued Consulting Fees 75,000 - - - 75,000 Due to Tensleep Corp. - 103,805 - (103,805) - ----------- ---------- ---------- -------------- ------------ Total Current LiabilitiES 78,064 104,073 - (103,805) 78,332 ----------- ---------- ---------- -------------- ------------ TOTAL LIABILITIES 78,064 104,073 - (103,805) 78,332 ----------- ---------- ---------- -------------- ------------ STOCKHOLDERS' EQUITY Preferred stock - - - - - Common stock Tensleep Corporation 118,321 - - - 118,321 Tensleep Technology - 50,000 - (50,000) - Master Financial - - 10,000 (10,000) - Treasury stock - - - - - Additional paid-in capital Tensleep Corporation 9,286,000 - - - 9,286,000 Tensleep Technology - 1,149,631 - (1,149,631) - Master Financial - - 8,100 (8,100) - Allowance for Unrealized Gains (Losses) Marketable Equity Securities - - (48,055) - (48,055) Retained Earnings (2,774,753) (171,531) 555,896 (169,851) (2,560,239) Notes for purchase of stock (82,000) - - - (82,000) ----------- ---------- ---------- -------------- ------------ TOTAL STOCKHOLDERS' EQUITY 6,547,568 1,028,100 525,941 (1,387,582) 6,714,027 ----------- ---------- ---------- -------------- ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,625,632 $1,132,173 $ 525,941 $ ( 1,491,387) $ 6,792,359 ========== ========== ========== =============== ============
The accompanying notes are an integral part of these statements. TENSLEEP CORPORATION Schedule 2 CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000
Parent Subsidiary Subsidiary Tensleep Tensleep Master Consolidating Consolidated Corporation Technology Financial Entries Totals ----------- ---------- ---------- -------------- ------------ REVENUES Memberships $ - $ - $ 4,601 $ - $ 4,601 Design Fees - 441 - - 441 Stock Promotion - - 87,955 - 87,955 Royalty Income (See note 18) 19,748 - - - 19,748 Other Income - 117 - - 117 ----------- ---------- ---------- -------------- ------------ 19,748 558 92,556 - 112,862 ----------- ---------- ---------- -------------- ------------ EXPENSES Advertising 500 - - - 500 Automobile expense 288 752 - - 1,040 Bank fees & brokerage charges 9 - 253 - 262 Consulting expense 149,500 - - - 149,500 Depreciation and Amortization - 22,865 1,030 8,434 32,238 Dues and subscriptions 15 - - - 15 Interest 176 - - - 176 Other expenses 1,713 1,228 2,296 - 5,237 Office supplies - 188 - - 188 Outside services 1,719 1,285 8,152 - 11,156 Payroll & Payroll Taxes - 4,717 - - 4,717 Postage & delivery 269 96 - - 365 Professional fees 1,550 - - - 1,550 Rent - 540 - - 540 Repairs - 526 - - 526 Supplies 1,014 1,828 - - 2,842 Telephone 1,020 329 - - 1,349 Travel & Entertainment 6,941 - 3,399 - 10,340 ----------- ---------- ---------- -------------- ------------ 164,714 34,354 15,130 8,434 222,541 ----------- ---------- ---------- -------------- ------------ INCOME (LOSS) FROM OPERATIONS (144,966) ( 33,796) 77,426 ( 8,434) (109,679) ----------- ---------- ---------- -------------- ------------ OTHER INCOME (EXPENSE) Interest Income 2,369 - 1,762 - 4,131 Income (loss) on equity investment (32,739) - - - (32,739) Asset Impairment (See note 20) - - - - - Realized gain on marketable securities (See note 1) - - ( 7,478) - ( 7,478) ----------- ---------- ---------- -------------- ------------ ( 30,370) - ( 5,716) - ( 36,086) ----------- ---------- ---------- -------------- ------------ PROVISION FOR INCOME TAX - NOTE 22 - - - - - ----------- ---------- ---------- -------------- ------------ NET INCOME (LOSS) (175,336) ( 33,796) 71,710 ( 8,434) (145,765) =========== ========== ========== ============== ============
The accompanying notes are an integral part of these statements. ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPRERATIONS. OVERVIEW The Company is an Integrated Internet company that is building an economic and financial foundation on which to establish an international company that provides specialized services and develops, manufactures and distributes specialized Internet appliances and other electronic products and their embedded modular systems contained within those appliances and/or electronic products. 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 each 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 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 Company'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 the Company's affiliates. The loss of the Company's affiliates could have a material adverse impact on the Company's operating results. 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 is directed toward developing or acquiring a consistent 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 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. Master Financial The Company is currently reorganizing and restructuring Master Financial Group, Inc., which was acquired from James Y. Wang and his wife. After its acquisition, James Wang continued to serve as the President and a director of Master Financial. From May 2000 to present several disputes arose between Tensleep management and Mr. Wang regarding Mr. Wang's management of Master Financial. On or about November 3, 2000, Mr. Wang was removed as an officer and director of Master Financial Group and was requested to deliver all the assets, including ccash of over $300,000, and books and records of Master Financial to the newly elected management of Master Financial. Mr. Wang has failed to do so, and in February, 2001 Master financial filed a legal action against Mr. Wang to recover the assets and other property of Master Financial. 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. DISCUSSION AND ANALYSIS The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and notes there to included elsewhere in this quarterly report on Form 10-QSB. Except for the historical information contained herein, the following discussion contains certain forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations and intentions. The cautionary statements made in this quarterly report on Form 10-QSB should be read as being applicable to all related forward-looking statements wherever they appear herein. See "Special Note Regarding Forward-Looking Statements." The Company's actual results may differ materially from the results discussed in the forward-looking statements. NET REVENUES. Net revenues for the three months ended December 31, 2000 and 1999 were $112,862 and $750,705, respectfully, a decrease of $637,843 or approximately 565%. The decrease in net sales was primarily a result of the single sale of a license to us the Company's technology in December 1999 and the lack of a license sale in the first quarter of the current year. The Company's revenues for the first quarter of the present year were from membership fees and stock promotion fees received from Master Financial and Royalties received by the Company from Zilog Corporation. EXPENSES. The Company's expenses decreased from $276,561 for the first quarter ending December 31, 1999 to $222,541 for the same period for the current year. The decrease was approximately 20% of the prior year. Consulting expenses was the largest expense in the first period ending December 31, 2000 and 1999, in the amount of $149,500 and $176,333, respectively, of which $62,500 represent a prepaid expense for both periods. The difference between the two periods represented a decrease of $26,833 or approximately 15%. The expenses for the period ending December 31, 2000 represent those incurred by two subsidiaries and the parent company verses the parent company only for the three months ending December 31, 2000. OTHER INCOME AND EXPENSES. There was no Other Income or Other Expenses incurred in the three months ending December 31, 1999. In the three months ending December 31, 2000 the Company received Interest Income of $4,131 and suffered a loss of $32,739 on equity investments and a net realized loss on marketable securities of $7,478. NET LOSS. The Company suffered a net loss of $145,765 for the three months ended December 31, 2000 or ($0.01) per share as compared to net income of $474,144 for the same period for the prior year or $0.07 per share. The Company for its fiscal year ending September 30, 2000 accounted for Net Income in the amount of $339,637 from Master Financial Group, Inc., and $71,710 for the three months ending December 31, 2000. Due the reorganization of Master Financial, the Company does not expect to receive significant revenues or net income, if any, from Master Financial during the Company's current fiscal year. WORKING CAPITAL The Company's adjusted working capital increased from ($16,045) to $418,300 for the first period ending December 31, 1999 and 2000. The adjusted working capital was determined by reducing the Current Assets by the amount of Prepaid Expenses, $415,100 and $187,500, on December 31, 1999 and 2000, respectively. The adjusted working capital for December 31, 2000 also included a deduction for the Other Receivable in the amount of $430,760. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This report contains certain forward-looking statements. These forward-looking statements generally include the plans and objectives of management for future operations, including plans and objectives relating to the Company's future economic performance. The forward-looking statements and associated risks may include, relate to or be qualified by other important factors previously set forth. PART II ITEM 1. LEGAL PROCEEDINGS. In February 2001 Master Financial has filed a legal action in the trial court for the State of Minnesota against James Y. Wang, a former President and director of Master Financial to recover all its assets and books and records. The assets sought to be recovered includes cash in excess of $300,000. ITEM 2. CHANGE IN SECURITIES None. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS Not Applicable. ITEM 5. OTHER INFORMATION Not Applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. None. (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 Corporation (Registrant) Signature Title Date /S/ Ronald S. Tucker Director, CEO and CFO February 19, 2001 Ronald S. Tucker