UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended DECEMBER 31, 2001
Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from __________ to __________
Commission File No. 000-30191
TSET, INC.
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(Exact name of registrant as specified in its charter)
NEVADA 87-0440410
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(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
464 Common Street, Suite 301, Belmont, MA 02478
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 993-9965
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(1) Registrant has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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.
/X/ Yes / / No
As of February 8, 2001, there were 37,602,284 shares outstanding of the issuer's common stock.
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following comprise our condensed (unaudited) consolidated financial
statements for the three months and six months ended December 31, 2001.
2
TSET, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, June 30,
2001 2001
-------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 66,042 $ 32,619
Accounts receivable, net -
Prepaids and other current assets 140,594 37,679
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TOTAL CURRENT ASSETS 206,636 70,298
-------------- -------------
PROPERTY AND EQUIPMENT 62,723 62,723
Less: Accumulated Depreciation (25,681) (18,016)
-------------- -------------
NET PROPERTY AND EQUIPMENT 37,042 44,707
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OTHER ASSETS
Intangibles 2,347,053 2,431,524
Deferred financing fees 588,281 520,800
-------------- -------------
TOTAL OTHER ASSETS 2,935,334 2,952,324
-------------- -------------
TOTAL ASSETS $ 3,179,012 $ 3,067,329
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,225,835 $ 323,045
Accrued expenses 821,836 1,284,268
Notes payable, current portion 427,114 313,900
-------------- -------------
TOTAL CURRENT LIABILITIES 2,474,785 1,921,213
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LONG TERM LIABILITIES
Notes payable 270,000 -
-------------- -------------
TOTAL LONG TERM LIABILITIES 270,000 -
-------------- -------------
-------------- -------------
Net liabilities of discontinued operations 741,426 667,550
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-------------- -------------
TOTAL LIABILITIES 3,486,211 2,588,763
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REDEEMABLE WARRANTS 686,000 -
SHAREHOLDERS' EQUITY
Common stock, authorized 500,000,000 36,427 34,001
shares of $.001 par value
Capital in excess of par value 13,225,392 12,418,350
Deferred equity compensation -
Retained earnings (Accumulated deficit) (14,255,018) (11,973,785)
-------------- -------------
TOTAL SHAREHOLDERS' EQUITY (993,199) 478,566
-------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 3,179,012 $ 3,067,329
============== =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
TSET. INC. AND SUBSIDIARIES
INCOME STATEMENT
FOR THE THREE MONTHS ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED DECEMBER 31,
----------------------------------------- ---------------------------------------
2001 2000 2001 2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- --------------
Sales $ 40,056 $ - $ 65,070 $ -
Cost of sales 40,056 - 50,070 -
------------ ------------ ------------ ------------
Gross Margin - - 15,000 -
------------ ------------ ------------ ------------
Selling, General and Administrative expenses:
Compensation and benefits 83,636 378,814 259,854 667,946
Research and development 48,643 59,300 138,834 111,867
Professional services 880,559 267,584 1,525,376 287,082
Depreciation and amortization 71,674 76,677 143,347 153,354
Other selling general & administrative expenses 128,433 161,468 195,145 256,720
------------ ------------ ------------ ------------
Total Selling, General and Administrative expenses 1,212,945 943,843 2,262,556 1,476,969
------------ ------------ ------------ ------------
Net Operating Income (Loss) (1,212,945) (943,843) (2,247,556) (1,476,969)
Other Income / (expense) 1,217 4,541 1,486 4,541
Interest Expense (16,871) - (35,163) -
Minority Interests - -
------------ ------------ ------------ ------------
Net Income (Loss) Before Taxes $ (1,228,599) $ (939,302) $ (2,281,233) $ (1,472,428)
Provision for Taxes - - - -
------------ ------------ ------------ ------------
Net Income (Loss) from continuing operations (1,228,599) (939,302) (2,281,233) (1,472,428)
Income (Loss) from discontinued operations, net of - (430,139) - (790,495)
income tax of $0
Loss on disposal of discontinued operations, net of - - - -
income tax of $0
Net Income (Loss) $ (1,228,599) $ (1,369,441) $ (2,281,233) $ (2,262,923)
============= ============= ============= =============
Basic Earnings (Loss) Per Share
Income (loss) from continuing operations (0.03) (0.03) (0.07) (0.05)
Loss from discontinued operations - (0.01) - (0.03)
------------ ------------ ------------ ------------
Net Income (loss) $ (0.03) $ (0.04) $ (0.07) $ (0.08)
============= ============= ============= =============
Diluted Earnings (Loss) Per Share
Income (loss) from continuing operations (0.03) (0.03) (0.07) (0.05)
Loss from discontinued operations - (0.01) - (0.03)
------------ ------------ ------------ ------------
Net Income (loss) $ (0.03) $ (0.04) $ (0.07) $ (0.08)
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
4
TSET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended December 31,
----------------------------------------------
2001 2000
(Unaudited) (Unaudited)
----------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (2,281,233) $ (1,472,428)
Adjustments to reconcile net loss to net cash
(used in) provided by operations:
Depreciation and amortization 143,347 153,354
Common stock issued for compensation/services 788,361 6,560
Change In:
Accounts receivable - 6,000
Prepaid expenses and other assets (170,396) (489)
Accounts payable 902,790 227,943
Accrued expenses and other liabilities (112,432) 57,144
----------------- ----------------
Net cash (used in) provided by continuing operations (729,563) (1,021,916)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (21,886)
Investment in patent protection (51,211) -
Investment in discontinued operations 73,876 (403,487)
----------------- ----------------
Net cash (used in) provided by investing activities 22,665 (425,373)
----------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 707,107 1,344,340
Proceeds from short-term borrowings 33,214 -
Repayments of short-term borrowings - -
----------------- ----------------
Net cash (used in) provided by financing Activities 740,321 1,344,340
----------------- ----------------
NET (DECREASE) INCREASE IN CASH 33,423 (102,949)
CASH
Beginning of period 32,619 102,949
----------------- ----------------
End of period $ 66,042 $ -
================= ================
Supplemental schedule of non-cash investing and financing activities:
Debt satisfied with stock $ 100,000 $ 419,143
Note payable issued in satisfaction of accrued liabilities $ 350,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
5
TSET, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Retained
Common Stock Capital in Earnings Total
-------------------- Excess of Par (Accumulated Shareholders'
Shares Amount Value Deficit) Equity (Deficit)
----------------------------------------------------------------------
BALANCE at June 30, 2001 34,000,978 $ 34,001 $ 12,418,350 $ (11,973,785) $ 478,566
Shares issued on July 6, 2001 for cash 238,806 239 79,761 80,000
Shares issued on July 20, 2001 as compensation 250 - 113 113
Shares issued on October 1, 2001 for consulting services 360,000 360 100,440 100,800
Shares issued on October 1, 2001 as compensation 2,250 2 1,446 1,448
Shares issued on October 1, 2001 for cash 1,000,000 1,000 446,982 447,982
Shares issued on November 30, 2001 for cash 100,000 100 23,400 23,500
Shares issued on December 10, 2001 for cash 50,000 50 10,950 11,000
Shares issued on December 12, 2001 for cash 100,000 100 20,900 21,000
Shares issued on December 13, 2001 for cash 75,000 75 16,050 16,125
Shares issued on December 14, 2001 for cash 500,000 500 107,000 107,500
Net loss for the period ended December 31, 2001 (2,281,233) (2,281,233)
--------------------------------------------------------------------
BALANCE at December 31, 2001 36,427,284 $ 36,427 $ 13,225,392 $ (14,255,018) $ (993,199)
=====================================================================
The accompanying notes are an integral part of this financial statement.
6
TSET, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - ACCOUNTING MATTERS
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments necessary to present
fairly the information set forth therein have been included. Operating results
for the three-month and six-month periods ended December 31, 2001 are not
necessarily indicative of the results that may be experienced for the fiscal
year ending June 30, 2002.
These financial statements are those of the Company and its wholly owned
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in the preparation of the consolidated financial statements. Aperion
Audio, Inc. is disclosed as discontinued operations in these financial
statements.
The accompanying financial statements should be read in conjunction with
the TSET, Inc. Form 10K for the fiscal year ended June 30, 2001 filed on October
15, 2001.
RECENT ACCOUNTING PRONOUNCEMENTS. On July 20, 2001, the FASB issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." These statements make significant changes to the accounting
for business combinations, goodwill, and intangible assets.
SFAS No. 141 establishes new standards for accounting and reporting
requirements for business combinations and will require that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001. Use of the pooling-of-interests method will be prohibited. This statement
is effective for business combinations initiated after June 30, 2001.
SFAS No. 142 establishes new standards for goodwill acquired in a business
combination, eliminates amortization of goodwill and instead sets forth methods
to periodically evaluate goodwill for impairment. Intangible assets with a
determinable useful life will continue to be amortized over that period. The
Company expects to adopt this statement during the quarter ending September 30,
2002. Goodwill and intangible assets acquired after June 30, 2001 will be
subject immediately to the non-amortization and amortization provisions of the
statement. The Company does not currently have any goodwill recorded on its
financial statements and it is expected that there will be no immediate impact
on the Company's financial statements as a result of the adoption of this
statement.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 143, "Accounting for Asset Retirement
Obligations." This statement addresses the financial accounting and reporting
for the retirement of tangible long-lived assets and the associated asset
retirement costs. The Company believes the adoption of SFAS 143 will have no
significant impact on its financial statements.
In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard (SFAS) No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
The Company believes the adoption of SFAS 144 will have no significant impact on
its financial statements.
7
NOTE 2 -- INCOME TAXES
The composition of deferred tax assets and the related tax effects at
December 31 and June 30, 2001 are as follows:
December 31, 2001 June 30, 2001
----------------- -------------
Benefit from carryforward of net
operating losses $ 2,710,439 $ 2,225,520
Other temporary differences 1,008,189 1,008,189
Less:
Valuation allowance (3,718,628) (3,233,709)
--------------- --------------
Net deferred tax asset $ - $ -
================= ==============
The other temporary differences shown above relate primarily to loss on
discontinued operations, impairment reserves for intangible assets, and accrued
and deferred compensation. The difference between the income tax benefit in the
accompanying statements of operations and the amount that would result if the
U.S. Federal statutory rate of 34% were applied to pre-tax loss is as follows:
December 31, 2001 June 30, 2001
------------------------------------------------------
% of pre-tax % of pre-tax
Amount Loss Amount Loss
------------------------------------------------------
Benefit for income tax at
federal statutory rate $ 775,619 34.0% $ 3,374,793 34.0%
Non-deductible expenses (290,700) (12.7)% (357,007) (3.6)%
Disposed subsidiary NOL - - (578,370) (5.2)%
Increase in valuation allowance (484,920) (21.3)% (2,439,416) (24.6)%
------------------------------------------------------
$ - 0.0% $ - 0.0%
======================================================
The non-deductible expenses shown above related primarily to the
amortization of intangible assets and to the accrual of stock options for
compensation using different valuation methods for financial and tax reporting
purposes.
At December 31, 2001, for federal income tax and alternative minimum tax
reporting purposes, the Company has approximately $7.2 million of unused net
operating losses available for carryforward to future years. The benefit from
carryforward of such net operating losses will expire in various years between
2011 and 2023 and could be subject to limitations if significant ownership
changes occur in the Company. Of the $7.2 million of unused net operating losses
noted above, approximately $153,000 relates to losses incurred by the Company's
subsidiary, EdgeAudio. In fiscal years prior to June 30, 2000, EdgeAudio did not
file its tax returns on a consolidated basis with the Company. Accordingly, the
$153,000 loss incurred by EdgeAudio is further subject to separate limitations
that restrict the ability of the Company to use such losses.
NOTE 3 - SEGMENTS OF BUSINESS
The Company operates principally in one segment of business: The Kronos
segment licenses, manufactures and distributes air movement and purification
devices utilizing the Kronos(TM) technology. All other segments have been
disposed of or discontinued. In the six months ended December 31, 2001, the
Company operated only in the U.S.
NOTE 4 - EARNINGS PER SHARE
As of December 31, 2001, there were outstanding options to purchase
1,923,975 shares of the Company's common stock. These options have been excluded
from the earnings per share calculation as their effect is anti-dilutive.
NOTE 5 - DISCONTINUED OPERATIONS
In early January 2001, management committed to a formal plan of action to
sell or otherwise dispose of Atomic Soccer. Agreement was reached with a buyer
group, that included current and former Atomic Soccer management, to sell them
the outstanding shares of common stock of Atomic Soccer for $1,000. The
transaction was effective on April 11, 2001. On September 14, 2001 the board
8
approved a formal plan of action to sell or otherwise dispose of Aperion Audio
(formerly EdgeAudio). The Company has accrued $150,000 for anticipated operating
loses during the phase-out period. As a result, both Atomic Soccer and Aperion
are included in the financial statements as discontinued operations.
The Company's audited consolidated financial statements for all periods
have been reclassified to report separately results of operations and operating
cash flows from continuing operations and the discontinued operations. The net
revenues are included in the financial statements under Net Income (Loss) from
Discontinued Operations. The assets and liabilities of Aperion at December 31,
2001 are included in the balance sheet Net Liabilities of Discontinued
Operations. Net assets of discontinued operations at December 31, 2001 and
operating results of discontinued operations for the six-months ended December
31, are as follows:
Net Liabilities of Discontinued Operations
Aperion Audio
-------------
Current Assets $ 422,541
Net Property and Equipment 46,268
Current Liabilities (682,893)
Minority Interest (527,342)
-----------
Net Assets (Liabilities) $ (741,426)
===========
Operating Resulting of Discontinued Operations:
For the six months ended December 31,
2001 2000
--------- -------------------------------------
Aperion Atomic Aperion Total
--------- ---------- ---------- -----------
Sales $ 410,512 $ 466,565 $ 368,225 $ 834,790
Cost of Sales (143,816) (295,177) (191,222) (486,399)
Depn and Amort (6,618) (143,598) (129,868) (273,466)
General and Admin (356,892) (266,397) (645,628) (912,025)
--------- ---------- ---------- -----------
Operating Income (Loss) (96,813) (238,607) (598,423) (837,100)
Other Income 21,360 735 - 735
Interest Expense (16,247) (42,357) (6,873) (49,230)
Provision for Future
Operating Losses 73,361 - - -
Minority Interest 18,340 - 95,100 95,100
--------- ---------- ---------- -----------
Income (Loss) Pre-Tax 0 (280,229) (510,266) (790,495)
Income Taxes - - - -
Loss From Discontinued
Operations $ 0 $(280,229) $(510,266) $(790,495)
========= ========== ========== ===========
NOTE 6 - NOTES PAYABLE
On October 15, 2001, the Company entered into an agreement with Jeffrey D.
Wilson pursuant to which the Company issued a promissory note for compensation
which was accrued but not paid to him during the time he served as an executive
officer of the Company. The amount of the note is $350,000 and is disclosed in
the financial statements as follows:
Notes payable, current portion $ 80,000
Notes payable 270,000
---------
Total note payable $350,000
=========
9
NOTE 7 - ISSUANCE OF WARRANTS
On July 9, 2001, the Company signed an agreement to utilize the strategic
planning and business plan execution services of The Eagle Rock Group, LLC. The
Eagle Rock Group will work with the Kronos Air Technologies team to fully
develop and capitalize the KronosTM technology.
Pursuant to the agreement that we entered into with The Eagle Rock Group,
we issued to The Eagle Rock Group a ten-year warrant granting them the right to
purchase 1,400,000 shares of our common stock at an exercise price of $0.68 per
share. The warrant was valued at $686,000 using the Black-Scholes option
valuation mode and was initially recorded as deferred equity compensation to
amortized into current period professional services expense at a rate of
$137,200 per month over 5 months. Amortization for the three-months and
six-months ended December 31, 2001 was $274,400 and $411,600, respectively. The
shares underlying the warrant have piggy-back and demand registration rights, as
well as subscription rights in the event that we issue any rights to all of our
stockholders to subscribe for shares of our common stock. In addition, the
warrant contains redemption rights in the event that we enter into a transaction
that results in a change of control of our company.
NOTE 8 - SUBSEQUENT EVENTS
On January 11, 2002, Aperion Audio, Inc. (f/k/a EdgeAudio.com, Inc.), a
company to which TSET owns common shares, initiated arbitration in a dispute
over the Agreement and Plan of Reorganization between the parties. Aperion
Audio, Inc. requests damages of $213,900 plus consequential damages. Discovery
is ongoing.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This filing contains forward-looking statements, including statements
regarding, among other things: (a) the growth strategies of TSET, Inc., d/b/a
Kronos Advanced Technologies (the "Company" or "Kronos"); (b) anticipated trends
in our Company's industry; (c) our Company's future financing plans; and (d) our
Company's ability to obtain financing and continue operations. In addition, when
used in this filing, the words "believes," "anticipates," "intends," "in
anticipation of," and similar words are intended to identify certain
forward-looking statements. These forward-looking statements are based largely
on our Company's expectations and are subject to a number of risks and
uncertainties, many of which are beyond our Company's control. Actual results
could differ materially from these forward-looking statements as a result of
changes in trends in the economy and our Company's industry, reductions in the
availability of financing and other factors. In light of these risks and
uncertainties, there can be no assurance that the forward-looking statements
contained in this filing will in fact occur. Our Company does not undertake any
obligation to publicly release the results of any revision to these
forward-looking statements that may be made to reflect any future events or
circumstances.
GENERAL
Historically, we had been seeking select business opportunities globally
among a wide range of prospects. Over the past two years, we made several
investments, including Kronos Air Technologies, Inc. and EdgeAudio.com, Inc.
After further evaluation of these investments, we believe our investment in and
the full development of Kronos Air Technologies and the KronosTM technology
represents the single best opportunity for us. As a result, we have prioritized
our management and financial resources to fully capitalize on this investment
opportunity. Effective October 10, 2001, Jeffrey D. Wilson resigned as Chairman
of the Board and Chief Executive Officer of the Company, as well as Chairman of
the Board of Kronos Air Technologies and EdgeAudio, respectively. Effective
December 31, 2001, Erik W. Black resigned as Executive Vice-President of the
Company. Messrs. Wilson and Black remain as directors of the Company. Effective
November 15, 2001, Daniel R. Dwight was appointed President and Chief Executive
Officer of Kronos. A more detailed explanation of Kronos Air Technologies and
the current status of EdgeAudio and the other investments made by us are
discussed below.
We have reorganized our Company to prioritize and focus management and
financial resources on Kronos Air Technologies and the KronosTM technology. This
reorganization has resulted in the decision to sell or to no longer pursue other
investment opportunities previously identified. We sold our investment in Atomic
Soccer in April 2001; decided not to pursue investments in Cancer Detection
International, Electric Management Units, and Cancer Treatment Centers in July
2001; established a formal plan to dispose of EdgeAudio in September 2001; and
terminated by mutual consent of both parties a contract to distribute
Computerized Thermal Imaging equipment in August 2000.
Based on our decision to focus our resources on Kronos Air Technologies,
several actions were taken, most of which impacted the results of operations. On
April 11, 2001, we sold Atomic Soccer. The sale resulted in a loss of
$2,297,000. During our fourth quarter of 2001, we determined that the assets of
EdgeAudio were impaired and we recognized an impairment loss of $2,294,000. On
September 14, 2001, the board authorized management to pursue a formal plan for
disposal of EdgeAudio. The anticipated loss from operations during the phase-out
period is $150,000. We do not anticipate a loss on the sale of EdgeAudio. Based
upon our decision to discontinue development of Cancer Detection International
and, we have recognized an impairment loss of the remaining goodwill of $273,000
associated with that investment.
On January 18, 2002, we began trading shares of our common stock under a
new ticker symbol (KNOS). At the same time, we announced that our Company will
be doing business under the name of Kronos Advanced Technologies, Inc. We
anticipate asking our shareholders to vote for the approval of an amendment to
our Articles of Incorporation for a name change of our Company to Kronos
Advanced Technologies at our annual meeting in 2002.
Kronos Air Technologies is focused on the development and
commercialization of an air movement and purification technology known as
KronosTM that is more fully described below. The KronosTM technology operates
through the application of high-voltage management across paired electrical
grids that creates an ion exchange which move air and gases at high velocities
while removing odors, smoke, and particulates, as well as killing pathogens,
including bacteria. We believe the technology is cost-effective and is more
11
energy-efficient than current alternative fan and filter technologies. KronosTM
has multiple U.S. and international patents pending.
The KronosTM device is comprised of state-of-the-art high-voltage
electronics and electrodes attached to one or more sets of corona and target
electrodes housed in a self-contained casing. The device can be flexible in
size, shape and capacity and can be used in embedded electronic devices,
standalone room devices, and integrated HVAC and industrial applications. The
KronosTM device has no moving parts or degrading elements and is composed of
cost-effective, commercially available components.
The KronosTM technology combines the benefits of silent air movement, air
cleaning, and odor removal. Because the KronosTM air movement system is a
silent, non-turbulent, and energy-efficient air movement and cleaning system, we
believe that it is ideal for air circulation, cleaning and odor removal in all
types of buildings as well as compact, sealed environments such as airplanes,
submarines and cleanrooms. Additionally, because it has no moving parts or fans,
a KronosTM device can instantly block or reverse the flow of air between
adjacent areas for safety in hazardous or extreme circumstances.
The U.S. Department of Defense and Department of Energy have provided
Kronos Air Technologies with various grants and contracts to develop, test and
evaluate the KronosTM technology. Since May 2001, the total potential value of
Small Business Innovation Research (SBIR) contracts awarded to Kronos Air
Technologies has been $1.7 million. In December 2001, Kronos Air Technologies
was awarded an SBIR contract sponsored by the U.S. Army. This contract is
potentially worth up to $850,000 in product development and testing support for
Kronos Air Technologies. Phase One of the contract is worth up to $120,000 in
funding to investigate and analyze the feasibility of the KronosTM technology to
reduce humidity in heating, ventilation and air conditioning (HVAC) systems.
Dehumidification is essential to making HVAC systems more energy efficient.
Phase Two of the contract is worth up to $730,000 in additional funding for
product development and testing.
In May 2001, Kronos Air Technologies was awarded its first SBIR contract
sponsored by the U.S. Navy. That contract is potentially worth $837,000 in
product development and testing support. The first phase of the contract is
worth up to $87,000 in funding for manufacturing and testing prototype devices
for air movement and ventilation onboard naval vessels. The second phase of the
contract is worth up to $750,000 in additional funding. In January 2002, Kronos
Air Technologies received a Phase II invitation letter for this grant with a
potential $750,000 commitment. The KronosTM devices manufactured under this
contract will be embedded in an existing HVAC systems to move air more
efficiently than the traditional, fan based technology.
RESULTS OF OPERATIONS
The Company's net loss from continuing operations for the current year
second quarter and six months was $1.2 million and $2.3 million, respectively,
compared with a net loss of $0.9 million and $1.5 million for the corresponding
periods of the prior year. The increase in the net loss was the result of
increased professional fees and consulting services offset by a decrease in
salaries and other general and administrative expenses.
REVENUE. Revenues are generated through sales of KronosTM devices at
Kronos Air Technologies, Inc. Revenue for the current year second quarter was
$40,000 and for the current year six months was $65,000. No revenue was recorded
during the corresponding periods of the prior year. These revenues were
primarily from our U.S. Navy Small Business Innovative Research contract.
COST OF SALES. Cost of sales for the current year second quarter was
$40,000 and $50,000 for the current year six months, respectively. Cost of sales
is primarily research and development costs associated with our U.S. Navy Small
Business Innovative Research contract.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, General and
Administrative expenses in the current year second quarter and six months
increased $269,000 and $786,000, respectively, to $1.2 million and $2.3 million.
The increase in the current year second quarter was primarily due to non-cash
stock warrants to the Eagle Rock Group of $411,600, non-cash stock
options/grants of $25,000 and cash-based fees paid/accrued to management
consultants, legal and accounting professionals engaged by the company of
$176,000. This was partially offset by a reduction in payroll and related costs
of $291,000. The increase for the current year six months was primarily due to
non-cash stock warrants to the Eagle Rock Group of $686,000, non-cash stock
options/grants of $56,000 and cash-based fees paid/accrued to management
consultants, legal and accounting professionals engaged by the company of
$496,000. This was partially offset by a reduction in payroll and related costs
of $418,000 and a reduction in travel related costs of $63,000.
12
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 2001
Our total assets at December 31, 2001 were $3.2 million compared with $3.1
million at June 30, 2001, an increase of $100,000. Total assets at December 31,
2001 were comprised primarily of $2.4 million of patents/intellectual property
and $588,000 of deferred financing fees. Total assets at June 30, 2001 were
comprised primarily of $2.4 million of patents/intellectual property and
$520,800 of deferred financing fees. Total current assets at December 31, 2001
and June 30, 2001 were $206,000 and $70,000, respectively, while total current
liabilities for those same periods were $2.5 million and $1.9 million,
respectively, creating a working capital deficit of $2.3 million and $1.9
million at each respective period end. This working capital deficit is primarily
due to accrued expenses for compensation, management consulting and other
professional services. Shareholders' equity as of December 31, 2001 and June 30,
2001 was $(993,000) and $479,000, respectively, representing a decrease of $1.4
million. The decrease in shareholders' equity is primarily the result of
incurring a $2.3 million loss from continuing operations for the six months
ended December 31, 2001, partially offset through the sale and issuance of
$809,000 of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Historically we have relied principally on the sale of common stock to
finance our operations. Going forward, in addition to continued sales of common
stock, we plan to rely on the proceeds from Small Business Innovation Research
(SBIR) contracts with the U.S. Navy and Army as well as other government
contracts and grants, and cash flow generated from the sale of KronosTM devices.
We have also entered into a common stock purchase agreement with Fusion Capital
under which we have the right, subject to certain conditions, to draw down
approximately $12,500 per day from the sale of common stock to Fusion Capital.
The SBIR contracts are potentially worth up to $1.7 million in product
development and testing support for Kronos Air Technologies. The first phase of
the contracts is worth up to $207,000 in funding. If awarded to Kronos Air
Technologies, the second phase of the contracts would be worth up to $1.5
million in additional funding. In January 2002, Kronos Air Technologies received
a Phase II invitation letter for this grant with a potential $750,000
commitment.
Net cash flow used on operating activities was $1.1 million for the
current year six months. We were able to satisfy some of our cash requirements
for this period through the issuance and sale of our common stock.
On June 19, 2001, we entered into a common stock purchase agreement with
Fusion Capital. Pursuant to the common stock purchase agreement, Fusion Capital
has agreed to purchase on each trading day during the term of the agreement,
$12,500 of our common stock or an aggregate of $10.0 million. The $10.0 million
of our common stock is to be purchased over a 40-month period, subject to a
six-month extension or earlier termination at our sole discretion and subject to
certain events. The purchase price of the shares of common stock will be equal
to a price based upon the future market price of our common stock without any
fixed discount to the then-current market price. On November 13, 2001, the
common stock purchase agreement was amended to establish a floor price. Fusion
Capital is obligated to purchase shares under the agreement as long as the share
price exceeds a floor of $0.25. We plan to draw down as much as $3.0 million
annually from Fusion Capital which management believes should more than offset
our operating cash flow deficits. However, there can be no assurance of how much
cash we will receive, if any, under the common stock purchase agreement with
Fusion Capital.
GOING CONCERN OPINION
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the 2001 and 2000 financial statements
that states that we do not have significant cash or other material assets to
cover our operating costs. Our ability to obtain additional funding will largely
determine our ability to continue in business. Accordingly, there is substantial
doubt about our ability to continue as a going concern. Our financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
We can make no assurance that we will be able to successfully transition
from research and development to manufacturing and selling commercial products
on a broad basis. While attempting to make this transition, we will be subject
to all the risks inherent in a growing venture, including, but not limited to,
the need to develop and manufacture reliable and effective products, develop
marketing expertise and expand our sales force.
CERTAIN RISK FACTORS
Our Company is subject to various risks which may materially harm our
business, financial condition and results of operations. Certain risks are
discussed below.
13
WE HAVE A LIMITED OPERATING HISTORY WITH SIGNIFICANT LOSSES AND EXPECT LOSSES
TO CONTINUE FOR THE FORESEEABLE FUTURE
We have only recently begun implementing our plan to prioritize and
concentrate our management and financial resources to fully capitalize on our
investment in Kronos Air Technologies and have yet to establish any history of
profitable operations. We incurred a net operating loss of $2.2 million for the
current year six months. We have incurred net losses from continuing operations
of $3.6 million and $1.4 million for the fiscal years ended June 31, 2001 and
2000. We have incurred net losses from continuing operations of $1.2 million for
the three months ended December 31, 2001. We have incurred annual operating
losses of $9.9 million, $2.0 million and $52,000 respectively, during the past
three fiscal years of operation. As a result, at December 31, 2001 and June 30,
2001 we had an accumulated deficit of $14.3 million and $12.0 million,
respectively. Our revenues have not been sufficient to sustain our operations.
We expect that our revenues will not be sufficient to sustain our operations for
the foreseeable future. Our profitability will require the successful
commercialization of our KronosTM technology. No assurances can be given when
this will occur or that we will ever be profitable.
Our independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the financial statements for the years
ended June 30, 2001 and June 30, 2000 relative to our ability to continue as a
going concern. Our ability to obtain additional funding will determine our
ability to continue as a going concern. Our financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
WE WILL REQUIRE ADDITIONAL FINANCING TO SUSTAIN OUR OPERATIONS AND WITHOUT IT WE
WILL NOT BE ABLE TO CONTINUE OPERATIONS
At December 31, 2001 we had a working capital deficit of $2.3 million. At
June 30, 2001 we had a working capital deficit of $1.9 million. The independent
auditor's report for the years ended June 30, 2001 and June 30, 2000, includes
an explanatory paragraph to their audit opinion stating that our recurring
losses from operations and working capital deficiency raise substantial doubt
about our ability to continue as a going concern. We had an operating cash flow
deficit of $11,000 in 1999, an operating cash flow deficit of $288,000 in 2000
and an operating cash flow deficit of $1.6 million in 2001. We do not currently
have sufficient financial resources to fund our operations or those of our
subsidiaries. Therefore, we need additional funds to continue these operations.
We only have the right to receive $12,500 per trading day under the common
stock purchase agreement unless our stock price equals or exceeds $3.00, in
which case the daily amount may be increased at our option. Since we initially
registered 5,000,000 shares for sale by Fusion Capital pursuant to the common
stock purchase agreement, the selling price of our common stock to Fusion
Capital will have to average at least $2.00 per share for us to receive the
maximum proceeds of $10,000,000 without registering additional shares of common
stock or filing a post-effective amendment with respect to the number of shares
registered. On November 13, 2001, Fusion Capital established a floor price of
$0.25 under the common stock purchase agreement. Fusion Capital, therefore, has
no obligation to purchase shares under the common stock purchase agreement if
the price would be less than the floor price. Assuming a purchase price of $0.25
per share (the floor price) and the purchase by Fusion Capital of the full
5,000,000 shares under the common stock purchase agreement, proceeds to us would
only be $1,250,000 unless we choose to register more than 5,000,000 shares,
which we have the right, but not the obligation, to do. The extent we rely on
Fusion Capital as a source of funding will depend on a number of factors
including, the prevailing market price of our common stock and the extent to
which we are able to secure working capital from other sources, such as through
the sale of our KronosTM air movement and purification systems. If obtaining
sufficient financing from Fusion Capital were to prove prohibitively expensive
and if we are unable to commercialize and sell the products or technologies of
our subsidiaries, we will need to secure another source of funding in order to
satisfy our working capital needs. Even if we are able to access the funds
available under the common stock purchase agreement, we may still need
additional capital to fully implement our business, operating and development
plans. Should the financing we require to sustain our working capital needs be
unavailable or prohibitively expensive when we require it, the consequences
would be a material adverse effect on our business, operating results, financial
condition and prospects.
14
WE HAVE VERY LIMITED SALES AND MARKETING CAPABILITIES FOR OUR KRONOSTM PRODUCTS
AND OUR FAILURE TO DEVELOP ANY OF THESE CAPABILITIES WOULD HAVE A MATERIAL
ADVERSE EFFECT ON OUR BUSINESS
We have no experience marketing or distributing commercial quantities of
our Kronos Air Technologies' products. Kronos Air Technologies does not have any
relationships with third parties to market or distribute the KronosTM products.
If Kronos Air Technologies is unable to hire sales and marketing personnel or if
it cannot enter into satisfactory arrangements with third parties to market and
distribute the KronosTM products on commercially reasonable terms, the
consequences would be a material adverse effect on our business, operating
results, financial condition and prospects. There can be no assurance that we
will be able to hire sales and marketing personnel or be able to enter into
satisfactory arrangements with third parties to market and distribute the
KronosTM products.
COMPETITION IN THE MARKET FOR AIR MOVEMENT AND PURIFICATION DEVICES MAY RESULT
IN THE FAILURE OF THE KRONOSTM PRODUCTS TO ACHIEVE MARKET ACCEPTANCE
Kronos Air Technologies presently faces competition from other companies
that are developing or that currently sell air movement and purification
devices. Many of these competitors have substantially greater financial,
research and development, manufacturing, and sales and marketing resources than
we do. Many of the products sold by Kronos Air Technologies' competitors already
have brand recognition and established positions in the markets that we have
targeted for penetration. There can be no assurance that the KronosTM products
will compete favorably with the products sold by our competitors.
OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," SUBJECT TO SPECIAL REQUIREMENTS
AND CONDITIONS, AND MAY NOT BE A SUITABLE INVESTMENT
Our common stock is deemed to be "penny stock" as that term is defined in
Rule 3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks
are stocks:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last
three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to resell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
WE RELY ON MANAGEMENT AND KRONOS AIR TECHNOLOGIES RESEARCH PERSONNEL, THE LOSS
OF WHOSE SERVICES COULD HAVE A MATERIAL ADVERSE EFFECT UPON OUR BUSINESS
We rely principally upon the services of our Board of Directors, senior
executive management, and certain key employees, including the Kronos Air
Technologies research team, the loss of whose services could have a material
adverse effect upon our business and prospects. Competition for appropriately
qualified personnel is intense. Our ability to attract and retain highly
qualified senior management and technical research and development personnel are
believed to be an important element of our future success. Our failure to
attract and retain such personnel may, among other things, limit the rate at
which we can expand operations and achieve profitability. There can be no
assurance that we will be able to attract and retain senior management and key
employees having competency in those substantive areas deemed important to the
successful implementation of our plans to fully capitalize on our investment in
Kronos Air Technologies and the KronosTM technology, and the inability to do so
or any difficulties encountered by management in establishing effective working
relationships among them may adversely affect our business and prospects.
Currently, we do not carry key person life insurance for any of our directors,
executive management, or key employees.
15
THE SALE OF OUR COMMON STOCK TO FUSION CAPITAL MAY CAUSE DILUTION AND THE SALE
OF THE SHARES OF COMMON STOCK ACQUIRED BY FUSION CAPITAL COULD CAUSE THE PRICE
OF OUR COMMON STOCK TO DECLINE
The purchase price for the common stock to be issued to Fusion Capital
pursuant to the common stock purchase agreement will fluctuate based on the
price of our common stock. All shares issued to Fusion Capital will be freely
tradable. Fusion Capital may sell none, some or all of the shares of common
stock purchased from us at any time. We expect that the shares sold to Fusion
Capital will be sold over a period of up to 40 months from the date of the
common stock purchase agreement. Depending upon market liquidity at the time, a
sale of shares by Fusion Capital at any given time could cause the trading price
of our common stock to decline. The sale of a substantial number of shares of
our common stock by Fusion Capital, or anticipation of such sales, could make it
more difficult for us to sell equity or equity-related securities in the future
at a time and at a price that we might otherwise wish to effect sales.
OUR FAILURE TO FILE FEDERAL AND STATE INCOME TAX RETURNS FOR CALENDAR YEARS 1997
THROUGH 2001 MAY RESULT IN THE IMPOSITION OF INTEREST AND PENALTIES
We failed to file federal and state income tax returns for calendar years
1997 through 2000, respectively. We believe that we had operating losses for
each year during the period 1997 through 2000, and that there are no expected
income taxes due and owing for those years. We anticipate filing these returns
in 2002. When filed, these returns could be subject to review and potential
examination by the respective taxing authorities. Should any of these returns
come under examination by federal or state authorities, our positions on certain
income tax issues could be challenged. The impact, if any, of the potential
future examination cannot be determined at this time. If our positions are
successfully challenged, the results may have a material impact on our financial
position and results of operations.
16
PART II
ITEM 1. LEGAL PROCEEDINGS
On February 2, 2001, we initiated legal proceedings in Clackamas County,
Oregon against W. Alan Thomson, Ingrid T. Fuhriman, and Robert L. Fuhriman II,
each of whom were formerly executive officers and members of the Board of
Directors of Kronos Air Technologies. This suit alleges breach of fiduciary
duties and breach of contract by these individuals, and seeks, among other
things, relief of claims. Thomson, Fuhriman and Fuhriman have filed for
enforcement of their respective employment agreements and related damages.
Pursuant to those agreements, the proceedings have been moved into arbitration
in King County, Washington, and arbitrators have been selected. Discovery is
ongoing.
On January 11, 2002, Aperion Audio, Inc. (f/k/a EdgeAudio.com, Inc.), a
company to which Kronos Advanced Technologies owns common shares, initiated
arbitration in a dispute over the Agreement and Plan of Reorganization between
the parties. Aperion Audio, Inc. requests damages of $213,900 plus consequential
damages. Discovery is ongoing.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 1, 2001, we authorized the issuance of 360,000 common shares
pursuant to a consulting agreement, valued at $.28 per share (the fair market
value for our shares as of such date), at an aggregate value of $100,800, to
Fusion Capital LLC, in exchange for consulting services.
On October 1, 2001, we authorized the issuance of 1,000,000 common shares
pursuant to a pledge, valued at $.448 per share, at an aggregate value of
$447,982, to Fusion Capital, LLC, in exchange for $447,982 cash.
On October 1, 2001, we issued 2,250 common shares, valued $.452 per share
(the fair market value for 1,000 of our shares on April 9, 2001 and 1,250 of our
shares on September 7, 2001), at an aggregate value of $1.447.50, to an employee
of the Company, as compensation.
From November 30, 2001 through December 14, 2001, we issued 825,000 common
shares, at an average value of $0.21712 per share, at an aggregate value of
$179,125, to Fusion Capital, LLC pursuant to the Common Stock Purchase Agreement
between our Company and Fusion Capital, in exchange for $179,125 in cash.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. EXHIBITS
EXHIBIT
NO. DESCRIPTION LOCATION
--------- ---------------------------------- ---------------------------------
2.1 Articles of Merger for Technology Incorporated by reference to
Selection, Inc. with the Nevada Exhibit 2.1 to the Registrant's
Secretary of State Registration Statement on Form
S-1 filed on August 7, 2001 (the
"REGISTRATION STATEMENT")
----------------------
3.1 Articles of Incorporation Incorporated by reference to
Exhibit 3.1 to the Registration
Statement on Form S-1 filed on
August 7, 2001
17
EXHIBIT
NO. DESCRIPTION LOCATION
--------- ---------------------------------- ---------------------------------
3.2 Bylaws Incorporated by reference to
Exhibit 3.2 to the Registration
Statement on Form S-1 filed on
August 7, 2001
5.1 Opinion re: Legality Incorporated by reference to
Exhibit 5.1 to Amendment No. 1
to Form S-1 filed on October 19,
2001
10.1 Employment Agreement, dated April 16, Incorporated by reference to
1999, by and between TSET, Inc. and Exhibit 10.1 to the Registration
Jeffrey D. Wilson Statement on Form S-1 filed on
August 7, 2001
10.2 Deal Outline, dated December 9, 1999, Incorporated by reference to
by and between TSET, Inc. and Atomic Exhibit 10.2 to the Registration
Soccer, USA, Ltd. Statement on Form S-1 filed on
August 7, 2001
10.3 Letter of Intent, dated December 27, Incorporated by reference to
1999, by and between TSET, Inc. and Exhibit 10.3 to the Registration
Electron Wind Technologies, Inc. Statement on Form S-1 filed on
August 7, 2001
10.4 Agreement, dated February 5, 2000, by Incorporated by reference to
and between DiAural, LLC and Exhibit 10.4 to the Registration
EdgeAudio, LLC Statement on Form S-1 filed on
August 7, 2001
10.5 Stock Purchase Agreement, dated March Incorporated by reference to
6, 2000, by and among TSET, Inc., Exhibit 10.5 to the Registration
Atomic Soccer USA, Ltd., Todd P. Statement on Form S-1 filed on
Ragsdale, James Eric Anderson, Jewel August 7, 2001
Anderson, Timothy Beglinger and Atomic
Millennium Partners, LLC
10.6 Acquisition Agreement, dated March 13, Incorporated by reference to
2000, by and among TSET, Inc., High Exhibit 10.6 to the Registration
Voltage Integrated, LLC, Ingrid Statement on Form S-1 filed on
Fuhriman, Igor Krichtafovitch, Robert August 7, 2001
L. Fuhriman and Alan Thompson
10.7 Letter of Intent, dated April 18, 2000, Incorporated by reference to
by and between TSET, Inc. and Exhibit 10.7 to the Registration
EdgeAudio.com, Inc. Statement on Form S-1 filed on
August 7, 2001
10.8 Lease Agreement, dated May 3, 2000, by Incorporated by reference to
and between Kronos Air Technologies, Exhibit 10.8 to the Registration
Inc. and TIAA Realty, Inc. Statement on Form S-1 filed on
August 7, 2001
10.9 Agreement and Plan of Reorganization, Incorporated by reference to
dated May 4, 2000, by and among TSET, Exhibit 10.9 to the Registration
Inc., EdgeAudio.com, Inc., LYNK Statement on Form S-1 filed on
Enterprises, Inc., Robert Lightman, J. August 7, 2001
David Hogan, Eric Alexander and Eterna
Internacional, S.A. de C.V.
10.10 Letter Agreement, dated May 4, 2000, by Incorporated by reference to
and between TSET, Inc. and Cancer Exhibit 10.10 to the
Detection International, LLC Registration Statement on Form
S-1 filed on August 7, 2001
10.11 Employment Agreement, dated May 19, Incorporated by reference to
2000, by and between TSET, Inc. and Exhibit 10.11 to the
Richard A. Papworth Registration Statement on Form
S-1 filed on August 7, 2001
10.12 Finders Agreement, dated August 21, Incorporated by reference to
2000, by and among TSET, Inc., Richard Exhibit 10.12 to the
F. Tusing and Daniel R. Dwight Registration Statement on Form
S-1 filed on August 7, 2001
18
EXHIBIT
NO. DESCRIPTION LOCATION
--------- ---------------------------------- ---------------------------------
10.13 Contract Services Agreement, dated June Incorporated by reference to
27, 2000, by and between Chinook Exhibit 10.13 to the
Technologies, Inc. and Kronos Air Registration Statement on Form
Technologies, Inc. S-1 filed on August 7, 2001
10.14 Letter of Intent, dated July 17, 2000, Incorporated by reference to
by and between Kronos Air Technologies, Exhibit 10.14 to the
Inc. and Polus Technologies, Inc. Registration Statement on Form
S-1 filed on August 7, 2001
10.15 Consulting Agreement, dated August 1, Incorporated by reference to
2000, by and among TSET, Inc., Richard Exhibit 10.15 to the
F. Tusing and Daniel R. Dwight Registration Statement on Form
S-1 filed on August 7, 2001
10.16 Preferred Stock Purchase Agreement, Incorporated by reference to
dated September 12, 2000, by and Exhibit 10.16 to the
between EdgeAudio.com, Inc. and Bryan Registration Statement on Form
Holbrook S-1 filed on August 7, 2001
10.17 Shareholders Agreement, dated September Incorporated by reference to
12, 2000, by and among TSET, Inc., Exhibit 10.17 to the
Bryan Holbrook and EdgeAudio.com, Inc. Registration Statement on Form
S-1 filed on August 7, 2001
10.18 Amendment to Agreement and Plan of Incorporated by reference to
Reorganization dated September 12, Exhibit 10.18 to the
2000, by and among TSET, Inc., Registration Statement on Form
EdgeAudio.com, Inc., LYNK Enterprises, S-1 filed on August 7, 2001
Inc., Robert Lightman, J. David Hogan,
Eric Alexander and Eterna
Internacional, S.A. de C.V.
10.19 Agreement Regarding Sale of Preferred Incorporated by reference to
Stock, dated November 1, 2000, by and Exhibit 10.19 to the
between EdgeAudio.com, Inc. and Bryan Registration Statement on Form
Holbrook S-1 filed on August 7, 2001
10.20 Amendment to Subcontract, dated Incorporated by reference to
December 14, 2000, by and between Bath Exhibit 10.20 to the
Iron Works and High Voltage Registration Statement on
Integrated Form S-1 filed on
August 7, 2001
10.21 Consulting Agreement, dated January 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.21 to the
Dwight, Tusing & Associates Registration Statement on Form
S-1 filed on August 7, 2001
10.22 Employment Agreement, dated March 18, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.22 to the
Alex Chriss Registration Statement on Form
S-1 filed on August 7, 2001
10.23 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.23 to the
Jeffrey D. Wilson Registration Statement on Form
S-1 filed on August 7, 2001
10.24 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.24 to the
Jeffrey D. Wilson Registration Statement on Form
S-1 filed on August 7, 2001
10.25 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.25 to the
Daniel R. Dwight Registration Statement on Form
S-1 filed on August 7, 2001
10.26 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.26 to the
Richard F. Tusing Registration Statement on Form
S-1 filed on August 7, 2001
10.27 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.27 to the
Charles D. Strang Registration Statement on Form
S-1 filed on August 7, 2001
19
EXHIBIT
NO. DESCRIPTION LOCATION
--------- ---------------------------------- ---------------------------------
10.28 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.28 to the
Richard A. Papworth Registration Statement on Form
S-1 filed on August 7, 2001
10.29 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.29 to the
Richard A. Papworth Registration Statement on Form
S-1 filed on August 7, 2001
10.30 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.30 to the
Erik W. Black Registration Statement on Form
S-1 filed on August 7, 2001
10.31 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and J. Exhibit 10.31 to the
Alexander Chriss Registration Statement on Form
S-1 filed on August 7, 2001
10.32 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.32 to the
Charles H. Wellington Registration Statement on Form
S-1 filed on August 7, 2001
10.33 Stock Option Agreement, dated April 9, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.33 to the
Igor Krichtafovitch Registration Statement on Form
S-1 filed on August 7, 2001
10.34 Letter Agreement, dated April 10, 2001, Incorporated by reference to
by and between TSET, Inc. and Richard Exhibit 10.34 to the
A. Papworth Registration Statement on Form
S-1 filed on August 7, 2001
10.35 Letter Agreement, dated April 12, 2001, Incorporated by reference to
by and between TSET, Inc. and Daniel R. Exhibit 10.35 to the
Dwight and Richard F. Tusing Registration Statement on Form
S-1 filed on August 7, 2001
10.36 Finders Agreement, dated April 20, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.36 to the
Bernard Aronson, d/b/a Bolivar Registration Statement on Form
International Inc. S-1 filed on August 7, 2001
10.37 Indemnification Agreement, dated May 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.37 to the
Jeffrey D. Wilson Registration Statement on Form
S-1 filed on August 7, 2001
10.38 Indemnification Agreement, dated May 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.38 to the
Daniel R. Dwight Registration Statement on Form
S-1 filed on August 7, 2001
10.39 Indemnification Agreement, dated May 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.39 to the
Richard F. Tusing Registration Statement on Form
S-1 filed on August 7, 2001
10.40 Indemnification Agreement, dated May 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.40 to the
Charles D. Strang Registration Statement on Form
S-1 filed on August 7, 2001
10.41 Indemnification Agreement, dated May 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.41 to the
Richard A. Papworth Registration Statement on Form
S-1 filed on August 7, 2001
10.42 Indemnification Agreement, dated May 1, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.42 to the
Erik W. Black Registration Statement on Form
S-1 filed on August 7, 2001
10.43 Stock Option Agreement, dated May 3, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.43 to the
Jeffrey D. Wilson Registration Statement on Form
S-1 filed on August 7, 2001
20
EXHIBIT
NO. DESCRIPTION LOCATION
--------- ---------------------------------- ---------------------------------
10.44 Common Stock Purchase Agreement, dated Incorporated by reference to
June 19, 2001, by and between TSET, Exhibit 10.44 to the
Inc. and Fusion Capital Fund II, LLC Registration Statement on Form
S-1 filed on August 7, 2001
10.45 Registration Rights Agreement, dated Incorporated by reference to
June 19, 2001, by and between TSET, Exhibit 10.45 to the
Inc. and Fusion Capital Fund II, LLC Registration Statement on Form
S-1 filed on August 7, 2001
10.46 Mutual Release and Settlement Incorporated by reference to
Agreement, dated July 7, 2001, by and Exhibit 10.46 to the
between TSET, Inc. and Foster & Price Registration Statement on Form
Ltd. S-1 filed on August 7, 2001
10.47 Letter Agreement, dated July 9, 2001, Incorporated by reference to
by and between TSET, Inc. and The Eagle Exhibit 10.47 to the
Rock Group, LLC Registration Statement on Form
S-1 filed on August 7, 2001
10.48 Finders Agreement, dated July 17, 2001, Incorporated by reference to
by and between TSET, Inc. and John S. Exhibit 10.48 to the
Bowles Registration Statement on Form
S-1 filed on August 7, 2001
10.49 Warrant Agreement, dated July 16, 2001, Incorporated by reference to
by and between TSET, Inc. and The Eagle Exhibit 10.49 to the
Rock Group, LLC Registration Statement on Form
S-1 filed on August 7, 2001
10.50 Agreement and Release, dated October Incorporated by reference to
10, 2001, by and between TSET, Inc. and Exhibit 10.50 to the
Jeffrey D. Wilson Registrant's Form 10-K for the
year ended June 30, 2001 filed
on October 15, 2001
10.51 Promissory Note dated October 10, 2001 Incorporated by reference to
payable to Mr. Jeffrey D. Wilson Exhibit 10.51 to the
Registrant's Form 10-K for
the year ended June 30, 2001
filed on October 15, 2001
10.52 Consulting Agreement, dated October 10, Incorporated by reference to
2001, by and between TSET, Inc. and Exhibit 10.52 to the
Jeffrey D. Wilson Registrant's Form 10-K for the
year ended June 30, 2001 filed
on October 15, 2001
10.53 Consulting Agreement effective Incorporated by reference to
October 1, 2001, by and among TSET, Exhibit 10.53 to the Registrant's
Inc., Steven G. Martin and Joshua Form 10-Q for the quarterly
B. Scheinfeld period ended September 30, 2001
filed on November 19, 2001
10.54 Letter Agreement dated November 13, Incorporated by reference to
2001 by and between TSET, Inc. and Exhibit 10.54 to the Registrant's
Fusion Capital Fund II, LLC Form 10-Q for the quarterly
period ended September 30, 2001
filed on November 19, 2001
11.1 Statement re: Computation of Earnings Not applicable
12.1 Statement re: Computation of Ratios Not applicable
15.1 Letter re: Unaudited Interim Financial Not applicable
Information
18.1 Letter re: Change in Accounting Not applicable
Principals
24.1 Power of Attorney Not applicable
27.1 Financial Data Schedule Not applicable
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATED: FEBRUARY 14, 2002 TSET, INC.
By: /s/ Daniel R. Dwight
-------------------------------------
Daniel R. Dwight
President and Chief Executive Officer
By: /s/ Richard A. Papworth
-------------------------------------
Richard A. Papworth
Chief Financial Officer
22