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 March 31, 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 March 31, 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.
Periods ended mARCH 31, 2000 and 1999 - Unaudited
TABLE OF CONTENTS
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<S> <C>
Consolidated Balance Sheets as at March 31, 2000 and December 31, 1999 3
Consolidated Statements of Loss and Deficit for the three months ended March 31, 2000 and March 31,1999 4
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and March 31,1999 5
Notes to Consolidated Financial Statements 6-7
</TABLE>
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
TALISMAN ENTERPRISES INC.
March 31, 2000 and 1999
<PAGE>
Talisman Enterprises Inc.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
[in U.S. dollars and prepared in accordance with generally accepted accounting principles in the United States]
As at Unaudited
March 31, December 31,
2000 1999
$ $
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current
<S> <C> <C>
Cash 1,289,176 16,557
Accounts receivable 182,090 400,672
Inventories [note 3] 1,360,372 1,035,006
Prepaid expenses and other assets 64,365 511,193
Deferred financing costs 59,566 366,505
- ------------------------------------------------------------------------------------------------------------------
Total current assets 2,955,569 2,329,933
- ------------------------------------------------------------------------------------------------------------------
Capital assets 3,458,535 3,430,218
- ------------------------------------------------------------------------------------------------------------------
6,414,104 5,760,151
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness -- 539,872
Accounts payable and accrued liabilities 560,656 1,622,594
Convertible promissory note -- 358,003
Current portion of long-term debt 129,453 5,203,503
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 690,109 7,723,972
- ------------------------------------------------------------------------------------------------------------------
Long-term debt 280,069 314,640
Future tax liabilities 472,264 491,111
Shareholders' equity
Share capital [note 4] 12,708,133 4,277,540
Warrants 101,463 101,463
Contributed surplus 284,233 284,233
Deficit (7,869,613) (7,279,842)
Accumulated other comprehensive loss (252,554) (152,966)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 4,971,662 (2,769,572)
- ------------------------------------------------------------------------------------------------------------------
6,414,104 5,760,151
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENTS OF LOSS AND DEFICIT
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<CAPTION>
[in U.S. dollars and prepared in accordance with generally accepted accounting principles in the United States]
Three months ended March 31 Unaudited
2000 1999
$ $
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues 112,588 28,848
Operating expenses [exclusive of
amortization shown separately below] 195,595 256,487
- ------------------------------------------------------------------------------------------------------------------
Gross profit (83,007) (227,639)
- ------------------------------------------------------------------------------------------------------------------
Expenses
Selling, general and administrative 394,598 310,649
Amortization 108,076 78,304
Interest and other financing charges 19,528 23,499
- ------------------------------------------------------------------------------------------------------------------
522,202 412,452
- ------------------------------------------------------------------------------------------------------------------
Loss before income taxes (605,209) (640,091)
Income taxes - deferred (15,438) (14,295)
- ------------------------------------------------------------------------------------------------------------------
Loss for the period (589,771) (625,796)
Deficit, beginning of period (7,279,842) (3,238,982)
- ------------------------------------------------------------------------------------------------------------------
Deficit, end of period (7,869,613) (3,864,778)
- ------------------------------------------------------------------------------------------------------------------
Loss per share (0.25) (0.61)
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</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
[in U.S. dollars and prepared in accordance with generally accepted accounting principles in the United States]
Three months ended March 31 Unaudited
2000 1999
$ $
- -------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Loss for the period (589,771) (625,796)
Charges to income not affecting cash
Amortization 108,076 78,304
Future tax liabilities (15,438) (14,295)
Change in non-cash working capital items (725,917) (677,681)
- ------------------------------------------------------------------------------------------------------------------
Cash used in operating activities (1,223,050) (1,239,468)
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Purchase of capital assets (154,511) (142,363)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of convertible promissory note -- 2,103,240
Repayment of long-term debt (32,441) (24,818)
Issue of common shares 3,299,956 --
Bank operating line (537,377) (344,770)
- ------------------------------------------------------------------------------------------------------------------
Cash provided by financing activities 2,730,138 1,733,652
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (79,958) --
- ------------------------------------------------------------------------------------------------------------------
Increase in cash during the period 1,272,619 351,821
Cash, beginning of period 16,557 16,701
- ------------------------------------------------------------------------------------------------------------------
Cash, end of period 1,289,176 368,522
- ------------------------------------------------------------------------------------------------------------------
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 24,109 25,197
Cash income taxes paid -- --
</TABLE>
See accompanying notes
<PAGE>
Talisman Enterprises Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[in U.S. dollars and prepared in accordance with generally accepted
accounting principles in the United States]
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 three-month period ended March 31, 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 year. 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
$7,869,613 at March 31, 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>
3. INVENTORIES
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<CAPTION>
March 31, December 31,
2000 1999
$ $
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials and packaging 338,904 316,829
Finished goods 1,021,468 718,177
- ------------------------------------------------------------------------------------------------------------------
1,360,372 1,035,006
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
4. SHARE CAPITAL
During the period, the company was approved to begin trading on NASDAQ. As a
result of this listing, convertible promissory notes in the amount of $5,073,135
were converted into 1,014,627 common shares of the company.
In connection with the listing, the company issued 900,000 common shares for net
proceeds of approximately $3,300,000.
In addition, the note payable to a shareholder was settled in full through the
issuance of 70,000 common shares.
5. LOSS PER SHARE
The calculation of loss per common share is based on the reported net loss
divided by the weighted average number of shares outstanding during the period.
The weighted average number of common shares outstanding for the period ended
March 31, 2000 was 2,375,311 [March 31, 1999 - 1,030,320].
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The statements contained in this Report that are not historical are
forward-looking statements, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. Forward-
looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward-looking statements included in this Report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward-looking statements. Additionally, the following discussion and analysis
should be read in conjunction with the Financial Statements and notes thereto
appearing elsewhere in this Report. The discussion is based upon such financial
statements which have been prepared in accordance with U.S. Generally Accepted
Accounting Principles and are presented in United States dollars ($).
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 March 31, 2000 and March 31, 1999
Revenues
Revenues for the three month period ended March 31, 2000 increased
$83,740 to $112,588, a 290% increase over revenues of $28,848 during the three
months period ended March 31, 1999. The sales increase was attributable to
greater than prior year sales from Discount Drug and the addition of three new
customers, specifically: Dollar Express, Amcon and Dahl's.
Operating Expenses and Gross Margins
Operating expenses for the three month period ended March 31, 2000
decreased $60,892 to $195,595, a 24% decrease from operating expenses of
$256,487 during the three months period ended March 31, 1999. The decrease in
operating expenses was attributable to improved inventory valuation and costing
practices as we continue our process improvement.
<PAGE>
Gross margins, as a percentage of revenues increased to (74%) for the
three month period ended March 31, 2000, as compared to (789%) for the three
month period ended March 31, 1999. The increase was attributable to the increase
in sales and the decrease in operating expenses.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three month period
ended March 31, 2000 increased $83,949 to $394,598, a 27% increase over selling,
general and administrative expenses of $310,649 during the three months period
ended March 31, 1999. The increase was attributable to the hiring of three key
management positions (CEO, CFO and V.P. Sales - U.S.), along with incremental
marketing expenses in order to increase our customer base.
Amortization Expense
Amortization expense for the three month period ended March 31, 2000
increased $29,772 to $108,076, a 38% increase over amortization expense of
$78,304 during the three months period ended March 31, 1999. The increase was
attributable to capital asset additions, such as labeling machines, compactor
and AA press upgrades.
Interest Expense and Other Financing Charges
Interest expense and other financing charges for the three month period
ended March 31, 2000 decreased $3,971 to $19,528, a 17% decrease from interest
expense and other financing charges of $23,499 during the three month period
ended March 31, 1999. The decrease was attributable to the mid February
retirement of the General Electric Capital Canada Inc. operating loan and
incremental interest earned from the net proceeds of the public offering
completed in January 2000.
Foreign Exchange
For the three months ended March 31, 2000, Talisman had a foreign
exchange gain of approximately $26,347, 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 period
ended March 31, 1999, Talisman experienced a foreign exchange loss of $2,752.
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 90% of Talisman's combined
operational and selling, general and administrative expenses for the period
ended March 31, 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.
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 March 31,
2000 would be $609,973. The pro forma loss per share for the three months ended
March 31, 2000 would be $(0.26). 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 $274,798 over the next 7 years. There were no
employee stock options or warrants issued in the three months ended March 31,
2000.
<PAGE>
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 March 31, 2000, the Company's cash
position increased by $1,272,619 from $16,557 to $1,289,176. The principal
source of cash was $3,605,000 that was generated from the Company's public
offering. This was offset by $1,223,050 of cash used in operating activities,
$537,377 used to pay down the Company's borrowing facility, and $154,511 of cash
used to purchase capital assets during the period.
As a result of new financing arrangements established with General
Electric Capital Canada Inc. in July 1999, Talisman has financing facilities in
place 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.
Year 2000
Our business was not adversely impacted by information technology
issues related to Year 2000.
We have not, to date, encountered any long-term Year 2000 problems from our
customers, most of which are major retail corporations. Any loss of information
or data by such customers can be easily replaced by Talisman manually providing
them with relevant information. Except for three single sourced vendors,
Talisman utilizes multiple suppliers from whom we obtain the raw materials which
are used in the manufacturing process.
<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 March 31, 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.
May 15, 2000
By: /s/ Thomas O'Dowd
Thomas O'Dowd
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
Exhibit 27
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> dec-31-1999
<PERIOD-END> mar-31-2000
<CASH> 1,289,176
<SECURITIES> 0
<RECEIVABLES> 182,090
<ALLOWANCES> (23,930)
<INVENTORY> 1,360,372
<CURRENT-ASSETS> 2,955,569
<PP&E> 3,458,535
<DEPRECIATION> (669,283)
<TOTAL-ASSETS> 6,414,104
<CURRENT-LIABILITIES> 690,109
<BONDS> 0
0
0
<COMMON> 11,021,050
<OTHER-SE> 2,072,779
<TOTAL-LIABILITY-AND-EQUITY> 6,414,104
<SALES> 112,588
<TOTAL-REVENUES> 112,588
<CGS> 195,595
<TOTAL-COSTS> 195,595
<OTHER-EXPENSES> 522,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,528
<INCOME-PRETAX> (605,209)
<INCOME-TAX> (15,438)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (589,771)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
