UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _______________ TO _______________.
333-83123
(Commission File Numbers)
TALISMAN ENTERPRISES INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
ONTARIO 3600
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
</TABLE>
2330 Southfield Road, Unit 3-4
Mississauga, Ontario
Canada L5N 2W8
(Address of principal executive offices)
(905) 826-3995
(Registrants' telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrants (1) have 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
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. YES [ X ] NO[ ]
As of June 30, 2000, 3,035,187 shares of Common Stock, par value $.001 per
share, of Talisman Enterprises Inc. were issued and outstanding.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Financial Statements of
TALISMAN ENTERPRISES INC.
Three MONTHS ended June 30, 2000 - Unaudited
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheets as at June 30, 2000 and December 31, 1999 3
Consolidated Statements of Loss and Deficit for the three and six months ended June 30, 2000 and June 4
30,1999
Consolidated Statements of Cash Flows for the three and six months ended June 30, 2000 and June 30,1999 5
Notes to Consolidated Financial Statements 6-7
</TABLE>
<PAGE>
Talisman Enterprises Inc.
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEET
[in U.S. dollars and prepared in accordance with accounting principles
generally accepted in the United States]
<TABLE>
<CAPTION>
Unaudited Audited
June 30, December 31,
2000 1999
$ $
-------------------------------------------------------------------------------------------------------------------
ASSETS
Current
<S> <C> <C>
Cash 322,806 16,557
Accounts receivable 293,619 400,672
Inventories [note 2] 1,315,323 1,035,006
Prepaid expenses 78,227 511,193
Deferred financing costs 52,021 366,505
------------------------------------------------------------------------------------------------------------------
Total current assets 2,061,996 2,329,933
------------------------------------------------------------------------------------------------------------------
Capital assets 3,354,652 3,430,218
------------------------------------------------------------------------------------------------------------------
5,416,648 5,760,151
------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current
Bank operating line -- 539,872
Accounts payable and accrued liabilities 522,693 1,622,594
Note payable -- 358,003
Convertible promissory note -- 5,073,135
Current portion of long-term debt 127,195 130,368
------------------------------------------------------------------------------------------------------------------
Total current liabilities 649,888 7,723,972
------------------------------------------------------------------------------------------------------------------
Long-term debt 243,385 314,640
Deferred income tax liability 448,895 491,111
Shareholders' equity (deficiency)
Share capital 12,708,133 4,277,540
Warrants 101,463 101,463
Contributed surplus 284,233 284,233
Deficit (8,680,240) (7,279,842)
Accumulated other comprehensive loss (339,109) (152,966)
------------------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficiency) 4,074,480 (2,769,572)
------------------------------------------------------------------------------------------------------------------
5,416,648 5,760,151
------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
On behalf of the Board:
Director Director
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
[in U.S. dollars and prepared in accordance with accounting principles
generally accepted in the United States]
Unaudited
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
$ $ $ $
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues 221,979 41,840 335,226 70,688
Operating expenses [exclusive of
amortization shown separately below] 534,646 383,079 732,886 639,566
------------------------------------------------------------------------------------------------------------------
Gross profit (312,667) (341,239) (397,660) (568,878)
------------------------------------------------------------------------------------------------------------------
Expenses
Selling, general and administrative 386,758 547,499 779,717 872,648
Amortization 120,202 291,699 222,128 370,003
Interest and bank charges 6,123 96,134 31,415 105,133
------------------------------------------------------------------------------------------------------------------
513,083 935,332 1,033,260 1,347,784
------------------------------------------------------------------------------------------------------------------
Loss before income taxes (825,750) (1,276,571) (1,430,920) (1,916,662)
Income taxes - deferred (15,123) (14,695) (30,522) (28,990)
------------------------------------------------------------------------------------------------------------------
Loss for the period (810,627) (1,261,876) (1,400,398) (1,887,672)
Deficit, beginning of period (7,869,613) (3,864,778) (7,279,842) (3,238,982)
------------------------------------------------------------------------------------------------------------------
Deficit, end of period (8,680,240) (5,126,654) (8,680,240) (5,126,654)
------------------------------------------------------------------------------------------------------------------
Loss per share (0.27) (1.22) (0.52) (1.83)
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENT OF CASH FLOWS
[in U.S. dollars and prepared in accordance with accounting principles
generally accepted in the United States]
Unaudited
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
$ $ $ $
-------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Loss for the period (810,627) (1,261,876) (1,400,398) (1,887,672)
Charges to income not affecting cash
Amortization of capital assets 120,202 291,699 222,128 370,003
Deferred income taxes (15,123) (14,695) (30,522) (28,990)
Change in non-cash working
capital items (136,468) (371,231) (855,318) (1,003,634)
------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (842,016) (1,356,103) (2,064,110) (2,550,293)
------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Purchase of capital assets (63,660) (453,535) (216,983) (676,211)
------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of convertible promissory note -- 2,478,628 -- 5,174,473
Deferred financing costs -- (322,222) -- (797,677)
Repayment of long-term debt (31,780) (25,510) (64,140) (153,588)
Increase in note payable -- -- -- --
Issue of common shares -- -- 3,299,956 --
Bank operating line -- 19,695 (531,223) (335,833)
------------------------------------------------------------------------------------------------------------------
Cash provided by (used in)
------------------------------------------------------------------------------------------------------------------
financing activities (31,780) 2,150,591 2,704,593 3,887,375
------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (28,914) (47,251) (117,251) (15,348)
-------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during
the period (966,370) 293,702 306,249 645,523
Cash, beginning of period 1,289,176 368,522 16,557 16,701
------------------------------------------------------------------------------------------------------------------
Cash, end of period 322,806 662,224 322,806 662,224
------------------------------------------------------------------------------------------------------------------
NON-CASH FINANCING ACTIVITIES
Conversion of promissory note -- -- (5,073,135) --
Conversion of note payables -- -- (356,349) --
Deferred financing costs -- -- 299,022 --
-------------------------------------------------------------------------------------------------------------------
-- -- (5,130,462) --
-------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY INFORMATION
Cash interest paid 16,082 19,459 32,665 36,815
Cash income taxes paid -- -- -- --
See accompanying notes
</TABLE>
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in U.S. dollars and prepared in accordance with accounting principles
generally accepted in the United States]
Unaudited
June 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information in the United States and with the 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. In the opinion of management, all
adjustments considered necessary for a fair presentation have been included.
Operating results for the six months period ended June 30, 2000 are not
necessarily indicative of the results that are expected for the year ending
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes included in the Talisman Enterprises Inc. annual report
on Form 10-KSB for the year ended December 31, 1999.
For purposes of these consolidated financial statements, the company has adopted
the U.S. dollar as the reporting currency. This improves investors' ability to
compare the company's results with those of most other publicly traded
businesses in the industry. These consolidated financial statements have been
translated from Canadian dollars to U.S. dollars by translating assets and
liabilities at the rate in effect at the respective balance sheet date and
revenues and expenses at the average rate for the period. Any resulting foreign
exchange gains or losses are recorded in accumulated other comprehensive loss.
2. NATURE OF OPERATIONS
Talisman Enterprises Inc. is a company incorporated to primarily produce premium
private label alkaline batteries. The consolidated financial statements have
been prepared by management in accordance with accounting principles generally
accepted in the United States on a going concern basis, which contemplates the
realization of assets and the discharge of liabilities in the normal course of
business for the foreseeable future. The company has incurred significant losses
and negative cash flow from operations and has an accumulated deficit of
$8,680,240 at June 30, 2000 [December 31, 1999 - $7,279,842]. The company's
ability to continue as a going concern is in substantial doubt and is dependent
upon achieving a profitable level of operations and, if necessary, obtaining
additional financing. Management of the company has undertaken steps as part of
a plan to improve operations with the goal of sustaining company operations for
the next twelve months and beyond. These steps include (i) focusing sales and
marketing on specific markets and customers and (ii) controlling overhead and
expenses. There can be no assurance the company can attain profitable operations
in the future. These consolidated financial statements do not give effect to any
adjustments which would be necessary should the company be unable to continue as
a going concern and therefore, be required to realize its assets and discharge
its liabilities in other than the normal course of business and at amounts
different from those reflected in the accompanying consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in U.S. dollars and prepared in accordance with accounting principles
generally accepted in the United States]
Unaudited
<TABLE>
<CAPTION>
3. INVENTORIES
June 30, December 31,
2000 1999
$ $
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and packaging 388,146 316,829
Finished goods 927,177 718,177
------------------------------------------------------------------------------------------------------------------
1,315,323 1,035,006
------------------------------------------------------------------------------------------------------------------
</TABLE>
4. LOSS PER SHARE
The calculation of loss per common share is based on the reported net loss
divided by the weighted average number of shares outstanding during the period.
The weighted average number of common shares outstanding for the three months
ended June 30, 2000 was 3,035,187 and six months ended June 30, 2000 was
2,705,250, [three and six months ended June 30, 1999 - 1,034,324].
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward-
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Additionally, the following discussion and analysis
should be read in conjunction with the Financial Statements and notes thereto
appearing elsewhere in this Report. The discussion is based upon such financial
statements which have been prepared in accordance with U.S. Generally Accepted
Accounting Principles and are presented in United States dollars ($).
General
Talisman was incorporated in July 1978 and for almost 20 years carried
on business as a junior mineral exploration company in the Province of Ontario,
Canada. In September 1997, Talisman (then known as Firesand Resources Ltd.)
entered into a share exchange agreement with Talisman International Inc.
pursuant to which Talisman acquired all of the issued and outstanding shares of
common stock of Talisman International in exchange for shares of Talisman. Upon
completion of the share exchange, Firesand Resources Ltd. changed its name to
its current name, Talisman Enterprises Inc. The share exchange was accounted for
as a reverse takeover and accordingly, the results of Talisman (formerly
constituted as Firesand) have been included with those of Talisman International
from the date of the share exchange.
Talisman, through our wholly-owned operating subsidiary, Talisman
International Inc., manufacturers high-quality AA size disposable alkaline
batteries for private label sale by retailers. We are currently, to our
knowledge, the only North American-based battery manufacturer that focuses
primarily on the private label market. Our objective is to leverage our unique
strategic position to build market share in the private label battery market and
capitalize on the significant growth in private label battery sales in North
America.
Results of Operations
Three month period ended June 30, 2000 and June 30, 1999
Revenues
Revenues for the three month period ended June 30, 2000 increased
$180,139 to $221,979, a 431% increase over revenues of $41,840 during the three
months period ended June 30, 1999. The sales increase was attributable to
greater than prior year sales from Amcon, CVP, Harris Teeter and Navarro
Pharmacy.
Operating Expenses and Gross Margins
Operating expenses for the three month period ended June 30, 2000
increased $151,567 to $534,646, a 40% increase from operating expenses of
$383,079 during the three months period ended June 30, 1999. The increase in
operating expenses was attributable to increases in variable overhead spending
in relation to the growth in sales.
<PAGE>
Gross margins, as a percentage of revenues improved to (141%) for the
three month period ended June 30, 2000, as compared to (816%) for the three
month period ended June 30, 1999. The improvement was attributable to the
increase in sales and a less than proportionate increase in variable overhead
spending relative to the sales improvement.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three month period
ended June 30, 2000 decreased $160,741 to $386,758, a 29% decrease over selling,
general and administrative expenses of $547,499 during the three months period
ended June 30, 1999. The decrease is primarily attributable to one time costs,
recorded in the prior year, covering relocation costs for the CEO and severance
costs for the VP Sales - Canada, along with the elimination of the executive
bonus program in 2000.
Amortization Expense
Amortization expense for the three month period ended June 30, 2000
decreased $171,497 to $120,202, a 59% decrease from amortization expense of
$291,699 during the three months period ended June 30, 1999. The decrease in
amortization expense is due to the fact that the three month period ended June
30, 1999 included amortization of deferred financing costs related to the 1999
private placement.
Interest Expense and Other Financing Charges
Interest expense and other financing charges for the three month period
ended June 30, 2000 decreased $90,011 to $6,123, a 94% decrease from interest
expense and other financing charges of $96,134 during the three month period
ended June 30, 1999. The decrease in interest expense and other financing
charges was primarily attributable to the following:
o during the three month period ended June 30, 1999, the company recorded
a one time commencement fee in connection with the initiation of the
revolving loan process with GE Capital Canada; and
o during the three month period ended June 30, 1999, the company incurred
interest expenses in connection with the revolver loan that it had with
CIBC.
Foreign Exchange
For the three months ended June 30, 2000, Talisman had a foreign
exchange gain of approximately $21,747, which was included in the results from
operations of gains on U.S. sales/receivables and funds on deposit, offset by
losses on U.S. purchase/payables from U.S. dollar suppliers. During the three
months ended June 30, 1999, Talisman experienced a foreign exchange gain of
$20,876. Currently, a majority of revenues from sales are in U.S. dollars and a
majority of expenses from goods purchased for resale are purchased in U.S.
dollars. Since Talisman is based in Ontario, Canada, approximately 80% of
Talisman's combined operational and selling, general and administrative expenses
for the period ended June 30, 2000, were incurred in Canadian dollars.
Variations in the value of the Canadian dollar, as compared to the value of the
U.S. dollar, could adversely effect Talisman's results.
<PAGE>
Stock Based Compensation
We account for our stock options and warrants under APB Opinion 25. If
Talisman was required to account for the stock options and warrants using the
fair value method, the pro forma net loss for the three months ended June 30,
2000 would be ($830,832). The pro forma loss per share for the three months
ended June 30, 2000 would be $(0.27). Such amounts represent the fair value of
options and warrants at the time they vested. Since some of the options vest
over a period of time there will be future charges to income with respect to the
options granted in 1999 of $254,593 over the next 7 years. There were no
employee stock options or warrants issued in the three months ended June 30,
2000.
Inflation
Talisman has experienced minimal impact from inflation and changing
prices on its net sales and on its income from continuing operations for the
periods it has been engaged in business.
Liquidity And Capital Resources
For the three month period ended June 30, 2000, the Company's cash
position decreased by $966,370 from $1,289,176 to $322,806. The principal uses
of cash were $842,016 that was used for operating activities, $63,660 that was
used to purchase capital assets and $31,780 that was used to pay down the
Company's borrowing facility.
Talisman has financing facilities in place with General Electric
Capital Canada Inc., which currently consist of (1) a Cdn.$940,800 term loan;
(2) a revolving credit line of up to Cdn.$7,500,000, and (3) a "capex" loan of
up to Cdn.$2,059,200. The term loan is due and payable on or before June 30,
2002. Interest charged on the General Electric Capital facilities is, (i) with
respect to funds advanced in Canadian dollars, calculated at the average rate
per annum established by the Royal Bank of Canada at its discount rate for
30-day Canadian bankers acceptances plus 4.0% per year, and (ii) with respect to
funds advanced in U.S. dollars, the latest rate for 30-day dealer placed
commercial paper, which normally is published in the "Money Rates" section of
the Wall Street Journal. Furthermore, all indebtedness of Talisman under the
General Electric Capital facilities is secured by Talisman's assets.
Except for the existing financing arrangements with General Electric
Capital Canada Inc., Talisman has no other current arrangements in place with
respect to financing. If additional financing arrangements are not obtained, we
may be unable to fully fund our operations, pursue our business strategy, take
advantage of new opportunities, develop or enhance our products, or respond to
competitive pressures and financial or marketing hurdles. Such inability could
have a materially adverse effect on Talisman's business, operating results and
financial condition. Moreover, the estimated cost of the proposed expansion of
our production and marketing activities is subject to numerous uncertainties,
including the problems, expenses, difficulties, complications and delays, many
of which are beyond our control, frequently encountered in connection with the
establishment and development of new business activities, and may be affected by
the competitive environment in which we are operating. Accordingly, there can be
no assurance that we will complete the proposed expansion of our production and
marketing activities described herein.
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month
period ended June 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused the project to be signed on its behalf by the
undersigned thereto duly authorized.
TALISMAN ENTERPRISES INC.
August 10, 2000 By: /s/ Thomas O'Dowd
Thomas O'Dowd
Chief Financial Officer
