Edgar Filing: TERAFORCE TECHNOLOGY CORP

PROSPECTUS

TERAFORCE TECHNOLOGY CORPORATION

41,416,630 SHARES OF COMMON STOCK

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The Selling Stockholders listed on pages 13 through 15 may offer and resell
up to 41,416,630 shares of TeraForce Technology Corporation ("TeraForce" or the
"Company") common stock under this Prospectus, for each of their own accounts.
The number of shares the Selling Stockholders may sell includes shares of common
stock that currently are issued and outstanding and shares of common stock
issuable upon exercise of warrants.

We will not receive any proceeds from the sales covered by this Prospectus.

The shares of common stock covered by this Prospectus were originally issued
in several unrelated private placements to accredited investors. For further
information on the Selling Stockholders and each of these transactions see
"Selling Stockholders" in this Prospectus.

Our common stock is quoted on the Nasdaq SmallCap Market under the symbol
"TERA." On April 27, 2001, the last sale price of our common stock was $0.43.

INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 2.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THE
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

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THE DATE OF THIS PROSPECTUS IS APRIL 27, 2001.

ABOUT TERAFORCE

We recently changed our name from Intelect Communications, Inc. to TeraForce
Technology Corporation. This change reflects a transition in our strategic
direction and underlying business model. Under our new strategy, we intend to
leverage our technical expertise in the convergence of telecommunications and
computing to develop and commercialize leading edge technologies.

We design, develop, produce, and sell digital signal processor ("DSP")
products and also provide high-value product design and development services to
telecommunications and networking companies. Our DSP products business designs,
produces and sells board-level products that deliver high performance computing
capabilities for embedded applications in military/aerospace, industrial and
commercial market segments. These products include a variety of multiprocessor
boards. Our engineering design services business provides advanced product and
system design and development services for a variety of clients.

Our optical networking products business historically has been conducted by
our wholly-owned subsidiary, Intelect Network Technologies Company. This
business unit manufactured our OmniLynx product line used for optical
networking. Due to dramatic changes in the market place, we have reassessed this
business and determined that the OmniLynx product line's long-term strategic
value does not substantially benefit TeraForce as much as our other business
opportunities. However, we have identified a new generation of optical
networking equipment, referred to as Aegean, which we anticipate developing. We
believe this advanced optical networking system can be targeted at metropolitan
area networks and can generally be described as a multi-service delivery
platform.

More information about our products, markets and operations may be found in
our Form 10-K annual report for the fiscal year ended December 31, 2000, filed
on April 2, 2001. Our executive offices are located at 1240 East Campbell Road,
Richardson, Texas 75081; telephone (469) 330-4960.

RISK FACTORS

This prospectus and the documents it incorporates by reference contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These
statements reflect our current view with respect to future events and financial
performance. The future events we describe in these risk factors involve risks
and uncertainties related to:

- general economic conditions in our product markets;

- our continuing development of our products;

- the market acceptance of our products;

- dependence on our suppliers;

- dependence on channels of distribution;

- competition;

- fluctuations in customer demand for our products;

- access to external sources of capital;

- execution of our margin improvement; and

- management of our corporate expansion.

In this prospectus, the words "anticipate," "believe," "expect," "intend,"
"plan," "future," and similar expressions identify forward-looking statements.
Our actual results could differ materially from

those that we project in the forward-looking statements as a result of factors
that we have set forth throughout this document as well as factors of which we
are currently not aware.

Projections including, but not limited to, those regarding our financial
results that are contained in the documents incorporated by reference into this
Prospectus are forward-looking statements. As such, projections in those
documents could differ materially from actual results which could in turn have
an adverse effect on your investment in the shares.

Your investment in the shares offered by the Selling Stockholders in this
Prospectus involves a high degree of risk and should not be made by you if you
cannot afford the loss of your entire investment. In addition to the other
information in this Prospectus, or incorporated in this Prospectus by reference,
you should consider carefully the following risk factors before investing in the
common stock offered by the Prospectus:

OUR STOCK PRICE MAY DROP DUE TO MARKET FLUCTUATIONS AND SALES OF LARGE NUMBERS
OF OUR SHARES.

Our common stock is quoted on the Nasdaq SmallCap Market. Based on
historical trends in the market for our stock and for other similar technology
company stocks, we anticipate that the trading price of our common stock may be
subject to wide fluctuations in response to:

- quarterly variations in operating results;

- changes in actual earnings or in earnings estimates by analysts;

- our announcements of technological developments;

- our competitors' announcements of technological developments;

- general market conditions; or

- other events largely outside our control.

In addition, extreme price and volume fluctuations in the stock market have
particularly affected the market prices of "high technology" stocks. These
fluctuations were often disproportionate to or unrelated to the operating
performance of these companies. These broad market fluctuations, general
economic conditions, or other factors outside our control may adversely affect
the market price of our common stock.

Large numbers of the shares offered under this Prospectus could be sold at
the same time. Such sales, or the possibility of such sales, could significantly
depress the market price of the common stock.

WE MAY BE DE-LISTED BY NASDAQ.

In January, 2001 we received notice from the Nasdaq Stock Market, Inc.
("Nasdaq") that our stock failed to maintain a minimum bid price of at least
$1.00 over the prior 30 day period as required by Nasdaq marketplace rules.
Pursuant to the notice we were provided 90 days, or until April 2, 2001, to
regain compliance with this rule. Since our common stock did not meet the
minimum bid price requirement by April 2, we received notice from Nasdaq that
our common stock is subject to de-listing. We have notified the Nasdaq Listing
Qualifications Listing Panel of our appeal of such determination of de-listing
and have requested an oral hearing. The hearing request has stayed the
de-listing. However, there can be no assurance of the outcome of the appeal
process. If the Company's common stock is de-listed from the Nasdaq SmallCap
Market, it may be eligible for inclusion in the OTC Bulletin Board operated by
the Nasdaq Stock Market. However, the OTC Bulletin Board generally provides less
liquidity and certain institutional investors may not purchase stocks in this
market or invest capital in companies that are not listed on a national stock
exchange or Nasdaq. Such adverse effects in liquidity and capital raising
ability could materially adversely affect our operating results and financial
condition.

WE ARE NOT PROFITABLE.

We have incurred losses from continuing operations in 2000, 1999, 1998,
1997, and 1996 of $29,572,000, $28,535,000, $42,735,000, $19,743,000 and
$42,983,000, respectively. Negative cash flows from operations in the same
periods were, respectively, $22,442,000, $19,145,000, $22,929,000, $24,852,000
and $23,050,000. We funded the negative cash flows by proceeds from borrowing
under credit facilities and sales of common stock in 2000, from borrowings under
credit facilities, sales of preferred stock and common stock during 1999, 1998
and 1997 and by proceeds from issuance of convertible debentures in 1996. It is
uncertain when, if ever, we will report operating income or positive cash flow
from operations. If cash needs exceed available resources, there also can be no
assurance that additional capital will be available through public or private
equity or debt financing.

OUR ABILITY TO BECOME PROFITABLE DEPENDS ON INCREASED SALES OF OUR PRODUCTS AND
SERVICES.

Our ability to become profitable will depend, in part, on the sales volume
of our products and services. Increasing the sales volume will depend on our
ability to:

- continue to develop our DSP products;

- expand our engineering design services business;

- increase our sales and marketing activities;

- increase our manufacturing activities;

- effectively compete against current and future competitors; and

- effectively and efficiently complete the transition from optical
networking equipment manufacturing of OmniLynx to our other business
enterprises.

We cannot assure you that we will be able to successfully increase the sales
volumes of our products and/or services to achieve profitability. We also cannot
assure that profitability and positive cash flow will be achieved when expected.
If our sales plans are not achieved, operating losses and negative cash flows
exceed our estimates, or capital requirements in connection with the design,
development, and commercialization of our principal products are higher than
estimated, we will need to raise additional capital. See page 5 regarding
additional funding.

WE ARE NOT ABLE TO PREDICT SALES IN THE FUTURE AND A NUMBER OF FACTORS MAY CAUSE
OUR PERIODIC RESULTS TO FLUCTUATE.

We are not able to accurately predict our sales in future quarters. In any
quarter, a number of factors could affect our sales volumes and our ability to
fill orders. Our periodic results have varied in the past. In the future, we
expect our periodic operating results to vary significantly depending on, but
not limited to, a number of factors, including:

- the market acceptance of our current and new products;

- engineering and development requirements;

- the size, timing and recognition of revenue from significant orders;

- increased competition;

- new product introductions or enhancements by competitors;

- the proportion of revenue derived from distributors, value added resellers
and other sales channels;

- changes in our pricing policies or those of our competitors;

- the financial stability of major customers;

- delays in the introduction of our products or product enhancements;

- customer order deferrals in anticipation of upgrades and new products;

- customer concerns about our financial condition;

- the costs and possible supply constraints of components we use to build
our products;

- changes in regulation of our product markets;

- the timing and nature of expenses; and

- general economic conditions.

Our expense levels are based, in part, on our expectations of future
projects, orders and sales, and we may be unable to adjust spending in a timely
manner to compensate for any sales shortfall. If sales are below expectations,
operating results are likely to be materially adversely affected. Net income may
be disproportionately affected by a reduction in sales because a significant
portion of our expenses do not vary with revenues. We may also choose to reduce
prices or increase spending in response to competition or to pursue new market
opportunities. If new competitors, technological advances by existing
competitors or other competitive factors require us to invest significantly
greater resources in engineering and development efforts, spending could
materially adversely affect our operating results and financial condition.

Because our marketing strategy targets relatively large potential customers,
we anticipate that a small number of large orders may comprise a significant
portion of our future product sales and a small number of clients may comprise a
larger portion of our billable services. None of our significant customers have
entered into long-term supply or services agreements requiring them to purchase
a minimum amount of our products or services. Historically, sales to a
relatively small number of customers have accounted for a significant portion of
our total revenues. We cannot assure that our principal customers will continue
to purchase our products or services at current levels, if at all. Also, we
cannot assure that we will be able to replace such purchases with sales to other
customers. Any significant deferral of purchases of our products or services or
the reduction, delay or cancellation of orders from one or more significant
customers could materially and adversely affect our business, results of
operations, and financial condition.

WE MAY NEED ADDITIONAL FUNDING IN THE FUTURE AND THESE FUNDS MAY NOT BE
AVAILABLE TO US OR SUCH FUNDS MAY AFFECT CURRENT RIGHTS.

If our sales plans are not achieved, if operating losses and negative cash
flows exceed our estimates, or if capital requirements of the design,
development, and commercialization of our principal products are higher than
estimated, we will need to raise additional capital. Although we believe we
could raise additional capital through public or private equity or debt
financing, if necessary, we cannot assure that such financing will be available,
or available on acceptable terms. Further, we could seek commercial banking
facilities to provide working capital for our business segments; however, there
can be no assurances that such facilities will be available. If we are unable to
acquire such additional funds, we may be required to curtail certain operations
or sell assets.

Our Aegean product line of optical networking products will require
strategic contributors having significantly greater capital resources and/or
additional capital from outside investors in order to commence full scale
development activities. Without such contributors or sufficient investment, the
first stage of the development process cannot be initiated. Further, we do not
expect to complete this stage or produce revenue for the foreseeable future.

If we are successful in raising additional funds through the issuance of
equity or debt securities, our common stockholders could be affected. The
issuance of additional equity securities or convertible debt could dilute your
percentage ownership in the Company. Furthermore, such securities issued may
have rights, preferences and privileges senior to those of our common stock.

WE HAVE REFOCUSED OUR BUSINESS STRATEGY, AND OUR NEW STRATEGY MAY NOT BE
SUCCESSFUL.

Historically, our strategy and the bulk of our business focused on the
development and marketing of our OmniLynx optical networking equipment. Our new
focus is on expanding our DSP products and engineering design services
businesses while seeking strategic contributors and investors to develop and
expand our Aegean business. Therefore, we must rely upon our DSP and engineering
design segments of the Company for the bulk of our revenue until Aegean has
sufficient contributors or investors to produce its new line of optical
networking equipment, should that ever occur. In such an event, we believe that
a lag in the amount of time between Aegean's initiation of production and its
profitability could be significant. If sufficient contributors or investors are
not found, then the Company must continue to rely upon DSP products and
engineering design services unless we refocus our business model.

It is too early to know whether the refocusing of our business strategy will
help us achieve long-term success. Companies that implement major changes in
their business strategy can face challenging risks and unexpected difficulties.
If the assumptions underlying our new business model are not valid or if we are
unable to implement our business plan, our business will suffer.

THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY COMPLETE DEVELOPMENT AND ACHIEVE
COMMERCIAL ACCEPTANCE OF ITS NEW PRODUCTS.

We intend to continue the development of additional products, such as the
Aegean line of optical networking products, that are consistent with our new
business strategy. The development of these products, from laboratory prototype
to customer trials, and subsequently to general availability involves a number
of steps, including:

- completion of product development;

- the qualification and multiple sourcing of critical components;

- validation of manufacturing methods and processes;

- extensive quality assurance and reliability testing, and staffing of
testing infrastructure;

- validation of embedded software;

- establishment of systems integration and systems test validation
requirements; and

- identification and qualification of component suppliers.

Each of these steps in turn presents serious risks of failure, rework or
delay, any one of which could decrease the speed and scope of product
introduction and marketplace acceptance of the product. In addition, unexpected
intellectual property disputes, failure of critical design elements, and a host
of other execution risks may delay or even prevent the introduction of these
products. If we do not develop and successfully introduce these products in a
timely manner, our business, financial condition and results of operations would
be harmed.

Additionally, the markets for the Company's new product lines may be
undeveloped. The commercial acceptance of these types of products may be
uncertain. We cannot assure you that the sales and marketing efforts for these
products will be successful. If the markets for these products do not develop or
the products are not accepted by the market, our business, financial condition
and results of operations would suffer.

OUR ABILITY TO GROW AND REMAIN COMPETITIVE DEPENDS ON OUR ABILITY TO FORESEE AND
RESPOND TO RAPID TECHNOLOGICAL CHANGE WITH NEW PRODUCTS AND KEY PRODUCT
ENHANCEMENTS.

Rapid technological change, evolving industry standards and frequent new
product introductions and enhancements shape and can quickly change our current
and planned product markets. New technologies or the emergence of new industry
standards can render existing products or products under development obsolete or
unmarketable. Our ability to grow and remain competitive depends, in large part,
on our ability to anticipate changes in our product markets and to successfully
develop and introduce new products on a timely basis. New product development
often requires long-term forecasting of market trends, development and
implementation of new technologies and processes, and a substantial capital
commitment. Development and customer acceptance of new products and services is
inherently uncertain, and we cannot assure that we will complete developments or
contracts on a timely basis or that products will be commercially successful. We
compete or will be competing with established companies with greater financial
resources and more developed channels of distribution. Any failure to anticipate
or respond in a cost-effective and timely basis to technological developments,
changes in industry standards or customer requirements, or any significant
delays in product development or introduction, could materially adversely affect
our business, operating results and financial condition.

PRODUCT PERFORMANCE PROBLEMS COULD LIMIT SALES PROSPECTS.

The production of new products and services with high technology content
involves occasional problems as the technology and manufacturing methods mature.
If significant reliability, quality or network monitoring problems develop,
including those due to faulty components, a number of negative effects on our
business could result, including:

- costs associated with reworking the manufacturing processes;

- high service and warranty expenses;

- high inventory obsolescence expense;

- high levels of product returns;

- delays in collecting accounts receivable;

- reduced orders from existing customers; and

- declining interest from potential customers.

Although we maintain accruals for product warranties, actual costs could
exceed these amounts. From time to time, there will be interruptions or delays
in the activation of products at a customer's site. These interruptions or
delays may result from product performance problems or from aspects of the
installation and activation activities, some of which are outside our control.
If the Company experiences significant interruptions or delays that cannot be
promptly resolved, confidence in our products could be undermined, which could
have a material adverse effect on operations.

COMPETITION FROM LARGER, BETTER ESTABLISHED ENTITIES IS INTENSE.

Competition in the engineering design services, DSP products business and
the converging voice and data communications industry is intense, and we believe
that competition will increase substantially with the development of multimedia
communications products, rapid technological changes, industry consolidations,
new industry entrants, and potential regulatory changes. Many of our current and
potential competitors have longer operating histories, significantly greater
financial, technical and marketing resources, greater name recognition, and a
larger installed customer base than we have. In addition, many of these
competitors may be able to respond more quickly to new or emerging

technologies and changes in customer requirements, and to devote greater
resources to the development, promotion and sale of their products than we can.
Our current or potential competitors may develop products and services
comparable or superior to ours or adapt more quickly than we can to new
technologies, evolving industry trends, or changing customer requirements.
Increased competition as to any of our products or services could result in
price reductions, reduced margins, and loss of our market share, which could
materially and adversely affect our business, results of operations, and
financial condition.

THE COMPANY HAS A LIMITED CUSTOMER BASE.

We rely on a limited number of customers for a substantial portion of our
revenues. If one or more significant customers are lost, or their need for our
products and services were to decrease, our revenues and net income could
decline.

THE SUCCESS OF OUR ENGINEERING DESIGN SERVICES BUSINESS DEPENDS ON MANY FACTORS
THAT ARE BEYOND OUR CONTROL.

In order to be successful with our engineering design services, we must
overcome several factors that are beyond our control. Among these is the fact
that the receipt of future contract awards is uncertain. As the
telecommunications industry has recently experienced extreme volatility, many
companies, including those we provide services to, have decreased their demand
for certain services and some have even laid off portions of their workforce.
Depending upon external conditions, a client may either cancel a project, put it
on hold or extend its schedule. Also, future economic conditions, price and
availability of labor, equipment and materials, applicable law, or labor
disruptions may impact the demand or supply of such services. Under these
circumstances, it is difficult to predict whether and when TeraForce will
receive a contract award. Additionally, such contract awards generally represent
large amounts of revenue and the loss of individual awards could seriously hurt
our revenue and operating results.

The cost of engineering design service personnel is high which reduces our
gross margin. Gross margin represents the difference between the amount of
revenue from the sales of these services and our cost of providing them. We must
pay high salaries to professional services personnel to attract and retain them.
This results in a lower gross margin than the gross margin of our DSP products.

The uncertainty of contract award timing can present difficulties in
matching our workforce size with contract needs. In some cases, we maintain and
bear the cost of a ready workforce that is larger than called for under existing
contracts in anticipation of future workforce needs under expected contract
awards. If an expected contract award is delayed or not received, we would incur
costs that could have a material adverse effect on the Company's results of
operations and financial condition.

WE DEPEND ON KEY MEMBERS OF OUR MANAGEMENT AND ENGINEERING STAFF, AND WE MUST
RETAIN AND RECRUIT QUALIFIED INDIVIDUALS TO BE COMPETITIVE.

Our success depends in large part on the continued service of key creative,
technical, marketing, sales and management personnel and our ability to attract,
motivate and retain highly qualified employees. Because of the multifaceted
nature of interactive media, key personnel often require a unique combination of
creative and technical talents. Such personnel are in short supply, and the
competition for their services is intense. Recruitment of such personnel can be
a lengthy process. We have at-will employment arrangements with management and
other personnel, meaning they may terminate their employment at any time. The
loss of key personnel or failure to attract additional qualified employees could
materially adversely affect our business, the results of operations and new
product development efforts.

WE MAY BE UNABLE TO SECURE NECESSARY COMPONENTS AND SUPPORT BECAUSE WE DEPEND
UPON A LIMITED NUMBER OF THIRD-PARTY MANUFACTURERS AND SUPPORT ORGANIZATIONS.

Certain components used in our products are only available from a single
source or a limited number of vendors. Some of the sole source and limited
source vendors are companies who, from time to time, allocate parts to
telecommunications and computing equipment manufacturers due to market demand
for components and equipment. Especially in recent times in a worldwide
telecommunications market expansion, many component suppliers have placed
critical components on worldwide allocation. Many of our competitors are much
larger and may be able to obtain priority allocations from these shared vendors,
thereby limiting or making unreliable our sources of supply for these
components. If we are unable to obtain sufficient supply from alternative
sources, reduced supplies and higher prices of components will significantly
limit our ability to meet scheduled product deliveries to our customers, which
would seriously harm our business and results of operations.

WE RELY ON PATENTS AND OTHER PROPRIETARY INFORMATION. THE LOSS OF, OR A DISPUTE
REGARDING, PROPRIETARY INFORMATION OR INTELLECTUAL PROPERTY RIGHTS WOULD
NEGATIVELY AFFECT OUR BUSINESS.

Our success depends, in part, on our ability to maintain trade secret
protection, obtain patents and operate without infringing the proprietary rights
of third parties or having third parties circumvent our intellectual property
rights. While we have applied in certain cases for patent protection for our
intellectual property rights, these patent applications may be denied. We cannot
assure that the patents we have obtained or applied for will provide us with any
competitive advantages or will not be challenged by any third parties. Third
parties may be able to circumvent our patents and potentially independently
develop similar products, duplicate our products, or design around our patented
products.

We have received notice that we may be infringing on certain intellectual
property rights of others and have asked legal counsel to evaluate these claims.
We may have to obtain licenses from third parties to avoid infringing patents or
other proprietary rights and cannot assure that any licenses required under any
such patents or proprietary rights would be made available, if at all, on
acceptable terms. Failure to obtain these licenses could delay product
introductions, or prohibit our development, manufacture or sale of products
requiring such licenses. In addition, we could incur substantial costs in
defending or prosecuting lawsuits to protect our patents or other proprietary
rights. Intellectual property plaintiffs could obtain injunctive or other
equitable relief which could effectively block our ability to sell our products
in the United States and abroad, and could obtain an award of substantial
damages. Either result could materially adversely affect our business, results
of operations, and financial condition.

Much of our know-how and technology may not be patentable. To protect our
rights, we require many employees, consultants, advisors and collaborators to
enter into confidentiality agreements. We cannot assure that these agreements
will provide meaningful protection of our trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure.
Furthermore, independent development by competitors of competing technologies
could materially adversely affect our business, results of operations and
financial condition, especially if we do not obtain patent protection or if our
patent protection is narrowly defined.

NUMEROUS GOVERNMENTAL REGULATIONS AFFECT OUR BUSINESS AND OUR PRODUCTS.

While most of our operations are not directly regulated, some of our
customers are telecommunications service providers who are heavily regulated at
both the federal and state levels. Such regulation may limit the number of
potential customers for our services or impede our ability to offer competitive
services to the market, or otherwise materially adversely affect our business,
results of operations, and financial condition. At the same time, recent
deregulation of the telecommunications

industry may facilitate the entrance of new competitors or industry
consolidation. This could subject us to additional competitors, increased
pricing pressures, decreased demand for our products or services, increased cost
of doing business or other factors that could materially adversely affect our
business, results of operations, and financial condition.

WE MAY BE SUBJECT TO SIGNIFICANT CONTINGENT LIABILITIES.

In connection with the sale of former operations in November 1995, our
subsidiary Intelect Communications Systems Limited agreed to indemnify Savage
Sports Corporation ("Savage Sports"), the purchaser of Savage Arms, Inc. (a
manufacturer of fire arms) for potential losses associated with product
liability, environmental matters, employee matters and other similar items.
Certain of these indemnity obligations survive indefinitely. A finding of
liability against Intelect Communications Systems Limited could materially
adversely affect our business, results of operations, and financial condition.
Furthermore, we could incur substantial costs (including the diversion of the
attention of management) in defending lawsuits relating to these indemnity
obligations.

One of the liabilities assumed in the 1995 sale involves a firearms product
liability lawsuit which one defendant, Western Auto Supply Co., settled for
$5 million and, in turn, has asserted a third-party claim against Savage Arms,
Inc. for indemnification in the amount of the settlement plus attorneys' fees
and related costs (the "Taylor litigation"). Savage Arms has asserted defenses
to the claims and we believe additional defenses may be available. Based on the
information available to date, it is impossible to predict the outcome of this
litigation or to assess the probability of any verdict. An adverse outcome in
the Taylor litigation would materially adversely affect our financial condition
and the results of operation.

In June 2000 Savage Sports filed suit against the Company in Superior Court
in Hampton County, Massachusetts seeking reimbursement from the Company of
various amounts related to a settlement of various product liability claims
between Savage Arms, Inc. and Emhart Industries, Inc. In January 2001 the
Company and Savage Sports entered into a settlement agreement disposing of this
litigation. Pursuant to the agreement the Company agreed to pay Savage Sports
approximately $1.1 million over two years, including approximately $600,000 upon
the signing of the agreement. The Company also agreed to contribute towards the
annual cost of product liability insurance which covers any future claims and
agreed to indemnify Savage Arms from any claims and losses relating to the
Taylor litigation and similar suits to the extent not covered by the available
insurance coverage.

A shareholders class action lawsuit was filed in the U.S. District Court for
the Northern District of Texas purported to have been filed on behalf of all
persons and entities who purchased common stock during the period between
February 24, 1998 and November 17, 1998. The named defendants include Intelect
Network Technologies Company, a wholly-owned subsidiary of the Company, and
certain former and present officers and directors of the Company. The complaint
alleges that the defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making false and
misleading statements concerning reported financial results during the period,
primarily relating to revenue recognition, asset impairment and capitalization
issues. The plaintiffs seek monetary damages, interest, costs and expenses. The
Company intends to defend the suit vigorously in all aspects.

OUR CHARTER, BY-LAWS AND THE DELAWARE CORPORATE LAWS DISCOURAGE, DELAY OR
PREVENT A CHANGE IN CONTROL OF THE COMPANY.

Certain provisions of our certificate of incorporation, By-laws and Delaware
law could discourage potential acquisition proposals, delay or prevent a change
in control of the Company and limit the

price that certain investors might be willing to pay in the future for shares of
common stock. These provisions include:

- a classified Board of Directors;

- provisions that the Board of Directors have exclusive authority to amend
or change the By-laws;

- the ability of the Board of Directors to authorize the issuance, without
further stockholder approval, of preferred stock with rights and
privileges which could be senior to the common stock;

- eliminating the stockholders' ability to take action without a meeting;

- eliminating the ability of stockholders to call special meetings without
the required consent of the Board of Directors; and

- establishment of certain advance notice procedures for nomination of
candidates for election as directors and for stockholder proposals to be
considered at stockholders' meetings.

We are also subject to Section 203 of the Delaware General Corporation Laws
which, subject to certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an "interested stockholder."

WHERE YOU CAN FIND MORE INFORMATION

We have filed on Form S-3 a registration statement with the SEC under the
Securities Act of 1933 with respect to the shares of common stock offered in
this offering. This Prospectus, which is a part of the registration statement,
does not contain all of the information set forth in the registration statement,
or the exhibits which are part of the registration statement, parts of which are
omitted as permitted by the rules and regulations of the SEC. For further
information about us and about the shares be sold in this offering, please refer
to the registration statement and the exhibits which are part of the
registration statement. Statements contained in this Prospectus as to the
contents of any contract or any other document are not necessarily complete.
Each statement in this Prospectus regarding the contents of the referenced
contract or other document is qualified in all respects by our reference to the
copy filed with the registration statement.

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
public reference facilities of the SEC in Washington, D.C., Chicago, Illinois
and New York, New York. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings are also available to
the public from the SEC's web site at http:\\www.sec.gov. TeraForce common stock
is traded on the Nasdaq SmallCap Market under the symbol "TERA."

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The SEC allows us to "incorporate by reference" the information we have
filed with them, which means that we can disclose important information to you
by referring you to those documents. The information incorporated by reference
is considered to be part of this Prospectus and any later information that we
file with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any additional documents
we file with the SEC until this offering of common stock is terminated. This
Prospectus is part of a registration statement on Form S-3 that we filed with
the SEC. The documents that we incorporate by reference are:

(1) Our Annual Report on Form 10-K for the fiscal year ended December 31,
2000, filed on April 2, 2001.

(2) Our Definitive Proxy Statement on Schedule 14A filed on January 2, 2001.

(3) Our Form 8-Ks filed on January 5, February 1, March 5, and April 10,
2001.

(4) The description of our common stock contained in our Registration
Statement on Form S-4 declared effective on October 30, 1997 (File
No. 333-39063) and our Form 8-K filed on December 5, 1997.

(5) All documents we file with the SEC under Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act after the date of this Prospectus and before
the termination of the offering of the common stock registered under this
registration statement.

To the extent that prior filings listed in numbers (1) - (4) above conflict
with this Prospectus, those prior filings are modified by this Prospectus and
included herein only as modified. To the extent that statements in this
Prospectus or in the prior filings listed in numbers (1) - (4) above conflict
with statements in future filings referenced in number (5) above, this
Prospectus and the prior filings are modified by the future filings listed in
number (5) above.

For information on the consolidated financial statements see "Experts" in
this Prospectus.

You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:

ROBERT P. CAPPS
CHIEF FINANCIAL OFFICER
TERAFORCE TECHNOLOGY CORPORATION
1240 EAST CAMPBELL ROAD
RICHARDSON, TEXAS 75081
(469) 330-4960

USE OF PROCEEDS

We will not receive any proceeds from the sale of common stock offered in
this Prospectus.

SELLING STOCKHOLDERS

All of the shares offered by this Prospectus are being offered by the
Selling Stockholders for their own respective accounts. In each case, the
issuance of TeraForce common stock to each of the Selling Stockholders was
undertaken pursuant to exemptions from registration under the Securities Act.

Except as otherwise indicated, the table below sets forth the number of
shares of TeraForce common stock beneficially owned by each of the Selling
Stockholders as of April 10, 2001, the number of shares of common stock to be
offered by each Selling Stockholder under this Prospectus, and the number of
shares of common stock to be beneficially owned by each Selling Stockholder if
all of the shares of common stock offered hereby are sold as described herein.

NUMBER OF SHARES NUMBER OF SHARES
OF COMMON STOCK OF COMMON STOCK
BENEFICIALLY NUMBER OF SHARES BENEFICIALLY
OWNED AS OF OF COMMON STOCK OWNED AFTER
NAME OF SELLING STOCKHOLDER APRIL 10, 2000(1) OFFERED HEREBY OFFERING(1)
--------------------------- ------------------ ---------------- ----------------

St. James Capital Partners, L.P............... 2,142,619(2) 3,478,610(4) 0
SJMB, L.P..................................... 9,757,381(3) 16,021,390(4) 0
The Coastal Corporation Second Pension
Trust....................................... 15,219,243 15,219,243(5) 0

2000 PRIVATE PLACEMENT STOCKHOLDERS(6)
Allan Peterson................................ 15,000 15,000 0
Anne K. Dahlson............................... 10,000 10,000 0
Balkir Zihnali................................ 10,000 10,000 0
Bank Morgan Stanley AG........................ 200,000 200,000 0
Bret Clum..................................... 10,000 10,000 0
Bruce R. McMaken.............................. 7,000 7,000 0
Bryan King & Mason King Livestock
Partnership................................. 5,000 5,000 0
Charles C. Taylor............................. 5,000 5,000 0
David D. May.................................. 10,000 10,000 0
Diane Goodwin................................. 12,000 12,000 0
Doug Launius.................................. 20,000 20,000 0
Duck Partners, L.P............................ 40,000 40,000 0
Emily Harris Todd & Christopher Neal Todd..... 30,000 30,000 0
EOS Partners (Offshore), L.P.................. 3,000 3,000 0
EOS Partners SBIC II, L.P..................... 219,000 219,000 0
EOS Partners, L.P............................. 18,000 18,000 0
Erench R. Ozada............................... 200,000 200,000 0
Eric Erdinch Ozada............................ 20,000 20,000 0
Eugene McCarron............................... 5,000 5,000 0
Eurasian Capital Partners Fund, L.P........... 40,000 40,000 0
Europa International, Inc..................... 20,000 20,000 0
Forest Convertible Fund, L.P.................. 5,750 5,750 0
Forest Performance Fund....................... 12,500 12,500 0
Geronimo Partners, L.P........................ 150,000 150,000 0
Graham Partners, L.P.......................... 20,000 20,000 0
Gryphon Partners, L.P......................... 250,000 250,000 0
John N. Giannukos............................. 20,000 20,000 0
John S. Lemak................................. 10,000 10,000 0
Joyce E. Heinzerling.......................... 5,000 5,000 0
Kenneth E. Higgins, Jr........................ 4,000 4,000 0
Kingdon Partners.............................. 60,000 60,000 0
Lighthouse Invest. Fund, L.P.................. 112,000 112,000 0
Lighthouse Partners USA L.P................... 290,000 290,000 0
LKCM Investment Partnership................... 85,000 85,000 0
Mark & Cynthia Gulis.......................... 15,000 15,000 0
Mary Kathryn Norman........................... 15,000 15,000 0
Michael J. Gaido.............................. 30,000 30,000 0
HBK Master Fund, Ltd.......................... 95,000 95,000 0
Nelson McCarter............................... 12,000 12,000 0
Paula L. Santoski............................. 30,000 30,000 0
Pharos Fund Limited........................... 754,000 754,000 0
Richard A. Englander.......................... 20,000 20,000 0
Ridgecrest Partners QP, Ltd................... 55,000 55,000 0
Ridgecrest Partners, L.P...................... 50,000 50,000 0
Ridgecrest Partners, Ltd...................... 15,000 15,000 0
Robert Garrison............................... 60,000 60,000 0

Robert L. Swisher, Jr......................... 15,000 15,000 0
Sanford Prater................................ 10,000 10,000 0
Stuart Kensinger.............................. 2,000 2,000 0
Thomas O. Meadows............................. 5,000 5,000 0
Valor Capital Management L.P.................. 20,000 20,000 0
Warren W. Garden.............................. 5,000 5,000 0
Zurich HFR Master Hedge Fund, Ltd............. 1,750 1,750 0
Jesse B. Shelmire............................. 195,570 195,570(7) 0
Scott R. Griffith............................. 195,570 195,570(7) 0
Griffith Shelmire Partners.................... 69,026 69,026(7) 0
Lancaster Investment Partners, L.P............ 50,000 50,000 0

OTHER SELLING STOCKHOLDERS
Wingate Capital............................... 103,000 103,000(8) 0
Fisher Capital................................ 189,200 189,200(8) 0
CCG Investment Fund........................... 3,900 3,900(8) 0
CCG Capital................................... 3,900 3,900(8) 0
Grayson & Associates.......................... 70,063 70,063(8) 0
Oscar S. Wyatt, Jr............................ 560,394 500,000(9) 60,394
Morton A. Cohn................................ 200,000 200,000(10) 0
Don A. Sanders................................ 75,000 75,000(11) 0
Susan Sanders Keller.......................... 11,250 11,250(11) 0
Bret D. Sanders............................... 11,250 11,250(11) 0
Brad D. Sanders............................... 11,250 11,250(11) 0
Laura K. Sanders.............................. 11,250 11,250(11) 0
George Ball................................... 15,000 15,000(11) 0
Christine M. Sanders.......................... 30,000 30,000(11) 0
Donald V. Weir................................ 30,000 30,000(11) 0
Katherine U. Sanders.......................... 60,000 60,000(11) 0
Lakefront Partners, Ltd....................... 60,000 60,000(11) 0
Steve Scott................................... 75,000 75,000(11) 0
Fayez Sarofim................................. 150,000 150,000(11) 0
AJC, Inc...................................... 450,000 450,000(12) 0
Robert Marvin................................. 100,000 100,000 0
Louis Falleta................................. 171,000 171,000 0
Crown Texas Realty Inc. Profit Sharing Plan... 100,000 100,000 0
Bonnie Ligon Dickens.......................... 300,000 300,000 0
Tim W. Lowell................................. 10,000 10,000 0
Fred Roesch & Melissa Roesch.................. 50,000 50,000 0
Richard E. Bean............................... 263,158 263,158 0

------------------------

(1) Beneficial ownership is determined under SEC rules and generally includes
voting or investment power with respect to securities and includes any
securities the person has the right to acquire within 60 days of April 10,
2001 through the conversion or exercise of any security or other right.

(2) Does not include shares beneficially owned by SJMB, L.P. Does not include
warrants to purchase 1,335,991 shares of common stock at $0.75 per share,
which vest October 15, 2001. Includes shares beneficially owned by Falcon
Seaboard Investment Co. L.P.

(3) Does not include shares beneficially owned by St. James Capital Partners,
L.P. Does not include warrants to purchase 6,264,009 shares of common stock
at $0.75 per share, which vest October 15, 2001.

(4) Pursuant to an Agreement for Purchase and Sale between the Company and
SJCP, L.P. ("SJCP") dated February 12, 1998, as partially assigned to SJMB,
L.P. ("SJMB") as of April 2, 1998 (the "Credit Agreement"), each of SJCP
and SJMB loaned money to the Company. In return for this loan, the Company
issued a warrant to SJCP for the purchase of 300,000 shares of common stock
at an exercise price of $7.50 per share and issued to SJMB a warrant for
the purchase of 1,200,000 shares of common stock at $7.50 per share.
Pursuant to the Credit Agreement, in connection with an extension of the
maturity date of the loan, in January 1999 the Company issued warrants to
SJCP and SJMB for the purchase of 110,000 shares and 425,000 shares of
common stock, respectively. On August 27, 1999, the Company registered the
resale of shares from the exercise of the warrants as well as additional
numbers of shares resulting from the application of anti-dilution
provisions in the warrants. On November 30, 2000, the Company entered into
a Settlement Agreement and Mutual Release with SJCP, SJMB, and other
related parties (the "Settlement Agreement") in connection with the
application of anti-dilution provisions in the existing warrants. In
connection with the Settlement Agreement, SJCP and SJMB surrendered their
existing warrants held by SJCP and SJMB in exchange for replacement
warrants issued by the Company to purchase its common stock at an exercise
price of $0.75 per share as follows: (a) to SJCP (i) 860,500 shares
expiring on June 30, 2002, (ii) 2,119 shares expiring on June 30, 2002,
(iii) 1,280,000 shares exercisable beginning on April 15, 2001 and expiring
on September 30, 2002, and (iv) 1,335,991 shares exercisable no earlier
than October 15, 2001 and expiring on September 30, 2002; and (b) to SJMB
(i) 3,427,001 shares expiring on June 30, 2002, (ii) 10,380 shares expiring
on June 30, 2002, (iii) 6,320,000 shares exercisable beginning on
April 15, 2001 and expiring on September 30, 2002, and (iv) 6,264,009
shares exercisable no earlier than October 15, 2001 and expiring on
September 30, 2002. The resale of all the shares covered by this Prospectus
for SJCP and SJMB is hereby registered pursuant to registration rights
provisions in the Settlement Agreement.

(5) The Coastal Corporation Second Pension Trust ("Coastal") currently holds
8,701,935 shares of common stock and warrants to purchase an additional
6,517,308 shares of common stock. Of its common stock holdings, 5,000,000
shares are attributable to a December 1999 private placement transaction
(as more fully described below), 2,777,778 shares are attributable to an
August 13, 1999 exchange of convertible debt to common stock, and 924,157
shares were paid as Series A Preferred Stock dividends. In the December
1999 private placement the Company issued to Coastal 5,000,000 shares of
common stock and warrants for the purchase of 5,000,000 shares of common
stock. These warrants have an exercise price of $0.75 per share and expire
December 16, 2002. Further, the Company reset the exercise price of two
existing warrants for the purchase of 450,000 shares and 1,067,308 shares,
having expiration dates of August 26, 2002 and August 12, 2004,
respectively, to $0.75 per share. The resale of all the shares covered by
this Prospectus for Coastal is hereby registered pursuant to registration
rights provisions contained in various registration rights agreements
between the Company and Coastal.

(6) In January and March 2000 the Company issued in two separate private
placement transactions common stock to certain accredited investors.
Stonegate Securities, Inc. ("Stonegate") served as placement agent for the
transactions. In the January 2000 transaction, the Company also issued
currently exercisable warrants to purchase common stock. The shares offered
by the 2000 Private Placement Stockholders include common stock and shares
issuable upon exercise of the warrants.

(7) Represents shares issuable upon exercise of currently exercisable warrants
issued to certain affiliates of Stonegate in connection with the services
by Stonegate as placement agent in the March 2000 private placement by the
Company.

(8) Represents shares issuable upon exercise of currently exercisable warrants.
Each of Wingate Capital, Fisher Capital, NP Partners, Olympus Securities,
Ltd., CCG Investment Fund and CCG Capital are entities managed and
controlled by Citadel Investment Group, L.L.C. or its affiliates
(collectively "Citadel"). The warrants were originally issued to the
Citadel group in connection with a private placement of the Company's
Series E Preferred Stock issued effective March 5, 1999. In April 2001,
each of NP Partners and Olympus Securities, Ltd. transferred the warrants
held by them to Wingate Capital and Fisher Capital, respectively.

(9) Includes currently exercisable warrants to purchase 50,000 shares at $2.00
per share expiring on May 8, 2002, 300,000 shares at $1.50 per share
expiring on March 8, 2002, and 150,000 shares at $2.998 per share expiring
on December 31, 2003.

(10) Includes 50,000 shares of common stock. Also includes currently exercisable
warrants to purchase 150,000 shares at $2.998 per share expiring on
December 31, 2003 issued in connection with a private placement by the
Company in December 1998.

(11) Represents shares issuable upon exercise of currently exercisable warrants
to purchase common stock at $2.998 per share expiring on December 31, 2003,
issued in connection with private placement transactions of common stock in
December 1998 and January 1999.

(12) Represents shares issuable upon exercise of currently exercisable warrants
to purchase 300,000 shares at $2.00 per share expiring on December 31, 2002
and 150,000 shares at $2.00 per share expiring on March 31, 2004, all of
which were issued pursuant to an Advisory Service Agreement between AJC,
Inc. and the Company.

Since the date on which the Selling Stockholders provided the information
regarding their holdings of common stock, the Selling Stockholders may have
sold, transferred or otherwise disposed of all or a portion of their common
stock in transactions exempt from the registration requirements of the
Securities Act. Additional information concerning the listed Selling
Stockholders may be set forth from time to time in Prospectus supplements to
this Prospectus. See "Plan of Distribution."

PLAN OF DISTRIBUTION

The common stock is offered on behalf of the Selling Stockholders. The
common stock may be sold or distributed from time to time by the Selling
Stockholders, or by donees or transferees of, or other successors in interest
to, the Selling Stockholders, directly to one or more purchasers or through
brokers, dealers or underwriters who may act solely as agents or may acquire
common stock as principals, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, at negotiated prices, or at
fixed prices, which may be changed. The sale of TeraForce common stock may occur
in one or more of the following methods:

(i) ordinary brokers' transactions;

(ii) transactions involving cross or block trades or otherwise on the Nasdaq
National Market, Nasdaq SmallCap Market or if applicable, the OTC
Bulletin Board;

(iii) purchases by brokers, dealers or underwriters as principal and resale
by such purchasers for their own accounts pursuant to this Prospectus;

(iv) "at the market" to or through market makers or into an existing market
for the common stock;

(v) in other ways not involving market makers or established trading
markets, including direct sales to purchasers or sales effected through
agents;

(vi) through transactions in options, swaps or other derivatives (whether
exchange-listed or otherwise);

(vii) in privately negotiated transactions; or

(viii) any combination of the foregoing.

From time to time, one or more of the Selling Stockholders may pledge,
hypothecate or grant a security interest in some or all of their shares, and the
pledges, secured parties or persons to whom such securities have been
hypothecated shall, upon foreclosure in the event of default, be deemed to be
Selling Stockholders hereunder.

From time to time one or more of the Selling Stockholders may transfer,
pledge, donate or assign such Selling Stockholders' shares to lenders or others
and each of such persons will be deemed to be a Selling Stockholder for purposes
of this Prospectus. The number of Selling Stockholders' shares beneficially
owned by those Selling Stockholders who so transfer, pledge, donate or assign
Selling Stockholders' shares will decrease as and when they take such actions.
The plan of distribution for Selling Stockholders' shares sold hereunder will
otherwise remain unchanged, except that the transferees, pledges, donees or
other successors will be Selling Stockholders hereunder.

Brokers, dealers, underwriters or agents participating in the distribution
of the common stock as agents may receive compensation in the form of
commissions, discounts or concessions from the Selling Stockholders and/or
purchasers of the common stock for whom such broker-dealers may act as agent, or
to whom they may sell as principal, or both (which compensation as to a
particular broker-dealer may be less than or in excess of customary
commissions). The Selling Stockholders and any broker-dealers who act in
connection with the sale of common stock covered by this Prospectus may be
deemed to be "Underwriters" within the meaning of the Securities Act, and any
commissions they receive and proceeds of any sale of common stock may be deemed
to be underwriting discounts and commissions under the Securities Act. Neither
TeraForce nor any Selling Stockholders can presently estimate the amount of such
compensation. We know of no existing arrangements between any Selling
Stockholders, any other stockholder, broker, dealer, underwriter or agent
relating to the sale or distribution of the common stock.

We will pay substantially all of the expenses incident to the registration,
offering and sale of the common stock to the public other than commissions or
discounts of underwriters, broker-dealers or agents. We have also agreed to
indemnify certain of the Selling Stockholders and certain related persons
against certain liabilities, including liabilities under the Securities Act.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of TeraForce,
TeraForce has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore,
unenforceable.

We have advised the Selling Stockholders that during such time as they may
be engaged in a distribution of the common stock included herein they are
required to comply with Regulation M promulgated under the Exchange Act. With
certain exceptions, Regulation M precludes any Selling Stockholder, any
affiliated purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to induce any
person to bid for or purchase any security which is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bids or purchases made in order to stabilize the price of a
security in connection with the distribution of that security. All of the
foregoing may affect the marketability of the common stock.

Because it is possible that a significant number of shares of the common
stock could be sold at the same time hereunder, such sales, or the possibility
thereof, may have a significant depressive effect on the market price of
TeraForce common stock.

This offering will terminate on the earlier of (a) the date on which the
shares are eligible for resale without restriction pursuant to Rule 144(k) under
the Securities Act or (b) the date on which all shares offered hereby have been
sold by the Selling Stockholders.

LEGAL MATTERS

The validity of the common stock offered by the Selling Stockholders hereby
will be passed upon by Bisk & Fitch, L.L.P., Houston, Texas.

EXPERTS

The financial statements of the Company as of December 31, 2000 and 1999,
and for each of the three years in the period ended December 31, 2000,
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement have been audited by Grant Thornton LLP independent certified public
accountants, as indicated in their report with respect thereto, and are included
herein in reference upon the authority of said firm as experts in accounting and
auditing in giving said reports.

PROSPECTUS

NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY TERAFORCE TECHNOLOGY CORPORATION (THE "COMPANY") OR ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH
IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION
WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.

TABLE OF CONTENTS

About TeraForce............................................. 2
Risk Factors................................................ 2
Where You Can Find More Information......................... 12
Incorporation of Certain Documents By Reference............. 12
Use of Proceeds............................................. 13
Selling Stockholders........................................ 13
Plan of Distribution........................................ 17
Legal Matters............................................... 19
Experts..................................................... 19