UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
or
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23038
_________
TANISYS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
WYOMING 74-2675493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12201 TECHNOLOGY BLVD., SUITE 130
AUSTIN, TEXAS 78727 78727
(Address of principal executive offices) (Zip Code)
(512) 335-4440
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/ Yes / / No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at February 24, 1997:
TITLE OF CLASS NUMBER OF SHARES
OUTSTANDING
-------------- -----------------
Common Stock, no par value 16,635,155
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Interim Consolidated Condensed Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets - December 31, 1996 and September 30, 1996..... 3
Consolidated Condensed Statements of Loss - For the Three Month Periods Ended
December 31, 1996 and 1995........................................................... 4
Consolidated Condensed Statements of Cash Flows - For the Three Month Periods
Ended December 31, 1996 and 1995..................................................... 5
Notes to Interim Consolidated Condensed Financial Statements (Unaudited)............. 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 13
Item 5. Other Information.................................................................... 13
Item 6. Exhibits............................................................................. 14
SIGNATURES........................................................................................ 15
2
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents $1,794,323 $2,689,569
Trade accounts receivable, net of allowance of $98,450
and $84,557, respectively 6,383,341 5,069,399
Accounts receivable from related parties 17,691 17,691
Inventory 2,043,833 1,804,458
Prepaid expense 391,159 217,570
----------- -----------
Total current assets 10,630,347 9,798,687
----------- -----------
Property and equipment, net of accumulated depreciation of
$1,081,516 and $906,589, respectively 2,131,481 1,817,479
Incorporation costs, net 896 1,024
Patents and trademarks, net 87,905 84,337
Goodwill, net of accumulated amortization of $3,552,333
and $2,220,208, respectively 7,104,665 8,436,790
Other assets 84,127 84,000
----------- -----------
$20,039,421 $20,222,317
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,762,142 $2,920,530
Accounts payable to related parties -- 64,618
Accrued liabilities 582,621 929,376
Revolving credit note 4,445,851 3,075,000
----------- -----------
Total current liabilities 7,790,614 6,989,524
----------- -----------
Obligations under capital lease 111,059 123,000
----------- -----------
Total liabilities 7,901,673 7,112,524
----------- -----------
Commitments and contingencies
Stockholders' equity:
Share capital-Common stock, no par value,
50,000,000 shares authorized, 16,626,655 and
15,978,537 shares issued and outstanding at
December 31, 1996 and September 30, 1996,
respectively 25,120,576 23,955,136
Accumulated deficit (12,975,883) (10,838,398)
Accumulated foreign currency translation adjustment (6,945) (6,945)
----------- -----------
Total stockholders' equity 12,137,748 13,109,793
----------- -----------
$20,039,421 $20,222,317
----------- -----------
----------- -----------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1996 1995
---- ----
Net sales $15,263,661 $83,643
Cost of goods sold 13,668,236 8,969
----------- ---------
Gross profit 1,595,425 74,674
----------- ---------
Operating expenses:
Research and development 518,708 100,611
Sales and marketing 697,986 73,053
General and administrative 906,315 298,224
Depreciation and amortization 1,456,340 18,692
----------- ---------
Total operating expenses 3,579,349 490,580
----------- ---------
Operating loss (1,983,924) (415,906)
----------- ---------
Other income (expense):
Interest income 11,709 14,589
Interest expense (165,270) --
----------- ---------
Net loss ($2,137,485) ($401,317)
----------- ---------
Loss per weighted average common share ($0.13) ($0.04)
----------- ---------
----------- ---------
Weighted average number of common shares 16,163,626 9,097,305
----------- ---------
----------- ---------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED DECEMBER 31,
1996 1995
---- ----
Cash flows from operating activities:
Net loss ($2,137,485) ($401,317)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 1,456,340 18,692
(Increase) decrease in accounts receivable (1,313,942) 3,986
(Increase) decrease in inventory (239,375) 3,987
Increase in prepaid expense (173,589) (9,610)
Decrease in accounts payable and accrued liabilities (569,761) (86,744)
----------- ----------
Net cash used in operating activities (2,977,812) (471,006)
----------- ----------
Cash flows from investing activities:
Purchase of fixed assets (435,690) (7,720)
Patents and trademark costs (6,094) (8,831)
----------- ----------
Net cash used in investing activities (441,784) (16,551)
----------- ----------
Cash flows from financing activities:
Net proceeds from issuance of common stock -- 115,000
Draws (payments) on revolving credit note, net 1,370,851 --
Principal payments on capital lease obligations (11,941) --
Net proceeds from exercise of stock options 10,440 --
Net proceeds from exercise of warrants 1,155,000 --
----------- ----------
Net cash provided by financing activities 2,524,350 115,000
----------- ----------
----------- ----------
Decrease in cash and cash equivalents (895,246) (372,557)
Cash and cash equivalents, beginning of period 2,689,569 1,317,024
----------- ----------
Cash and cash equivalents, end of period $1,794,323 $944,467
----------- ----------
----------- ----------
Supplemental disclosure of cash flow information:
Interest paid $165,270 $0
Interest received $11,709 $14,589
Non-cash activity:
Shares issued to related parties and others to
satisfy accrued liabilities $0 $47,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements present the consolidated financial
position, results of operations and cash flows of Tanisys Technology, Inc.
and its wholly owned subsidiaries (the "Company") as of the dates and for the
periods indicated. All material intercompany accounts and transactions have
been eliminated in consolidation.
The accompanying unaudited consolidated condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. It is recommended that these
interim condensed financial statements be read in conjunction with the
Company's consolidated financial statements and the notes thereto for the
fiscal year ended September 30, 1996 contained in the Company's Registration
Statement on Form 10 (SEC File No. 0-29038) filed with the Securities and
Exchange Commission on November 27, 1996, as amended in Form 10/A Amendment
No. 1 filed January 24, 1997.
In the opinion of management, all adjustments, which are of a normal
recurring nature, considered necessary to present fairly the consolidated
financial position as of December 31, 1996, the consolidated results of
operations for the three-month periods ended December 31, 1996 and 1995 and
the consolidated cash flows for the three-month periods ended December 31,
1996 and 1995 have been made.
NOTE 2: RECEIVABLES
One customer accounted for a significant percentage of the Company's accounts
receivable at December 31, 1996. Accounts receivable from one memory module
customer represented $1.8 million, or 27%, of the $6.4 million balance of
accounts receivable at December 31, 1996. Management believes the
receivables will be collected within a year, although there is no assurance
that such will be the case. The Company's business, financial condition and
results of operations will depend in significant part upon its ability to
obtain orders from new customers, as well as the financial condition and
success of its customers, the success of its customers' products and the
general economy. Factors affecting any of the Company's major customers and
their respective customers could have a material adverse effect on the
Company's business, financial condition and results of operations.
NOTE 3: INVENTORY
Inventory consists of the following:
(Unaudited) (Audited)
December 31, September 30,
1996 1996
------------ -------------
Raw ma terials $1,306,194 $1,343,522
Work-in-process 131,411 203,017
Finished goods 606,228 257,919
----------- ----------
$2,043,833 $1,804,458
6
NOTE 4: REVOLVING CREDIT NOTE
At December 31, 1996, the Company did not comply with certain financial
covenants. The financial institution has waived compliance with those
covenants as of and for the three months ended December 31, 1996. See "Note
7: Subsequent Events" below.
NOTE 5: SHARE CAPITAL, OPTIONS AND WARRANTS
STOCK OPTIONS
During the first quarter of fiscal 1997, stock options were exercised for the
purchase of 4,000 common shares for total gross proceeds of $10,440.
WARRANTS
During the first quarter of fiscal 1997, warrants were exercised for the
purchase of 644,118 common shares for total gross proceeds of $1,155,000.
NOTE 6: COMMITMENTS AND CONTINGENCIES
The Company is not currently using the computer game controller technology,
and the associated royalty does not relate to any of the Company's current
products.
NOTE 7: SUBSEQUENT EVENTS
In January 1997, stock options were exercised for the purchase of 8,500
common shares for total gross proceeds of $22,460.
In February 1997, in connection with the waiver of the non-compliance with
the financial covenants noted in "Note 4" above, the Company agreed to reduce
the maximum amount of available borrowings of the revolving credit note
referred to in "Note 4" above from $6 million to $4 million over an
eight-week period. In conjunction with this reduction, the Company also
agreed to reduce the percentage of qualified accounts receivable included in
the borrowing base from its current 80% to 70%. This reduction would occur
1% per week over a five-week period and an additional 1% per month over the
subsequent five-month period. The Company had outstanding borrowings against
the revolving note of $4.4 million at February 15, 1997.
The Company has a total of $1.5 million in accounts receivable which are in
excess of 90 days past invoice date. Two customers, one of which is discussed
in "Note 2" above, account for $1.1 million of the amount past due over 90
days. The total accounts receivable on these two accounts is $2.2 million,
of which the Company has insurance coverage of $250 thousand and therefore
exposure of approximately $1.95 million in potential loss.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES (THE
"TANISYS GROUP") THAT ARE BASED ON THE BELIEFS OF THE TANISYS GROUP'S
MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND INFORMATION CURRENTLY AVAILABLE
TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS REPORT, THE WORDS
"ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND "INTEND" AND WORDS OR
PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY OR ITS SUBSIDIARIES
OR THE TANISYS GROUP'S MANAGEMENT, ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS, UNCERTAINTIES AND
ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT LIMITATIONS,
COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER CONCENTRATIONS,
CUSTOMER RELATIONSHIPS AND FINANCIAL CONDITION, RELATIONSHIPS WITH VENDORS,
THE INTEREST RATE ENVIRONMENT, GOVERNMENTAL REGULATION AND SUPERVISION,
SEASONALITY, DISTRIBUTION NETWORKS, PRODUCT INTRODUCTIONS AND ACCEPTANCE,
TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY PRACTICES, ONE-TIME EVENTS AND
OTHER FACTORS DESCRIBED HEREIN. BASED UPON CHANGING CONDITIONS, SHOULD ANY
ONE OF MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD ANY
UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY
FROM THOSE DESCRIBED HEREIN AS ANTICIPATED, BELIEVED, ESTIMATED, EXPECTED OR
INTENDED. THE TANISYS GROUP DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING
STATEMENTS.
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Tanisys Group for the three-month periods ended
December 31, 1995 and 1996. It should be read in conjunction with the
Interim Condensed Consolidated Financial Statements of Tanisys Technology,
Inc. (the "Company") and subsidiaries (collectively known as the "Tanisys
Group"), the Notes thereto and other financial information included elsewhere
in this report. For purposes of the following discussion, references to year
periods refer to the Tanisys Group's fiscal year ended September 30, 1996 and
references to quarterly periods refer to the Tanisys Group's fiscal quarters
ended December 31, 1995 and 1996.
The Company was organized under the laws of the Province of British Columbia,
Canada, on January 27, 1984, as Montebello Resources Ltd., and pursued oil
and gas exploration in British Columbia and Manitoba, Canada. In October
1992, the Company changed its name to First American Capital Group Inc.
Unsuccessful in the exploration business, the Company became dormant pursuant
to the rules and regulations of the Vancouver Stock Exchange (the "VSE").
During the first two quarters of 1993, the Company was reorganized in
accordance with the rules of the VSE. As part of this reorganization, the
Company acquired Timespan Communications Corp. ("Timespan") and its computer
game controller technology. Timespan, a wholly owned subsidiary of the
Company, was dissolved as of October 23, 1996. The Company changed its name
to Rosetta Technologies Inc. in May 1993 and to Tanisys Technology, Inc. in
July 1994. Until May 20, 1996, the Company focused on research and
development of highly specialized applications of capacitive touch sensing
technology.
Effective May 20, 1996, the Company acquired, through mergers with its wholly
owned subsidiaries, all of the outstanding common stock of 1st Tech
Corporation ("1st Tech") and DarkHorse Systems, Inc. ("DarkHorse") and began
operations in Austin, Texas as a consolidated group of companies. The
Tanisys Group consists of technology solutions companies that provide custom
design, engineering and manufacturing services, test solutions and standard
and custom module products to leading original equipment manufacturers
("OEMs") in the computer networking and telecommunications industries. In
consideration for the acquisitions of 1st Tech and DarkHorse, the Company
issued 2,950,000 and 1,200,000 shares, respectively, of its common stock, no
par value ("Common Stock"). Prior but subject to the
8
consummation of the acquisitions of 1st Tech and DarkHorse by the Company,
1st Tech issued 1,150,000 shares of its common stock for $2.00 per share in
an equity financing, raising a total of $2.3 million, the proceeds of which
were used to reduce short-term debt and provide working capital for 1st Tech.
The Tanisys Group's net sales and gross profit increased dramatically in
the last two quarters of fiscal year 1996 and the first quarter of the
current fiscal year, due to the acquisitions of 1st Tech and DarkHorse. In
fiscal 1996, revenues were $15.0 million with gross profit of $2.3 million
(15.5% of revenue) versus fiscal 1995 revenues of $.4 million and gross
profit of $.2 million (69.4% of revenue). This is an increase in revenues of
$14.6 million, in excess of 4,000%, and in gross profit of $2.1 million, more
than 800%. Net losses increased to $4.4 million in fiscal 1996, or 29.4% of
gross revenues, from $2.4 million in fiscal 1995, or 681.6% of gross
revenues. The increases in revenues, gross profit and net losses are due
primarily to the acquisitions of 1st Tech and DarkHorse on May 20, 1996.
Management believes that revenues and gross profits will fluctuate due to the
continuing oversupply of memory chips, which dramatically drives down the
prices of the Tanisys Group's products, the continuing fluctuations in the
cost of memory and components, the fact that many of the Tanisys Group's
competitors are better capitalized and can purchase inventory in sufficient
quantities to obtain more favorable pricing, and other factors, including
changes in pricing by suppliers and competitors and changes in the proportion
of contract manufacturing done--where the customer consigns the
material--versus manufacturing on a turnkey basis--where the Tanisys Group
purchases the necessary materials.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated income data of the
Tanisys Group expressed as a percentage of net sales (unaudited) for the
three-month periods ended December 31, 1996 and 1995:
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
---- ----
Net sales 100.0% 100.0%
Cost of goods sold 89.5 10.7
----- -----
Gross profit 10.5 89.3
----- -----
Operating expenses:
Research and development 3.4 120.3
Sales and marketing 4.6 87.3
General and administrative 5.9 356.5
Depreciation and amortization 9.5 22.3
----- -----
Total operating expenses 23.5 586.5
----- -----
Operating loss -13.0 -497.2
Other income (expense), net -1.0 17.4
----- -----
Net loss -14.0% -479.8%
----- -----
----- -----
NET SALES
Net sales consist of custom manufacturing services, custom memory modules,
standard memory modules, design engineering fees, memory module test
solutions and advanced technology services, less returns and discounts. Net
sales increased from $84 thousand in the first quarter of fiscal 1996 to
$15.3 million in the first quarter of fiscal 1997. The increase in fiscal
1997 is primarily due to the acquisitions of 1st Tech and DarkHorse and, to a
lesser degree, to increases in sales volume in the 1st Tech memory module
product line.
9
COST OF SALES AND GROSS PROFIT
Cost of sales includes the costs of all components and materials purchased
for the manufacture of products and the direct labor and overhead costs
associated with manufacturing. Gross profit increased from $75 thousand in
the first quarter of fiscal 1996 to $1.6 million in first quarter fiscal
1997. Gross margin decreased from 89.3% in first quarter fiscal 1996 to
10.5% in first quarter 1997. The increase in gross profit as well as the
decrease in gross margin were primarily due to the acquisitions of 1st Tech
and DarkHorse and the dramatic change in the types of products being sold by
the Company before and after the acquisitions. To a lesser extent, the
improvement in the Company's gross profit was due to the addition of
consignment inventory of certain memory components, shortening the
manufacturing response time and making it possible to compete on the basis of
timeliness of delivery rather than on price alone, while not exposing the
Tanisys Group's assets to the risk of carrying larger inventories.
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the costs associated with the
design and testing of new technologies and products. These relate primarily
to the costs of materials, personnel, management and employee compensation
and engineering design consulting fees. Research and development expenses
increased from $101 thousand in first quarter fiscal 1996 to $519 thousand in
first quarter fiscal 1997, representing an increase of 415.6% from period to
period. The substantial increase was primarily due to the acquisitions of
the additional product lines of 1st Tech and DarkHorse and the related
research and development expenditures.
SALES AND MARKETING
Sales and marketing expenses include all employee and independent sales
personnel compensation, as well as the costs of advertising, promotions,
trade shows, travel and direct support. Sales and marketing expenses
increased from $73 thousand in first quarter fiscal 1996 to $698 thousand in
first quarter fiscal 1997, an 855.5% increase. In the first quarter of
fiscal years 1996 and 1997, sales and marketing expenses expressed as a
percentage of revenues were 87.3% and 4.6%, respectively. The increase in
actual funds expended was connected with the acquisitions of the product
lines of 1st Tech and DarkHorse. The decrease in the expenses expressed as a
percentage of revenues was caused primarily by the significant increase in
revenues related to the acquisitions of 1st Tech and DarkHorse. Sales and
marketing expenses are expected to remain approximately the same or to grow
slightly when expressed as a percentage of revenue and to continue to
increase significantly in terms of absolute dollars in future periods as
revenues continue to grow.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of personnel costs,
including employee compensation and benefits, and support costs, including
utilities, insurance, professional fees and all costs associated with a
reporting company. General and administrative expenses increased to $906
thousand in first quarter fiscal 1997 from $298 thousand in first quarter
fiscal 1996, a 203.9% increase. In the first quarter of fiscal years 1996 and
1997, general and administrative expenses expressed as a percentage of
revenues were 356.5% and 5.9%, respectively. The increase in actual funds
expended in fiscal 1997 is primarily due to the acquisitions of 1st Tech and
DarkHorse. The decrease in expenses expressed as a percentage of revenues is
primarily caused by the significant increase in revenues related to the
acquisitions of 1st Tech and DarkHorse and, to a lesser extent, to the
institution of cost controls on general and administrative expenses. The
absolute dollar expenses associated with the general and administrative area
are expected to increase significantly in future periods due to anticipated
continued growth in business activity and increased costs associated with
being a reporting company. The general and administrative expenses are not
expected to grow significantly in future periods when expressed as a
percentage of sales.
10
DEPRECIATION AND AMORTIZATION
Depreciation and Amortization includes the depreciation for all fixed
assets and the amortization of intangibles, including goodwill incurred in
the acquisitions of 1st Tech and DarkHorse. Depreciation and amortization
increased to $1.5 million in first quarter fiscal 1997 from $19 thousand in
first quarter fiscal 1996. The substantial increase is due primarily to the
amortization of the goodwill recorded in conjunction with the acquisitions of
1st Tech and DarkHorse.
OTHER INCOME (EXPENSE)
Net other income (expense), consists primarily of interest income less
interest expense. Interest expense is attributable to borrowings from a
revolving credit note. Substantially all of the interest expense relates to
credit line draws made for short-term inventory requirements and to fund
accounts receivable. Interest income relates to investment of available cash
in short-term interest bearing accounts and cash equivalent securities. The
Company had no debt and earned interest on its available cash until its May
20, 1996 acquisitions of 1st Tech and DarkHorse. Thereafter, the Tanisys
Group incurred net interest expense due to the increased balances of
inventories and accounts receivable. The Tanisys Group expects to continue
to require borrowings to fund growth in inventories and accounts receivable
in the future and therefore expects to continue to reflect net interest
expense.
PROVISION FOR INCOME TAXES
The Company has never paid income taxes and at September 30, 1996 had a net
operating loss carryforward of $4.3 million. While there can be no assurance
that the Tanisys Group will generate the taxable income required to use all
or any part of the carryforward prior to the expiration of the carryforward,
the Tanisys Group would be able to incur taxable income in the carryforward
period equal to the total loss carryforward without the payment of taxes.
The existing carryforward expires 15 years after the year in which it was
incurred. Therefore, if the carryforward is not used to offset future
taxable income, the net operating loss carryforward at September 30, 1996
will expire in fiscal years 2010 ($2.5 million) and 2011 ($1.8 million).
The availability of the net operating loss carryforward and future tax
deductions to reduce taxable income is subject to various limitations under
the Internal Revenue Code of 1986, as amended, in the event of ownership
change as defined in Section 382 of the Code.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used funds generated from operations,
equity financings, capital leases, vendor credits and certain bank borrowings
to support its operations, acquire capital equipment and finance inventory
acquisitions and accounts receivable balances. During the first quarter
fiscal 1997, the Company generated $2.5 million in net cash from financing
activities versus $.1 million in the first quarter fiscal 1996. The $2.5
million in fiscal 1997 consisted of $1.2 million from the exercise of
warrants and options to purchase common stock and $1.3 million of net draws
on the Company's revolving credit note.
Subsequent to the May 20, 1996 acquisitions, the Tanisys Group has
utilized the funds acquired in an equity financing of Common Stock in the
first quarter of fiscal 1996, the exercise of warrants and stock options,
capital and operating leases, vendor credits, certain bank borrowings and
funds generated from operations to support its operations, carry on research
and development activities, acquire capital equipment, finance inventories
and accounts receivable and pay its general and administrative expenses.
There have been no further offerings or issuances of unregistered securities
other than in connection with the exercise of warrants and stock options. At
December 31, 1996, the Tanisys Group had $1.8 million of cash and $2.8
million of working capital.
11
The Company currently has two customers with a total of $2.2 million in
accounts receivable which are not in compliance with the agreed payment
terms. The Company is aggressively attempting to collect the accounts and
has been assured by both customers that full or partial payment will be made.
However, at this time there is no assurance that the accounts will be
collected or if collected, what time period will be required for full
collection. The Company has a total of $250 thousand insurance coverage on
these two accounts. Until collection can be made, the Company will be
required to use virtually all of its cash and cash equivalents to carry these
accounts. Accounts over 90 days are excluded from the borrowing base and
reduce the available credit under the revolving credit note referenced in
"Note 4" of notes to the consolidated financial statements.
The Tanisys Group has a $6 million revolving credit note at a financial
institution bearing interest at the financial institution's prime rate plus a
percentage between one and three percent (8.25% as of December 31, 1996)
depending upon a ratio which is calculated monthly. This revolving credit
note is due on the earlier of demand or when note matures June 30, 1998 and
is secured by all of the Company's assets. Draws are made as necessary from
funds available for borrowing, which are limited to the lower of the
commitment amount or a borrowing base amount calculated based on certain
levels of accounts receivable. At December 31, 1996, $4.4 million was
outstanding and there were no additional borrowings available under the
revolving credit note. The revolving credit note has certain restrictions
concerning, among other things, the payment of dividends, additional debt and
material changes in management and requires the Tanisys Group to maintain
certain minimum financial ratios including a minimum net worth and minimum
current ratio. At December 31, 1996, the Tanisys Group did not comply with
certain financial covenants. The financial institution has waived compliance
with the covenants as of and for the three months ended December 31, 1996.
In connection with the granting of the waivers, the Company agreed with the
financial institution to phase the total amount of the revolving credit note
down to $4 million over an eight-week period beginning February 21, 1997, and
to reduce the percentage of qualified accounts receivable included in the
borrowing base from 80% to 70% by 1% per week for five weeks and then 1% per
month over the subsequent five-month period. At February 15, 1997, the
Company had utilized $4.4 million of its revolving credit note.
Capital expenditures totaled approximately $8 thousand and $436 thousand
in the first quarter of fiscal years 1996 and 1997, respectively. These
expenditures were primarily for the purchase of manufacturing equipment, test
equipment and the expansion of manufacturing facilities. The Tanisys Group
expects to fund capital expenditures of approximately $2 million in the
remainder of fiscal 1997 for additional manufacturing capacity through
working capital, operating leases and capital leases.
The Tanisys Group has entered into certain capital lease arrangements.
The outstanding principal on these obligations at December 31, 1996 was $163
thousand.
The Tanisys Group believes that its existing funds, anticipated cash flow
from operations and amounts available from future vendor credits, bank
borrowings and the exercise of outstanding warrants will be sufficient to
meet its working capital and capital expenditure needs for the next twelve
months at the projected level of operations. However, if the warrant holders
should choose not to exercise a significant amount of the outstanding
warrants, the Company would be required to obtain alternate sources for
additional debt and rely upon a future equity offering or offerings for such
funding. Management is considering a proposal to reduce the exercise price
of outstanding warrants. There is no assurance that the warrants holders
will choose to exercise their warrants or, in the event that they choose not
to exercise, that the Company will be able to locate an alternate source or
sources for the required increase in its outstanding debt or that it will be
successful in its attempts to raise a sufficient amount of funds in a
subsequent equity offering or offerings. In such event, the Company's
inability to raise needed funds could have a material adverse effect on the
Company.
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SIGNIFICANT CUSTOMER CONCENTRATION
A significant percentage of the Tanisys Group's net sales is produced by a
relatively small number of customers. In the first quarters of fiscal 1996
and 1997, the ten largest customers accounted for approximately 66% and 73%
of net sales, respectively. No single customer produced as much as 10% of
net sales during either period. While the Company expects to continue to be
dependent on a relatively small number of customers for a significant
percentage of its net sales, there can be no assurance that any of the top
ten customers in fiscal 1997 will continue to utilize the Company's products
or services. The actual customers producing the sales are different between
the two periods, and the Company expects this type of variation of volume of
purchases from a particular customer to continue throughout this fiscal year.
The Company in general has no firm long-term volume commitments from its
customers and generally enters into individual purchase orders with its
customers. Customer purchase orders are subject to change, cancellation or
delay with little or no consequence to the customer. Therefore, the Company
has experienced such changes and cancellations and expects to continue to do
so in the future. The replacement of canceled, delayed or reduced purchase
orders with new business cannot be assured. The Company's business,
financial condition and results of operations will depend significantly on
its ability to obtain purchase orders from existing and new customers, upon
the financial condition and success of its customers, the success of
customer's products and the general economy. Factors affecting the
industries of the Company's major customers could have a material adverse
effect on the Company's business, financial condition and results of
operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
At the date hereof, there is no pending or, to the best knowledge of the
Company, threatened litigation involving the Company.
ITEM 5. OTHER INFORMATION
On November 27, 1996, the Tanisys Group filed its Form 10, General Form
for Registration of Securities Pursuant to Section 12(b) or (g) of the
Securities Exchange Act of 1934, in order to become a reporting company in
the United States in preparation for an application to be listed on the
National Association of Securities Dealers, Inc.'s ("Nasdaq") SmallCap Market
("Nasdaq SmallCap Market"). On January 6, 1997, the Tanisys Group filed the
Nasdaq SmallCap Market Application required to be considered for listing on
that system. The Tanisys Group received comments from the Securities and
Exchange Commission (the "SEC") on January 27, 1997. The Tanisys Group must
satisfactorily respond to such comments from the SEC prior to the completion
of the processing of the Nasdaq SmallCap Market application and plans to file
the required responses expeditiously and to pursue the Nasdaq SmallCap Market
application approval. There can be no assurance that the SEC will accept the
Tanisys Group's responses, that the SEC will not have further comments upon
the receipt of such responses or that the application for listing on the
Nasdaq SmallCap Market will be approved.
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ITEM 6. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference
in this report. Where such filing is made by incorporation by reference to a
previously filed document, such document is identified in parenthesis.
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
3.1 Articles of Continuance dated June 30, 1993 (Exhibit 3.1 to Form 10 Registration Statement filed
November 27, 1996)
3.2 Articles of Amendment to Articles of Continuance dated July 11, 1994 (Exhibit 3.2 to Form 10
Registration Statement filed November 27, 1996)
3.3 Articles of Amendment dated April 28, 1995 (Exhibit 3.3 to Form 10 Registration Statement filed
November 27, 1996)
3.4 Articles of Amendment dated April 15, 1996 (Exhibit 3.4 to Form 10 Registration Statement filed
November 27, 1996.
3.5 Restated Bylaws of the Company (Exhibit 3.5 to Form 10 Registration Statement filed November 27,
1996)
4.1 Form of Warrant Agreement dated May 17, 1995 (Exhibit 4.1 to Form 10 Registration Statement filed
November 27, 1996)
4.2 Form of Class B Warrant (Exhibit 4.2 to Form 10 Registration Statement filed November 27, 1996)
4.3 Share Purchase Warrant Certificate dated October 13, 1995 (Exhibit 4.3 to Form 10 Registration
Statement filed November 27, 1996)
4.4 Form of Warrant Agreement dated as of December 20, 1995 (Exhibit 4.4 to Form 10 Registration
Statement filed November 27, 1996)
4.5 Form of Class C Warrant (Exhibit 4.5 to Form 10 Registration Statement filed November 27, 1996)
4.6 Specimen of Common Stock Certificate (Exhibit 4.6 to Form 10 Registration Statement filed
November 27, 1996)
10.16 Employment Agreement dated October 11, 1996 by and between the Company and Guy Fielder (filed
herewith)
10.22 Manufacturing Agreement dated as of November 1, 1996 by and between the Company and Siemens
Components, Inc. (filed herewith)
10.23 Inventory Management Service Agreement dated as of November 1, 1996 by and between the
Company and Siemens Components, Inc. (filed herewith)
10.24 Amendment and Restatement of Credit Agreement, dated as of February 21, 1997, by and
between 1st Tech, DarkHorse, the Company and The Chase Manhattan Bank (filed herewith)
10.25 Revolving Credit Note dated as of February 21, 1997, by and between 1st Tech, DarkHorse,
the Company and The Chase Manhattan Bank (filed herewith)
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12.1 Statement regarding Computation of Per Share Earnings (filed herewith)
21.1 Subsidiaries of the Company (filed herewith)
27.1 Financial Data Schedule (filed herewith)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TANISYS TECHNOLOGY, INC.
Date: February 26, 1997 By: /s/ MARK C. HOLLIDAY
------------------------------------
Chairman of the Board and
and Chief Executive Officer
Date: February 26, 1997 By: /s/ JOE O. DAVIS
------------------------------------
Senior Vice President and
and Chief Financial Officer
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