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 March 31, 2002
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.
----------
(Exact name of registrant as specified in its charter)
NEVADA 87-0440410
------ ----------
(State of other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
464 Common Street, Suite 301, Belmont, MA 02478
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 993-9965
- --------------------------------------------------- --------------
(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.
/ / Yes /X/ No
As of May 1, 2002, there were 39,564,188 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 nine months ended March 31, 2002.
2
TSET, INC
CONSOLIDATED BALANCE SHEETS
March 31,
2002 June 30,
(Unaudited) 2001
----------- -----------
ASSETS
Current Assets
Cash $ 9,721 $ 32,619
Accounts receivable, net -
Prepaids and other current assets 178,829 37,679
----------- -----------
Total Current Assets 188,550 70,298
----------- -----------
Property and Equipment 62,723 62,723
Less: Accumulated Depreciation (29,514) (18,016)
----------- -----------
Net Property and Equipment 33,209 44,707
----------- -----------
Other Assets
Intangibles 2,280,047 2,431,524
Deferred financing fees 556,152 520,800
----------- -----------
Total Other Assets 2,836,199 2,952,324
----------- -----------
Total Assets $ 3,057,958 $ 3,067,329
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,275,817 $ 323,045
Accrued expenses 877,642 1,284,268
Notes payable, current portion 343,900 313,900
----------- -----------
Total Current Liabilities 2,497,359 1,921,213
----------- -----------
Long Term Liabilities
Notes payable 250,000
----------- -----------
Total Long Term Liabilities 250,000
----------- -----------
Net liabilities of discontinued operations 747,550 667,550
----------- -----------
Total Liabilities 3,494,909 2,588,763
----------- -----------
Redeemable Warrants 686,000 -
Shareholders' Equity
Common stock, authorized 500,000,000 39,386 34,001
shares of $.001 par value
Capital in excess of par value 13,749,933 12,418,350
Deferred equity compensation -
Retained earnings (Accumulated deficit) (14,912,271) (11,973,785)
----------- -----------
Total Shareholders' Equity (1,122,951) 478,566
----------- -----------
Total Liabilities and Shareholders' Equity $ 3,057,958 $ 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 For the nine months
ended March 31, ended March 31,
--------------- ---------------
2002 2001 2002 2001
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
Sales $ - $ 5,000 $ 65,070 $ 5,000
Cost of sales - - 50,070 -
---------- ----------- ------------ ------------
Gross Margin - 5,000 15,000 5,000
---------- ----------- ------------ ------------
Selling, General and Administrative expenses:
Compensation and benefits 141,261 230,771 401,115 898,717
Research and development 58,682 16,038 197,516 127,905
Professional services 225,078 187,088 1,750,454 474,170
Depreciation and amortization 71,674 80,544 215,021 220,738
Other selling general & administrative expenses 126,256 165,576 321,401 435,456
---------- ----------- ------------ ------------
Total Selling, General and Administrative expenses 622,952 680,017 2,885,508 2,156,986
---------- ----------- ------------ ------------
Net Operating Income (Loss) (622,952) (675,017) (2,870,508) (2,151,986)
Other Income / (expense) 50 1,050 1,537 5,591
Interest Expense (34,349) - (69,513) -
---------- ----------- ------------ ------------
Net Income (Loss) Before Taxes $ (657,251) $ (673,967) $ (2,938,484) $ (2,146,395)
Provision for Taxes - - - -
---------- ----------- ------------ ------------
Net Income (Loss) from continuing operations (657,251) (673,967) (2,938,484) (2,146,395)
Income (Loss) from discontinued operations,
net of income tax of $0 (380,609) (1,171,104)
Loss on disposal of discontinued operations,
net of income tax of $0 (2,510,000) (2,510,000)
Net Income (Loss) $ (657,251) $(3,564,576) $ (2,938,484) $ (5,827,499)
========== =========== ============ ============
Basic Earnings (Loss) Per Share
Income (loss) from continuing operations (0.02) (0.02) (0.08) (0.07)
Loss from discontinued operations - (0.09) - (0.12)
---------- ----------- ------------ ------------
Net Income (loss) $ (0.02) $ (0.11) $ (0.08) $ (0.19)
========== =========== ============ ============
Diluted Earnings (Loss) Per Share
Income (loss) from continuing operations (0.02) (0.02) (0.08) (0.07)
Loss from discontinued operations - (0.09) - (0.12)
---------- ----------- ------------ ------------
Net Income (loss) $ (0.02) $ (0.11) $ (0.08) $ (0.19)
========== =========== ============ ============
The accompanying notes are an integral part of these financial statements.
4
TSET, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended March 31,
-----------------------------------
2002 2001
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES ----------- -----------
Net loss from continuing operations $ (2,938,484) $ (2,146,395)
Adjustments to reconcile net loss to net cash
(used in) provided by operations
Depreciation and amortization 215,021 220,738
Common stock issued for compensation/services 814,532 83,954
Change In
Inventory Assets - -
Accounts receivable - 6,000
Prepaid expenses and other assets (176,502) (489)
Accounts Payable 952,772 193,782
Accrued Expenses and other liabilities (56,626) 189,322
------------ ------------
Net cash (used in) provided by Continuing Operations (1,189,286) (1,453,088)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment - (77,614)
Investment in patent protection 15,795 -
Investment in discontinued operations (84,014) (177,594)
------------ ------------
Net cash (used in) provided by Investing Activities (68,219) (255,208)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 1,234,607 1,719,740
Proceeds from short-term borrowings - -
Repayments of short-term borrowings -
Issuance of notes payable
------------ ------------
Net cash (used in) provided by Financing Activities 1,234,607 1,719,740
------------ ------------
NET (DECREASE) INCREASE IN CASH (22,898) 11,444
CASH
Beginning of period 32,619 102,949
------------ ------------
End of period $ 9,721 $ 114,393
============ ============
Supplemental schedule of non-cash investing and financing activities:
Debt satisfied with common stock $ 100,000 $ 419,143
Note payable issued in satisfaction of accrued liability $ 350,000
The accompanying notes are an integral part of this financial statement.
5
TSET, INC
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Common Stock
------------------------
Capital In Retained Total
Excess Earnings Shareholders'
of Par (Accumulated Equity
Shares Amount Value Deficit) 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
Shares issued in January 2002
for cash 925,000 $ 925 $ 194,700 195,625
Shares issued in February 2002
for cash 350,000 $ 350 $ 69,150 69,500
Shares issued in March 2002
for cash 1,683,333 $ 1,684 $ 260,691 262,375
Net loss for the period ended
March 31, 2002 (2,938,484) (2,938,484)
---------------------------------------------------------------------------------
BALANCE at March 31, 2002 39,385,617 $ 39,386 $ 13,749,933 $ (14,912,269) $ (1,122,950)
=================================================================================
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 nine-month periods ended March 31, 2002 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 10-K for the fiscal year ended June 30, 2001 filed on
October 15, 2001. This filing, including the accompanying financial statements,
have not been reviewed by independent certified public accountants.
RECENT ACCOUNTING PRONOUNCEMENTS. On July 20, 2001, the FASB issued Statement of
Financial Accounting Standard (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 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method is 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 adopted 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 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 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 March 31,
2002 and June 30, 2001 are as follows:
March 31, 2002 June 30, 2001
----------------- -------------
Benefit from carryforward of net
operating losses $ 2,889,024 $ 2,225,520
Other temporary differences 1,025,189 1,008,189
Less:
Valuation allowance (3,914,213) (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:
March 31, 2002 June 30, 2001
------------------------------------------------------
% of pre-tax % of pre-tax
Amount Loss Amount Loss
------------------------------------------------------
Benefit for income tax at
federal statutory rate $ 999,085 34.0% $ 3,374,793 34.0%
Non-deductible expenses (318,580) (10.8)% (357,007) (3.6)%
Disposed subsidiary NOL - - (578,370) (5.2)%
Increase in valuation allowance (680,506) (23.2)% (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 March 31, 2002, for federal income tax and alternative minimum tax reporting
purposes, the Company has approximately $8.5 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 $8.5 million of unused net operating losses noted above,
approximately $153,000 relates to losses incurred by the Company's subsidiary,
Aperion Audio. In fiscal years prior to June 30, 2000, Aperion Audio did not
file its tax returns on a consolidated basis with the Company. Accordingly, the
$153,000 loss incurred by Aperion Audio 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 nine months ended March 31, 2002, the Company operated only
in the U.S.
NOTE 4 - EARNINGS PER SHARE
On February 12, 2002, the Board approved the TSET, Inc. Stock Option Plan and
the issuance of stock options to employees totaling 4,580,000 shares. The
exercise prices of these options range from $0.25 to $0.68, with a weighted
average of $0.50. The options vest on December 31, 2002. As of March 31, 2002,
there were outstanding options to purchase 6,563,575 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 March 31, 2002
are included in the balance sheet Net Liabilities of Discontinued Operations.
Net assets of discontinued operations at March 31, 2002 and operating results of
discontinued operations for the nine-months ended March 31, are as follows:
NET LIABILITIES OF DISCONTINUED OPERATIONS
Aperion Audio
-------------
Current Assets $ 335,466
Net Property and Equipment 44,654
Current Liabilities (601,859)
Minority Interest (525,811)
-----------
Net Assets (Liabilities) $ (747,550)
===========
OPERATING RESULTING OF DISCONTINUED OPERATIONS:
Operating Results of Discontinued Operations:
For the nine months ended March 31,
2002 2001
---------------- ------------------------------------------------
Aperion Audio Atomic Aperion Audio Total
---------------- ------------- -------------- ----------------
Sales $ 733,183 $ 714,464 $ 587,570 $ 1,302,034
Cost of sales (273,282) (512,282) (304,488) (816,770)
Depreciation and amort (9,927) (215,398) (198,111) (413,509)
General and Administrative (545,964) (369,058) (927,871) (1,296,929)
---------------- ------------- ---------------- ---------------
Operating income (loss) (95,990) (382,274) (842,900) (1,225,174)
Other Income 22,217 735 (537) 198
Interest expense (25,584) (69,232) (8,279) (77,511)
Provision for future operating losses 79,485 - - -
Provision for asset impairment
Minority interest 19,871 - 131,383 131,383
---------------- ------------- ---------------- ---------------
Income (Loss) pre-tax 0 (450,771) (720,333) (1,171,104)
Income taxes (benefits) - -
---------------- ------------- ---------------- ---------------
Loss from disc'd ops $ 0 $(450,771) $ (720,333) $ (1,171,104)
================ ============= ================ ===============
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 for $350,000 and calls for
quarterly payments of principal and interest of $20,000 until the note is paid
in full. The interest is being accrued at the rate of 4.59% and is disclosed in
the financial statements as follows:
Notes payable, current portion $100,000; Notes payable, long term $250,000;
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
nine-months ended March 31, 2002 was $0 and $686,000, 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.
On March 11, 2002, the company entered into a 12 month consulting agreement with
The Eagle Rock Group. Pursuant to the agreement, the company will grant The
Eagle Rock Group a 10 year warrant for up to 2,000,000 shares. 500,000 shares
are immediately earned and will fully vest on March 1, 2003. The remainder of
the shares may be earned contingent upon the occurrence of various events
including a successful capital raise equal to or greater than $1.5 million,
securing contracts with the U.S. military, securing contracts with consumer
- -oriented distribution organizations, and the adoption of a branding/marketing
campaign which has been principally developed by The Eagle Rock Group.
NOTE 8 - DISPUTE WITH APERION AUDIO, INC.
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 conseqential damages. Discovery is ongoing.
NOTE 9 - SUBSEQUENT EVENTS
On April 1, 2002, the company entered into an Employment agreement with Daniel
R. Dwight, our President and Chief Executive Officer, effective as of November
15, 2001. The initial term of Mr. Dwight's Employment Agreement is for 2 years
and will automatically renew for successive 1 year terms unless TSET or Mr.
Dwight provide the other party with written notice within 3 months of the end of
the initial term or any subsequent renewal term. Mr. Dwight's Employment
Agreement provides for base cash compensation of $180,000 per year. Mr. Dwight
is eligible for annual incentive bonus compensation in an amount equal to Mr.
Dwight's annual salary based on the achievement of certain bonus objectives. In
addition, TSET granted Mr. Dwight 1,000,000 immediately vested and exercisable,
ten-year stock options at various exercise prices. Mr. Dwight will be entitled
to fully participate in any and all 401(k), stock option, stock bonus, savings,
profit-sharing, insurance, and other similar plans and benefits of employment.
Mr. Dwight is entitled to be indemnified, defended, and held harmless by us from
and against any and all costs, losses, damages, penalties, fines, or expenses
(including, without limitation, reasonable attorneys' fees, court costs, and
associated expenses) suffered, imposed upon, or incurred by him in any manner in
connection with his service as our Chief Executive Officer.
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 Aperion Audio, Inc. After further
evaluation of these investments, we believe our investment in and the full
development of Kronos Air Technologies and the Kronos(TM) 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 Aperion Audio, 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 Aperion Audio 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 Kronos(TM) 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 Aperion Audio 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 Aperion
Audio 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 Aperion Audio. The anticipated loss from operations during the
phase-out period is $150,000. We do not anticipate a loss on the sale of Aperion
Audio. Based upon our decision to discontinue development of Cancer Detection
International, 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. 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, Inc. 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 Kronos(TM) that is more
fully described below. The Kronos(TM) technology operates through the
application of high-voltage management across paired electrical grids that
creates an ion exchange which moves 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.
Kronos(TM) has U.S. and international patents pending.
The Kronos(TM) 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 Kronos(TM) device
has no moving parts or degrading elements and is composed of cost-effective,
commercially available components.
The Kronos(TM) technology combines the benefits of silent air movement, air
cleaning, and odor removal. Because the Kronos(TM) 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 Kronos(TM) 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
Kronos(TM) 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 Kronos(TM) 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 2002, the U.S. Army requested the
company to submit a detailed Phase Two proposal by June 10, 2002 for review in
the current year.
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 Kronos(TM) devices manufactured under this
contract will be embedded in an existing HVAC systems to move air more
efficiently than the traditional, fan based technology.
In April 2002, the U.S. Navy and Kronos mutually agreed to exercise the option
on the first phase of the U.S. Navy SBIR contract. The option is to provide
incremental funding to Kronos to further test and evaluate the Kronos(TM)
devices built during the initial SBIR funding. Testing will include
demonstrating the ability of these U.S. Navy Kronos(TM) devices to capture and
destroy biological hazards and to effectively manage electrical magnetic
interference ("EMI").
RESULTS OF OPERATIONS
The Company's net loss from continuing operations for the current year third
quarter and nine months was $0.7 million and $2.9 million, respectively,
compared with a net loss of $0.7 million and $2.1 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 Kronos(TM)devices at Kronos Air
Technologies, Inc. Revenue for the current year third quarter was $0 and for the
current year nine months was $65,000. Revenue of $5,000 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 third quarter was $0 and
$50,000 for the current year nine 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 third quarter decreased $57,000 and
in the current year nine months increased $729,000, to $0.6 million and $2.9
million, respectively. The decrease in the current year third quarter was
primarily due a reduction in payroll and related costs of $89,000. The increase
for the current year nine months was primarily due to non-cash stock warrants to
the Eagle Rock Group of $686,000, non-cash stock options/grants of $57,000 and
cash-based fees paid/accrued to management consultants, legal and accounting
professionals engaged by the company of $500,000. This was partially offset by a
reduction in payroll and related costs of $500,000 and a reduction in travel
related costs of $63,000.
12
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2002
Our total assets at March 31, 2002 were $3.1 million compared with $3.1 million
at June 30, 2001. Total assets at March 31, 2002 were comprised primarily of
$2.3 million of patents/intellectual property and $556,000 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 March 31, 2002 and June 30, 2001 were $189,000 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 March 31, 2002 and June 30, 2001 was $(1.1 million) and $479,000,
respectively, representing a decrease of $1.6 million. The decrease in
shareholders' equity is primarily the result of incurring a $2.9 million loss
from continuing operations for the nine months ended March 31, 2002, partially
offset through the sale and issuance of $1.3 million of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Historically we have relied principally on the sale of common stock to finance
our operations. We have recently completed a successful private placement of our
common stock through which we were able to obtain commitments for 2,738,824
shares of our common stock, valued at $0.17 per share, in consideration of
$465,600 in cash and 841,459 shares of our common stock, valued at $0.17 per
share, in consideration of commitments to convert $143,048 of debt into equity
with respect to certain members of the management team. 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 Kronos(TM) 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 and May 2002 Kronos Air Technologies received Phase II invitation letters
for U.S. Navy and U.S. Army contracts, respectively, with potentially $1.5
million in commitments.
Net cash flow used on operating activities was $1.2 million for the current year
nine 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. However, even during recent periods in which our share
price was below that $0.25 threshold, we have been able to work with Fusion
Capital to provide for some of the financing needs of the Company. 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 $2.9 million for the current
year nine months. We have incurred net losses from continuing operations of $3.6
million and $1.4 million for the fiscal years ended June 30, 2001 and 2000. We
have incurred net losses from continuing operations of $0.7 million for the
three months ended March 31, 2002. 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 March 31, 2002 and June 30, 2001 we
had an accumulated deficit of $14.9 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
Kronos(TM) technology. No assurances can be given when this will occur or that
we will ever be profitable.
WE HAVE BEEN SUBJECT TO A GOING CONCERN OPINION FROM OUR INDEPENDENT AUDITORS
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 March 31, 2002 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 have the right, subject to certain conditions, 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 Kronos(TM) 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 Kronos(TM)
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 Kronos(TM) 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 Kronos(TM) 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 Kronos(TM) products will compete
favorably with the products sold by our competitors.
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 Kronos(TM) 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 tradeable.
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 fiscal years 1997
through 2001, respectively. We had operating losses for each year during the
period 1997 through 2001, and we believe that there are no 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. We have been in contact with the Internal Revenue Service
concerning this matter.
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 and Interrogatories
are underway.
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. The
arbitration hearing is projected in the next three months.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
From January 3, 2002 through March 26, 2002, we issued 2,958,333 common shares,
at an average value of $0.17831 per share, at an aggregate value of $527,500, to
Fusion Capital, LLC pursuant to the common stock purchase agreement between our
Company and Fusion Capital, in exchange for $527,500 in cash.
On February 12, 2002, the Board approved the TSET, Inc. Stock Option Plan and
the issuance to the Company's employees of options to purchase 4,580,000 shares
of common stock. The exercise prices of these options range from $0.25 to $0.68,
with a weighted average of $0.50. These options vest on December 31, 2002.
In April and May 2002, we conducted a private placement of our common stock
through which we obtained commitments for 2,738,824 shares of our common stock,
valued at $0.17 per share, in consideration of $465,600 in cash and 841,459
shares of our common stock, valued at $0.17 per share, in consideration of
commitments to convert $143,048 of debt into equity with certain members of the
management team.
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
4.1 2001 Stock Option Plan Provided herewith
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
10.55 Employment Agreement, effective Provided herewith
November 15, 2001 by and between
TSET, Inc. and Daniel R. Dwight
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: May 15, 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