<PAGE>
As filed with the Securities and Exchange Commission on January 24, 1997
REGISTRATION NO. 0-29038
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------------------
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 BOULEVARD, SUITE 130
AUSTIN, TEXAS 78727 78727
(Address of principal executive offices) (Zip Code)
(512) 335-4440
Registrant's Telephone Number, Including Area Code
----------------------
Securities to be registered pursuant to Section 12(b) of the Act:
Name of each exchange on which
Title of each class to be registered each class is to be registered
NONE NOT APPLICABLE
Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class)
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS. The consolidated financial statements of the
Company and its wholly owned subsidiaries, 1st Tech Corporation ("1st Tech") and
DarkHorse Systems, Inc. ("DarkHorse"), the combined financial statements of
1st Tech and DarkHorse and the related reports of the Company's independent
public accountants thereon are included at the page indicated.
ITEM PAGE
---- ----
Report of Independent Public Accountants as to the Company's
financial statements 3
Consolidated Balance sheets of the Company at September 30,
1996 and 1995 4
Consolidated Statements of Loss of the Company for the Years
Ended September 30, 1996, 1995 and 1994 5
Consolidated Statements of Shareholders' Equity of the Company
for the Years Ended September 30, 1996, 1995 and 1994 6
Consolidated Statements of Cash Flows of the Company for the
Years Ended September 30, 1996, 1995 and 1994 7
Notes to the Company's Consolidated Financial Statements 8
Report of Independent Public Accountants as to 1st Tech's
and DarkHorse's financial statements 19
1st Tech and DarkHorse Combined Balance Sheets at December 31,
1995 and 1994 20
1st Tech and DarkHorse Combined Statements of Income for the
Years Ended December 31, 1995, 1994 and 1993 21
1st Tech and DarkHorse 1995 and 1994 Combined Statements of
Shareholders' Equity for the Years Ended December 31, 1995,
1994 and 1993 22
1st Tech and DarkHorse Combined Statements of Cash Flows for
the Years Ended December 31, 1995, 1994 and 1993 23
Notes to Combined Financial Statements of 1st Tech and
DarkHorse 25
2
<PAGE>
[LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Tanisys Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Tanisys
Technology, Inc. (a Wyoming corporation), and subsidiaries as of September
30, 1996 and 1995, and the related consolidated statements of loss,
shareholders' equity and cash flows for each of the three years in the period
ended September 30, 1996. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tanisys Technology, Inc.,
and subsidiaries as of September 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
October 25, 1996
3
<PAGE>
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $2,689,569 $1,317,024
Trade accounts receivable, net of allowance of $84,557 5,087,090 60,454
and $25,000 in 1996 and 1995, respectively
Inventory 1,804,458 15,414
Prepaid expense 217,570 24,735
- ------------------------------------------------------------------------------------------------
Total current assets 9,798,687 1,417,627
- ------------------------------------------------------------------------------------------------
Property and equipment, net 1,817,479 118,705
Incorporation costs, net 1,024 2,283
Patents and trademarks, net 84,337 74,468
Goodwill, net 8,436,790 --
Other assets 84,000 --
- ------------------------------------------------------------------------------------------------
$20,222,317 $1,613,083
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,985,148 $112,853
Accrued liabilities 929,376 121,315
Revolving credit note 3,075,000 --
- ------------------------------------------------------------------------------------------------
Total current liabilities 6,989,524 234,168
- ------------------------------------------------------------------------------------------------
Obligations under capital lease 123,000 --
- ------------------------------------------------------------------------------------------------
Total liabilities 7,112,524 234,168
- ------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Share capital-Common stock, no par value, 50,000,000 shares 23,955,136 7,814,341
authorized, 15,978,537 and 9,065,305 shares issued and
outstanding in 1996 and 1995, respectively
Accumulated deficit (10,838,398) (6,428,481)
Accumulated foreign currency translation adjustment (6,945) (6,945)
- ------------------------------------------------------------------------------------------------
Total shareholders' equity 13,109,793 1,378,915
- ------------------------------------------------------------------------------------------------
$20,222,317 $1,613,083
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- ------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
<PAGE>
TANISYS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF LOSS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1996 1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $14,988,946 $358,726 $113,786
Cost of goods sold 12,660,900 110,097 33,901
- --------------------------------------------------------------------------------------
Gross profit 2,328,046 248,629 79,885
- --------------------------------------------------------------------------------------
Operating expenses:
Research and development 1,079,927 409,805 409,150
Sales and marketing 1,177,214 1,358,032 393,786
General and administrative 1,976,597 913,375 1,028,808
Depreciation and amortization 2,474,313 71,043 60,472
Unusual charge -- -- 198,739
- --------------------------------------------------------------------------------------
Total operating expenses 6,708,051 2,752,255 2,090,955
- --------------------------------------------------------------------------------------
Operating loss (4,380,005) (2,503,626) (2,011,070)
- --------------------------------------------------------------------------------------
Other income (expense):
Foreign exchange gain -- 2,290 --
Interest income 74,238 56,250 39,145
Interest expense (108,332) -- --
Other 4,182 -- --
- --------------------------------------------------------------------------------------
Net loss ($4,409,917) ($2,445,086) ($1,971,925)
- --------------------------------------------------------------------------------------
Loss per weighted average common share ($0.37) ($0.29) ($0.30)
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
Weighted average number of common shares 11,765,850 8,436,320 6,610,710
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
TANISYS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN
SHARE CAPITAL CURRENCY TOTAL
------------------- ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT DEFICIT ADJUSTMENT EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, September 30, 1993 6,495,325 $4,468,700 ($2,011,470) $0 $2,457,230
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss (1,971,925) (1,971,925)
Private placements 1,500,000 1,462,756 * 1,462,756
Foreign currency translation adjustment (6,945) (6,945)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 7,995,325 5,931,456 (3,983,395) (6,945) 1,941,116
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss (2,445,086) (2,445,086)
Private placements 900,000 1,607,232 * 1,607,232
Issued as payment of commission 48,980 120,001 120,001
Exercise of stock options 6,000 12,724 12,724
Issued for retirement of debt 115,000 142,928 142,928
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 9,065,305 7,814,341 (6,428,481) (6,945) 1,378,915
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss (4,409,917) (4,409,917)
Acquisition of businesses (note 2) 4,150,000 11,786,000 * 11,786,000
Issued as payment of consulting bonus (note 2) 207,500 788,500 788,500
Private placements (note 7) 975,177 1,511,796 * 1,511,796
Issued as payment of commission 45,555 102,499 102,499
Exercise of stock warrants 1,515,000 1,905,000 1,905,000
Issued for retirement of debt 20,000 47,000 47,000
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1996 15,978,537 $23,955,136 ($10,838,398) ($6,945) $13,109,793
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* net of issuance costs.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
TANISYS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(EXPRESSED IN U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($4,409,917) ($2,445,086) ($1,971,925)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 2,474,313 71,043 60,472
Write-downs 21,927 - -
Unusual charge - - 198,739
Decrease (increase) in accounts receivable (874,576) 84,855 (99,926)
Decrease in investment tax credits receivable - - 57,456
Increase in inventory (156,733) (2,757) (12,657)
Increase in prepaid expense (103,789) (13,810) (3,843)
(Decrease) increase in accounts payable and accrued liabilities (1,323,521) 22,870 323,392
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activites (4,372,296) (2,282,885) (1,448,292)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (342,882) (48,962) (96,414)
Incorporation costs - - (1,010)
Patents and trademark costs (32,763) (42,776) (38,261)
Acquisition of businesses 2,817,230 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,441,585 (91,738) (135,685)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 1,614,295 1,727,233 1,462,756
Draws (payments) on revolving credit note, net (195,881) - -
Principal payments on capital lease obligations (20,158) - -
Net proceeds from exercise of stock options - 12,724 -
Net proceeds from exercise of warrants 1,905,000 - -
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,303,256 1,739,957 1,462,756
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash - - (3,169)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 1,372,545 (634,666) (124,390)
Cash and cash equivalents, beginning of period 1,317,024 1,951,690 2,076,080
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $2,689,569 $1,317,024 $1,951,690
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $108,332 $1,152 $121
Interest received $74,238 $57,402 $35,153
Non-cash activity:
Shares issued to related parties and others to satisfy accrued liabilities $47,000 $142,928 -
Shares issued to purchase businesses $12,574,500 - -
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Tanisys
Technology, Inc. ("Tanisys") and its wholly-owned subsidiaries, 1st Tech
Corporation ("1st Tech"), DarkHorse Systems, Inc. ("DarkHorse"), Timespan
Communications Corp. ("Timespan") and Rosetta Marketing and Sales Inc.
(collectively, the "Company"). The Company provides custom design, engineering
and manufacturing services, test solutions and standard and custom module
products to leading original equipment manufacturers in the computer, networking
and telecommunications industries. Numerous factors affect the Company's
operating results, including general economic conditions, competition, changing
technologies, component shortages or price fluctuations. A change of any of
these factors could have an adverse effect on the Company's financial position
or results of operations. The Company has experienced losses since inception.
The Company continues to develop additional products, and with the current year
acquisitions (Note 2), the Company has existing salable products. The continued
success of the Company depends upon the Company's ability to generate sufficient
sales from the development of new products or increased sales of existing
products.
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles in the United States which, as applied
to these financial statements, conform in all material respects with accounting
principles generally accepted in Canada. All significant intercompany balances
and transactions have been eliminated in consolidation.
Tanisys is a Wyoming corporation which was originally organized in British
Columbia, Canada to pursue oil and gas exploration. Unsuccessful in the
exploration business and dormant pursuant to the rules and regulations of the
Vancouver Stock Exchange, several investors gained control of the Company to
raise financing and complete the acquisition of Timespan. Timespan had software
technology and patent applications which, in part, are the foundation of the
Company's development and marketing efforts.
Tanisys changed its name from Rosetta Technologies Inc. on July 11, 1994. Prior
to Rosetta Technologies Inc., the Company had been known as First American
Capital Group Inc. and Montebello Resources Ltd.
Certain reclassifications of amounts related to 1994 and 1995 have been made to
conform with the 1996 presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original maturities of
three months or less to be classified as cash equivalents. Cash equivalents are
carried at cost, which approximates market. The Company places its cash
investments in high credit quality instruments.
8
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECEIVABLES
The Company grants credit to domestic and international original equipment
manufacturers, distributors and end users. The Company carries a business credit
policy covering certain accounts receivable. The insurance policy provides
protection against losses from uncollectible accounts resulting from insolvency
of specified customers. As of September 30, 1996, the total available coverage
under the policy was $2,050,000.
INVENTORY
Inventory is stated at the lower of cost or market. In the third quarter of
1996, the Company changed its method of accounting for inventories from the
first-in, first-out (FIFO) method to a weighted average cost basis. The change
did not have a significant effect on results of operations for 1996, nor is it
anticipated that it will have a material effect on future periods. Prior to the
change, the Company's inventory costs would not have differed significantly
under the two methods. Costs include direct materials, direct labor and certain
indirect manufacturing overhead expenses.
REVENUE RECOGNITION
Revenues from direct sales and sales to resellers are recognized when the
related products are shipped. The Company warrants products against defects
and has a policy concerning the return of products.
DEPRECIATION AND AMORTIZATION
The Company uses the straight-line method of depreciation. Under the
straight-line method of depreciation, the Company is using the following lives:
Machinery and equipment 3-7
Office and engineering equipment 5
Computer equipment and software 3
Furniture and fixtures 5
Vehicles 5
Leasehold improvements Shorter of useful life or remaining
term of the lease
Incorporation costs are amortized on a straight-line basis over five years. Upon
dissolution of Timespan, the Company wrote-off $747 in unamortized incorporation
costs. Accumulated amortization at September 30, 1996, 1995 and 1994 was $512,
$1,522 and $761, respectively.
9
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Patents and trademarks are amortized on a straight-line basis over 10 years. In
fiscal 1995, the Company wrote-off $12,095 in trademark costs related to the
registration of the name SpinWizard, since the product associated with that
trademark is no longer being sold. Accumulated amortization at September 30,
1996, 1995 and 1994, was $10,799, $6,569 and $0, respectively.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at the
exchange rate at the balance sheet date. Revenues, costs, and expenses are
translated at average rates of exchange prevailing during the year. Gains and
losses on foreign currency transactions are included in other expenses.
Translation adjustments resulting from this process are charged or credited to
equity.
RESEARCH AND DEVELOPMENT
Under the criteria set forth in Statement of Financial Accounting Standards
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed," capitalization of software development costs begins upon
the establishment of technological feasibility. The ongoing assessment of the
recoverability of these costs requires considerable judgment by management with
respect to certain external factors, including, but not limited to, anticipated
future gross product revenues, estimated economic life and changes in software
and hardware technology. After considering the above factors, the Company has
determined that software development costs incurred for the years ended
September 30, 1996, 1995 and 1994 were properly expensed.
LOSS PER SHARE
Loss per share is calculated based upon the weighted average number of common
shares outstanding during the year.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (FAS 121), was issued. Under FAS 121, an impairment loss must be
recognized, for long-lived assets and certain identifiable intangibles to be
held and used by an entity, whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. FAS 121
is effective for financial statements issued for fiscal years beginning after
December 15, 1995, and must be adopted on a prospective basis. Restatement of
previously issued financial statements is not permitted. The Company adopted
FAS 121 effective October 1, 1995. Such adoption did not have a material
effect on the financial condition or results of operations of the Company.
10
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), was issued. FAS 123
defines a fair value based method of accounting for employee stock options or
similar equity instruments and encourages all entities to adopt that method of
accounting for all of their employee stock compensation plans. Under the fair
value based method, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period of the award, which
is usually the vesting period. However, FAS 123 also allows entities to continue
to measure compensation costs for employee stock compensation plans using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Entities
electing to remain with the accounting prescribed by APB 25 must make pro forma
disclosures of net income and earnings per share as if the fair value based
method recommended by FAS 123 had been applied. The accounting requirements of
FAS 123 are effective for transactions entered into in fiscal years that begin
after December 15, 1995. The disclosure requirements of FAS 123 are effective
for financial statements for fiscal years beginning after December 15, 1995. The
Company intends to measure compensation costs in accordance with APB 25 and to
provide pro forma disclosures of net income and earnings per share as if the
fair value based method of accounting under FAS 123 had been applied. Therefore,
FAS 123 will not have a material effect on the financial position or results
of operations of the Company.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. ACQUISITIONS OF 1ST TECH AND DARKHORSE
On May 20, 1996, the Company acquired 1st Tech and DarkHorse, as a result of
which 1st Tech and DarkHorse became wholly owned subsidiaries of the Company in
exchange for 4,150,000 shares of the Company's common stock. 1st Tech is engaged
primarily in the design, manufacture and sale of standard memory products to the
memory aftermarket and custom memory assemblies to original equipment
manufacturers, and offers engineering design and contract manufacturing
services. DarkHorse designs and markets memory testing equipment primarily to
electronic equipment manufacturers.
At the closing of the acquisitions, the Company granted options for the purchase
of 550,000 common shares to key employees of 1st Tech and DarkHorse, allowed
Mr. Gary W. Pankonien, former owner of 1st Tech and one of the three former
owners of DarkHorse, to appoint two members to the Company's seven-member Board
of Directors, and paid a consulting bonus to a Director of the Company of
207,500 common shares at a deemed price of $3.80 per share.
11
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
2. ACQUISITIONS OF 1ST TECH AND DARKHORSE (CONTINUED)
The acquisitions of 1st Tech and DarkHorse were accounted for using the purchase
method of accounting. Under the purchase method, the excess of the purchase
price over the estimated fair value of the net assets acquired of $10,656,998
is classified as goodwill and amortized against earnings over a two year period.
The amount of goodwill amortized for the year ended September 30, 1996 was
$2,220,208. The results of operations of 1st Tech and DarkHorse have been
included in the consolidated financial statements since the date of the
acquisitions.
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
Raw materials $1,343,522 $ ---
Work-in-process 203,017 ---
Finished goods 257,919 15,414
$1,804,458 $15,414
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1996 1995
Accumulated Accumulated
Depreciation & Net Book Depreciation & Net Book
Cost Amortization Value Cost Amortization Value
Manufacturing equipment $1,055,964 $234,159 $ 821,805 $ --- $ --- $ ---
Office equipment 579,117 224,102 355,015 29,084 11,038 18,046
Engineering equipment 253,482 77,807 175,675 17,507 7,022 10,485
Computer equipment 118,696 87,448 31,248 97,829 57,585 40,244
Computer software 223,872 115,821 108,051 21,971 15,114 6,857
Furniture and fixtures 295,585 90,186 205,399 40,170 12,641 27,529
Vehicles 39,445 9,861 29,584 --- --- ---
Leasehold improvements 157,907 67,205 90,702 25,854 10,310 15,544
$2,724,068 $906,589 $1,817,479 $232,415 $113,710 $118,705
</TABLE>
The Company had approximately $266,000 and $0 of property and equipment acquired
under capital lease at September 30, 1996 and 1995, respectively. The
accumulated amortization related to these assets totaled $47,000 and $0 at
September 30, 1996 and 1995, respectively. The related amortization expense
was $16,000 and $0 for the year ended September 30, 1996 and 1995, respectively.
12
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
5. REVOLVING CREDIT NOTE
The Company has a revolving credit note with a financial institution of
$6,000,000 bearing interest at the financial institution's prime rate plus
a percentage between one and three percent (8.25% as of September 30, 1996)
depending upon a ratio. The ratio is computed monthly, combining 1st Tech and
DarkHorse indebtedness to annualized earnings before income taxes, depreciation
and amortization. At September 30, 1996, the Company did not comply with
certain financial covenants. The financial institution has amended and waived
the covenants at September 30, 1996 and for prior periods. Additionally, the
financial institution will issue, when needed, letters of credit up to
$2,000,000. The revolving credit note extends through June 30, 1998 and is
secured by all of the Company's assets. Paydowns on the note are made by
daily collections of accounts receivable. Draws are made as necessary. The
amount outstanding at September 30, 1996 was $3,075,000. The amount available
on the line at September 30, 1996 was $2,925,000 limited by qualified
accounts receivable as defined in the note. At September 30, 1996, there were
no outstanding letters of credit.
6. LEASE COMMITMENTS
The Company leases certain equipment and office space under noncancelable leases
with expiration dates ranging from 1997 through 2000.
Future minimum lease payments under all leases at September 30, 1996 were as
follows:
<TABLE>
<S> <C> <C>
Capital Leases Operating Leases
1997 $ 62,661 $376,804
1998 57,276 219,841
1999 56,481 66,288
2000 27,528 27,620
Total minimum lease payments 203,946 690,553
Amounts representing interest (33,159)
Present value of minimum capital lease payments 170,787
Less: current portion 47,787
Long-term capital lease obligation $123,000
</TABLE>
Rent expense recorded under all operating leases was $118,189, $48,619 and
$34,377 for 1996, 1995 and 1994, respectively.
13
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
7. PRIVATE PLACEMENTS
In January 1996, the Company completed an equity financing of 941,177 common
shares and common stock purchase warrants to purchase 941,177 shares of common
stock at an exercise price of $1.70 in 1997 and $1.95 in 1998. The warrants
expire after 1998. A commission of 45,555 shares at the price of $2.25 per
share was paid to AWL Enterprises Ltd. In November 1995, the Company completed
an equity financing of 34,000 common shares and common stock purchase warrants
to purchase 34,000 shares of common stock at an exercise price of $2.00 in 1996
and $2.25 in 1997. The warrants expire after 1997.
8. RELATED PARTY TRANSACTIONS
The Company and its subsidiaries entered into the following related party
transactions:
Expenses and consulting fees in the amount of $870,000 ($788,500 was paid
in stock), $159,000 and $256,000 were paid to the Company's directors or
companies that they owned for the years ended September 30, 1996, 1995
and 1994, respectively.
Professional fees in the amount of $122,000, $97,000 and $42,000 were paid
to two shareholders of the Company for legal and other services provided
for the years ended September 30, 1996, 1995 and 1994, respectively.
As of September 30, 1996, two former shareholders of DarkHorse are each
owed $32,309 and the third shareholder owed the Company $17,691. Prior to
the acquisition, DarkHorse was an S-corporation. These amount arose at the
date of acquisition, to cover the taxes on earnings passed on to the three
shareholders for the period from January 1, 1996 to the date of
acquisition.
9. SHARE CAPITAL, OPTIONS AND WARRANTS
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock with
$1 par value. There were no preferred shares issued and outstanding at
September 30, 1996 and 1995.
14
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
9. SHARE CAPITAL, OPTIONS AND WARRANTS (CONTINUED)
<TABLE>
<CAPTION>
STOCK OPTIONS
1996 1995
Shares Option Price Shares Option Price
<S> <C> <C> <C> <C>
Outstanding-Beginning of year 1,364,450 $1.10 to 3.32 US 1,003,000 $1.50 to 3.70 CDN
Granted 834,900 3.13 to 3.72 US 958,750 2.02 to 3.32 US
4.00 CDN
Canceled or expired (395,250) 2.02 to 3.72 US (591,300) 2.80 US
2.33 to 4.00 CDN
Exercised --- --- (6,000) 2.40 TO 3.55 CDN
Outstanding-End of year 1,804,100 $1.10 to 3.69 US 1,364,450 $2.02 to 3.32 US
$1.50 TO 4.00 CDN
Exercisable-End of year 555,232 265,001
</TABLE>
In February 1996, the Board of Directors approved a resolution to translate all
option prices currently in CDN$ to US$. The exchange rate used was 1.00 CDN$
to .7353 US$. This was the exchange rate on the date of the board resolution.
WARRANTS
Each warrant entitles the holder to purchase one share of common stock at a
particular price during the first year following the date of issuance and at a
second price in year two. The warrants expire after year two. During 1996,
1,515,000 warrants were exercised and no warrants expired. 975,177 warrants
were issued as part of the Company's two private placements in 1995 and 1996.
The Company has warrants outstanding for the purchase of its common stock in
1996 and 1995 as follows:
<TABLE>
<CAPTION>
NUMBER OF WARRANTS EXERCISE PRICE
ISSUE DATE 1996 1995 YEAR 1 YEAR 2
<S> <C> <C> <C> <C>
August 1994 --- 1,500,000 $1.00 $1.25
May 1995 885,000 900,000 $2.00 $2.30
November 1995 34,000 --- $2.00 $2.25
January 1996 941,177 --- $1.70 $1.95
Total 1,860,177 2,400,000
</TABLE>
10. INCOME TAXES
The Company accounts for deferred income taxes using the liability method.
At September 30, 1996, the Company's Canadian subsidiary, Timespan, had a
non-capital loss carryforward of approximately CDN $127,000 which may be applied
against future taxable income. The loss carryforward results in a deferred tax
asset of CDN $57,000 which expires in 2000. Additionally, at September 30, 1996,
Timespan had deferred tax assets of CDN $43,000 principally relating to
unclaimed investment tax credits.
15
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
10. INCOME TAXES (CONTINUED)
During 1996 and 1995, the Company incurred consolidated net operating losses
for U.S. income tax purposes of approximately $1,785,000 and $2,548,000,
respectively. The loss carryforwards expire in 2011 and 2010, respectively.
During 1996, the Company had temporary differences resulting in future tax
deductions of $693,000 principally representing tax basis in accrued liabilities
and intangible assets. Deferred income tax assets from the loss carryforwards
and asset basis differences aggregate $2,240,000.
For financial reporting purposes, valuation allowances of $2,240,000 and
$1,413,000 have been recorded to offset the deferred tax assets due to the
uncertainty as to whether the benefits will be realized.
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, (the Code) in the event of an
ownership change as defined in Section 382 of the Code.
No federal or state taxes were due or paid in 1996 and 1995.
11. UNUSUAL CHARGE
At September 30, 1994, the Company determined that it would not utilize in its
current or future products, the computer game controller technology purchased
from Timespan. Therefore, the remaining goodwill associated with the Timespan
acquisition of $198,739 was charged to expense as an unusual charge in the
period ended September 30, 1994 (Note 13).
12. EMPLOYEE BENEFITS
Effective January 1, 1995, 1st Tech sponsored an employee benefit plan
(the Plan) which qualifies under Section 401(k) of the Internal Revenue Service
Code for eligible employees. Eligible employees may defer a portion of their
annual compensation under the Plan subject to maximum limitations. The
requirements for eligibility include a minimum age of 21 and a minimum of one
year of service. As of the date of acquisition of 1st Tech, all employees of
the Company joined the Plan.
Under provisions of the Plan, the Company may elect to make matching
contributions to the Plan for the benefit of the participants. No contributions
were made in 1996.
13. COMMITMENTS AND CONTINGENCIES
During fiscal 1993, the Company's subsidiary Timespan entered into a five year
royalty agreement with its former principal shareholders. The agreement provides
for royalties to be paid for the use of the computer game controller technology.
The royalties are to be paid subsequent to Timespan achieving a CDN $3,000,000
net cumulative profit from the sale of devices involving the technology. The
royalties will be calculated as the lesser of CDN $250,000 per annum or 5% of
the gross wholesale receipts, as defined in the agreement, from sales exceeding
the above noted amount. If the amount payable is less than CDN $250,000
16
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
(EXPRESSED IN U.S. DOLLARS EXCEPT AS INDICATED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
in any particular year, the difference will be carried forward to the following
year to increase the maximum amount payable in that year. The Company is not
currently using the computer game controller technology and the royalty does
not relate to the Company's current products. (note 11)
14. SUBSEQUENT EVENT
In October 1996, the Company granted, subject to regulatory approval, stock
options to key employees for the purchase of 423,000, 110,000 and 5,000 common
shares at a per share price of $4.09, $4.17 and $4.44, respectively. These
options are not considered outstanding until approved by the Vancouver Stock
Exchange.
Timespan, a wholly owned subsidiary of the Company, was dissolved as of
October 23, 1996.
17
<PAGE>
1ST TECH CORPORATION AND
DARKHORSE SYSTEMS, INC.
COMBINED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995, 1994 AND 1993
TOGETHER WITH AUDITORS' REPORT
18
<PAGE>
[LOGO]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 1st Tech Corporation and
DarkHorse Systems, Inc.:
We have audited the accompanying combined balance sheets of 1st Tech Corporation
and DarkHorse Systems, Inc. (Texas corporations), as of December 31, 1995 and
1994, and the related combined statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Companies' management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 1st Tech Corporation and
DarkHorse Systems, Inc., as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
October 25, 1996
19
<PAGE>
1ST TECH CORPORATION AND
------------------------
DARKHORSE SYSTEMS, INC.
-----------------------
COMBINED BALANCE SHEETS - - DECEMBER 31, 1995 AND 1994
------------------------------------------------------
ASSETS 1995 1994
------ ----------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,198,964 $ 251,325
Accounts receivable, net of allowance for doubtful
accounts of $124,500 and $0, respectively 7,438,903 5,184,073
Inventory 3,176,384 1,591,450
Accounts receivable, related parties 199,577 200,000
Prepaid expenses and other 173,333 44,500
----------- ----------
Total current assets 12,187,161 7,271,348
----------- ----------
PROPERTY AND EQUIPMENT, net 1,261,232 632,649
----------- ----------
OTHER LONG-TERM ASSETS 84,000 41,000
----------- ----------
Total assets $13,532,393 $7,944,997
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
------------------------------------ ------------ ----------
CURRENT LIABILITIES:
Bank overdrafts $ 574,000 $ 698,000
Accounts payable 3,291,738 2,539,134
Accrued expenses 1,057,926 463,253
Income taxes payable 58,000 10,000
Revolving credit note 6,915,000 3,313,000
Notes payable to related parties 509,240 493,000
Current portion of obligations under capital leases 42,000 109,000
----------- ----------
Total current liabilities 12,447,904 7,625,387
----------- ----------
OBLIGATIONS UNDER CAPITAL LEASES 152,000 -
----------- ----------
Total liabilities 12,599,904 7,625,387
----------- ----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Capital stock, no par value
1st Tech, 1,000,000 shares authorized, issued and
outstanding - -
DarkHorse, 100,000,000 shares authorized;
1,155,000 issued and outstanding - -
Contributed capital 10,000 10,000
Retained earnings 989,489 309,610
Due from shareholder (67,000) -
----------- ----------
Total shareholders' equity 932,489 319,610
----------- ----------
Total liabilities and shareholders' equity $13,532,393 $7,944,997
----------- ----------
----------- ----------
The accompanying notes are an integral part of these combined financial
statements.
20
<PAGE>
1ST TECH CORPORATION AND
------------------------
DARKHORSE SYSTEMS, INC.
------------------------
COMBINED STATEMENTS OF INCOME
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
<TABLE>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
NET PRODUCT SALES $106,309,491 $42,707,651 $22,965,821
COST OF SALES 99,443,822 39,263,567 20,424,645
------------ ----------- -----------
6,865,669 3,444,084 2,541,176
------------ ----------- -----------
OPERATING EXPENSES:
Sales and marketing 2,249,637 1,299,603 387,266
General and administrative 2,902,629 1,394,211 1,459,527
Research and development 394,338 273,935 90,440
------------ ----------- -----------
Total operating expenses 5,546,604 2,967,749 1,937,233
------------ ----------- -----------
INCOME FROM OPERATIONS 1,319,065 476,335 603,943
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (728,169) (383,149) (239,171)
Interest income 21,451 425 2,283
Other income (expense) (7,468) 13,122 34,156
------------ ----------- -----------
(714,186) (369,602) (202,732)
------------ ----------- -----------
INCOME BEFORE PROVISION FOR INCOME
TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 604,879 106,733 401,211
------------ ----------- -----------
PROVISION FOR INCOME TAXES 58,000 23,020 142,305
------------ ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 546,879 83,713 258,906
------------ ----------- -----------
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE 133,000 - -
------------ ----------- -----------
NET INCOME $ 679,879 $ 83,713 $ 258,906
------------ ----------- -----------
UNAUDITED PRO FORMA DATA (Note 3):
Income before provision for income taxes and cumulative
effect of change in accounting principle $ 604,879 $ 106,733 $ 401,211
Pro forma adjustments to reflect federal and state
income tax 223,805 39,491 148,448
------------ ----------- -----------
Pro forma income from continuing operations after
provision for income tax and before cumulative effect
of change in accounting principle 381,074 67,242 252,763
------------ ----------- -----------
Adjustment to reflect change in accounting principle - 91,342 41,469
------------ ----------- -----------
Pro forma net income $ 381,074 $ 158,584 $ 294,232
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
21
<PAGE>
1ST TECH CORPORATION AND
------------------------
DARKHORSE SYSTEMS, INC.
-----------------------
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
-------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
<TABLE>
Common Stock
--------------------------------------------------------------------
1st Tech Darkhorse
------------------------------ --------------------------------
Shares Shares
Issued and Contributed Issued and Contributed
Outstanding(1) Capital Outstanding(2) Capital
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 - $ - 360,937 $ 3,000
Net income - - - -
Issuance of stock 1,000,000 1,000 842,188 50,000
-------------- ----------- -------------- -----------
BALANCE, December 31, 1993 1,000,000 1,000 1,203,125 53,000
Net income - - - -
Purchase of treasury stock - - (842,188) (44,000)
Retirement of treasury stock - - - -
Stock split (3.2 for 1) - - 794,063 -
-------------- ----------- -------------- -----------
BALANCE, December 31, 1994 1,000,000 1,000 1,155,000 9,000
Net income - - - -
Distributions - - - -
-------------- ----------- -------------- -----------
BALANCE, December 31, 1995 1,000,000 $ 1,000 1,155,000 $ 9,000
-------------- ----------- -------------- -----------
-------------- ----------- -------------- -----------
</TABLE>
<TABLE>
Total
Treasury Due From Retained Shareholders'
Stock Shareholder Earnings Equity
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1992 - $ - $ (2,979) $ 21
Net income - - 258,906 258,906
Issuance of stock - - - 51,000
------------ ----------- ----------- -------------
BALANCE, December 31, 1993 - - 255,927 309,927
Net income - - 83,713 83,713
Purchase of treasury stock 70,000,000 - (30,030) (74,030)
Retirement of treasury stock (70,000,000) - - -
Stock split (3.2 for 1) - - - -
------------ ----------- ----------- -------------
BALANCE, December 31, 1994 - - 309,610 319,610
Net income - - 679,879 679,879
Distributions - (67,000) - (67,000)
------------ ----------- ---------- -------------
BALANCE, December 31, 1995 - $ (67,000) $ 989,489 $ 932,489
------------ ----------- ---------- -------------
------------ ----------- ---------- -------------
</TABLE>
(1) Reflects a 10:1 stock split approved by 1st Tech board of directors on
May 25, 1995.
(2) Reflects a 1:83 reverse stock split approved by DarkHorse board of
directors on April 9, 1996.
The accompanying notes are an integral part
of these combined financial statements.
22
<PAGE>
1ST TECH CORPORATION AND
------------------------
DARKHORSE SYSTEMS, INC.
-----------------------
COMBINED STATEMENTS OF CASH FLOWS
---------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------
<TABLE>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 679,879 $ 83,713 $ 258,906
Adjustments to reconcile net income before
cumulative effect of change in accounting
principle to net cash provided by
(used in) operating activities-
Depreciation and amortization 138,400 232,877 89,239
Changes in operating assets and liabilities-
Increase in accounts receivable (2,254,830) (4,347,867) (836,206)
(Increase) decrease in accounts receivable, related parties 423 (88,156) (2,540)
Increase in inventory (1,584,934) (509,358) (1,068,927)
(Increase) decrease in prepaid expenses and other assets (171,833) 36,970 (122,470)
Increase in accounts payable 752,604 904,895 1,518,126
(Decrease) increase in bank overdrafts (124,000) 698,000 -
Increase in accrued expenses 794,923 231,671 240,782
----------- ----------- -----------
Net cash provided by (used in) operating activities (1,769,368) (2,757,255) 76,910
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (549,678) (446,189) (308,070)
----------- ----------- -----------
Net cash used in investing activities (549,678) (446,189) (308,070)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in revolving credit note 3,602,000 3,113,000 200,000
Principal payments on capital leases (132,305) (86,506) -
Advances to shareholder (67,000) - -
Borrowings (payments) on note payable to shareholders (136,010) (14,696) 492,696
Purchase of stock - (24,030) -
Issuance of stock - - 1,000
----------- ----------- -----------
Net cash provided by financing activities 3,266,685 2,987,768 693,696
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 947,639 (215,676) 462,536
CASH AND CASH EQUIVALENTS, beginning of year 251,325 467,001 4,465
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $1,198,964 $ 251,325 $ 467,001
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
23
<PAGE>
<TABLE>
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for-
Interest $571,478 $350,549 $19,750
-------- -------- -------
-------- -------- -------
Income taxes $ 14,449 $145,700 $ -
-------- -------- -------
-------- -------- -------
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of certain accrued expenses to notes payable
to shareholders (see Note 9) $152,250 $ - $ -
-------- -------- -------
-------- -------- -------
Note issued to shareholder for stock $ - $ 74,000 $ -
-------- -------- -------
-------- -------- -------
</TABLE>
The accompanying notes are an integral part
of these combined financial statements.
24
<PAGE>
1ST TECH CORPORATION AND
DARKHORSE SYSTEMS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. BASIS OF PRESENTATION AND ORGANIZATION:
The accompanying combined financial statements include the accounts of 1st
Tech Corporation and DarkHorse Systems, Inc. (collectively referred to as the
Companies). The Companies' financial statements have been combined as both
of these entities are under common ownership. All significant intercompany
accounts and transactions have been eliminated in combination.
1st Tech Corporation (1st Tech) is a privately held S-Corporation that was
incorporated under the laws of the State of Texas on January 20, 1993. 1st
Tech is engaged primarily in the design, manufacture and sale of standard
memory products to the memory aftermarket and custom memory assemblies to
original equipment manufacturers. In addition, 1st Tech offers engineering
design and contract manufacturing services. The principal market for the
Company's products is domestic-based original equipment manufacturers in the
electronics industry, including personal computer manufacturers and
telecommunications service providers.
DarkHorse Systems, Inc. (DarkHorse), is a privately held S-Corporation that
was incorporated under the laws of the State of Texas in 1992. DarkHorse is
engaged in the business of designing and marketing memory testing equipment
primarily to domestic electronic equipment manufacturers.
Effective May 20, 1996, Tanisys Technology, Inc. (Tanisys), acquired all of
the outstanding common stock of the Companies in exchange for 4.15 million
shares of Tanisys' common stock (Note 14).
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
REVENUE RECOGNITION
Revenue is stated net of actual and estimated returns. Sales are recognized
when the related products are shipped. The Company warrants products against
defects and has a policy concerning the return of products.
CASH AND CASH EQUIVALENTS
The Companies consider all highly liquid investments with original maturities
of three months or less to be classified as cash equivalents. Cash
equivalents are carried at cost, which approximates market.
INVENTORY
Inventory is stated at the lower of cost or market, with cost being
determined on a weighted average cost basis. Costs include direct materials,
direct labor and certain indirect manufacturing overhead expenses.
25
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization of
property and equipment has been computed by the straight-line method
beginning January 1, 1995. Depreciation and amortization of property and
equipment in prior years was computed by the double declining balance-method.
The straight-line method of depreciation was adopted in order to provide for
depreciation and amortization expense on a basis more consistent with the
property and equipment's actual utilization and has been applied to
acquisitions of prior years. The effect of the change in 1995 was to
increase income from operations by approximately $95,000. The pro forma
amounts shown on the statement of income have been adjusted for the effect of
retroactive application of depreciation and amortization on the straight-line
basis.
Additionally, the Companies changed the estimated useful lives for its
property and equipment beginning in 1995. The effect of this change did not
have a material impact on income from operations for 1995. Depreciation and
amortization expense are provided over the following estimated useful lives:
Machinery and equipment 3 - 7 years
Office computer equipment and software 3 - 5 years
Furniture and fixtures 5 - 7 years
Leasehold improvements Shorter of useful life or remaining
term of the lease
BANK OVERDRAFTS
Bank overdrafts represent outstanding checks in excess of funds on deposit
where legal right to offset does not exist.
INCOME TAXES
In 1993, 1st Tech elected and was treated for federal and certain state
income tax purposes as a C-Corporation. In 1994, 1st Tech changed its
federal tax status from a C-Corporation to an S-Corporation.
In 1993, DarkHorse elected and was treated for federal and certain state
income tax purposes as a C-Corporation. DarkHorse changed its federal tax
status from a C-Corporation to an S-Corporation in 1995.
In 1995, the Companies have elected and have been treated for federal and
certain state income tax purposes as an S-Corporation under Subchapter S of
the Internal Revenue Code of 1986, as amended. As a result, the income of
the Companies for federal and certain state income tax purposes is included
in the income tax return of the individual shareholders. The accompanying
combined financial statements include recognition of those federal and state
income taxes which are levied on the Companies. (See Note 3 for pro forma
income tax information.)
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" (FAS 121), was issued. Under FAS 121, an impairment loss
must be recognized, for long-lived assets and certain identifiable
intangibles to be held and used by an entity, whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. FAS 121 is effective for financial statements issued for fiscal
years beginning after December 15, 1995, and must be adopted on a prospective
basis. Restatement of previously issued financial statements is not
permitted. The Companies adopted FAS 121 effective January 1, 1996. Such
adoption did not have a material effect on the financial condition or results
of operations of the Companies.
26
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. PRO FORMA INFORMATION (UNAUDITED):
Pro forma net income has been determined assuming that the Companies had been
taxed as C-Corporations for federal and certain state income tax purposes
since January 1, 1993. The pro forma adjustments to reflect federal and
state income tax assume a blended tax rate of 37 percent. Additionally, the
pro forma amounts shown on the statements of income have been adjusted for
the cumulative effect of change in accounting principle. (See Note 2.)
4. INVENTORIES:
Inventories consist of the following:
DECEMBER 31
---------------------------
1995 1994
------------ ----------
Raw materials $ 1,680,101 $ 952,746
Work in process 98,619 17,245
Finished goods 1,397,664 621,459
------------ ----------
Total inventory $ 3,176,384 $1,591,450
------------ ----------
5. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31
--------------------------
1995 1994
------------ ----------
Machinery and equipment $ 805,000 $ 518,000
Office computer equipment and software 553,711 295,765
Furniture and fixtures 249,732 78,000
Leasehold improvements 113,305 63,000
1,721,748 954,765
Less- Accumulated depreciation and
amortization 460,516 322,116
Property and equipment, net $1,261,232 $ 632,649
See Note 2 for description of change in method of calculating depreciation
expense which occurred effective January 1, 1995.
27
<PAGE>
The Companies have $440,704 and $195,506 of property and equipment acquired
under capital leases as of December 31, 1995 and 1994, respectively. The
accumulated depreciation related to these assets totaled $81,312 and $30,257
as of December 31, 1995 and 1994, respectively. The related depreciation
expense was $51,055, $27,929 and $2,328 for the years ended 1995, 1994 and
1993, respectively.
6. REVOLVING CREDIT NOTE:
Effective October 1994, 1st Tech obtained a revolving credit note with a
financial institution which provided for maximum borrowings of $5,000,000.
In July 1995, 1st Tech restructured the revolving credit note with the same
financial institution increasing maximum borrowings to $12,000,000. Advances
bear interest at the financial institution's prime rate plus 2 percent (10.50
percent as of December 31, 1995). The borrowings are secured by assets. As a
condition precedent to the restructured note, a $35,000 commitment fee was
paid upon closing. In addition, the revolving credit note contains certain
restrictive covenants. Specifically, 1st Tech must maintain a minimum
tangible net worth as determined by the financial institution, profitability
by quarter as well as compliance with certain financial ratios specified by
the financial institution. 1st Tech is required to report its borrowing
base, determined by eligible accounts receivable, to the financial
institution each week and cannot enter into any additional debt agreements
without prior approval from the financial institution. Indebtedness under
the note was guaranteed by 1st Tech's sole shareholder. As of December 31,
1995 and 1994, advances outstanding under the revolving credit note amounted
to $6,915,000 and $3,313,000, respectively. As of December 31, 1995,
$5,085,000 was available for future borrowings. The revolving credit note is
discretionary and may be modified, suspended or terminated at the election of
the lender at any time.
The carrying amount of the revolving credit note approximates fair value.
As of December 31, 1995, 1st Tech was in violation of certain covenants of
the revolving credit note. 1st Tech obtained a one-time waiver from the
financial institution with respect to these covenant violations. In
addition, as of our report date, the company was not in compliance with
certain debt covenants. A debt waiver has been obtained by the company for
all of the periods.
7. LEASE COMMITMENTS:
The Companies lease certain equipment and office space under noncancelable
leases with expiration dates ranging from 1996 through 2000.
Future minimum principal lease payments under all leases are as follows:
CAPITAL OPERATING
LEASES LEASES
--------- ----------
1996 $ 57,276 $ 461,817
1997 57,276 443,788
1998 57,276 214,436
1999 54,096 66,287
2000 15,594 11,048
--------- ----------
Present value of minimum capital lease payments 241,518 $1,197,376
----------
Less- Amount representing interest 47,518
---------
194,000
Less- Current present value of minimum lease payments 42,000
---------
Long-term capital lease obligations $152,000
---------
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Rent expense recorded under all operating leases was approximately $240,000,
$115,000 and $66,000 for 1995, 1994 and 1993, respectively.
8. INCOME TAXES:
Effective January 1, 1994, 1st Tech converted from a C-Corporation to an
S-Corporation.
Effective January 1, 1995, DarkHorse converted from a C-Corporation to an
S-Corporation. Upon conversion, DarkHorse computed its built-in gain,
principally relating to inventory, for federal income tax purposes as
approximately $33,000.
The provision for income taxes for the years ended December 31, 1995, 1994
and 1993, consists of the following:
1995 1994 1993
------- ------- --------
Current-
Federal income tax $ - $11,525 $142,305
Federal built-in gain 33,000 - -
Texas franchise tax 25,000 11,495 -
------- ------- --------
$58,000 $23,020 $142,305
------- ------- --------
9. RELATED-PARTY TRANSACTIONS:
1st Tech's sole shareholder has a one-third interest in DarkHorse. During
1995, 1994 and 1993, the Companies had certain intercompany transactions
which are eliminated in the combined financial statements.
In November 1995, 1st Tech entered into an operating lease for certain
manufacturing equipment with its sole shareholder. The lease extends for a
period of 36 months with monthly payments totaling $6,200. The future
minimum lease payments associated with this lease are included in the amounts
disclosed in Note 7. In conjunction with the acquisition of the Companies,
as described in Note 14, the leased equipment was purchased from the
shareholder in May 1996 for $200,000 and the lease was canceled.
1st Tech made a loan to its sole shareholder during 1994 of approximately
$195,300. Interest on the loan accrues on a monthly basis at 1st Tech's
incremental borrowing rate of prime plus 2 percent (10.50 percent as of
December 31, 1995). Amounts due from the sole shareholder relating to this
loan and other cash advances totaled $199,000 and $148,000 as of December 31,
1995 and 1994, respectively. In conjunction with the acquisition of the
Companies, as described in Note 14, the then outstanding balance of $204,772
was charged to equity as a deemed shareholder distribution.
During 1993, 1st Tech's sole shareholder loaned $443,000 to 1st Tech. The
loan is subordinated to 1st Tech's existing notes payable to bank, and no
principal amounts can be repaid to the sole shareholder as long as amounts
remain outstanding under the bank line of credit. The loan bears interest at
prime plus 2-1/2 percent (11 percent as of December 31, 1995). Interest
payments on the loan are due quarterly and the principal was due December 31,
1995, with a contingency option to extend the due date up to an additional
three years. In conjunction with the acquisition of the Companies, as
described in Note 14, the loan was credited to equity as a deemed shareholder
contribution.
Additionally, as of December 31, 1993, 1st Tech had approximately $331,000
payable to Stratum Technologies, Inc., a separate corporation wholly owned by
the sole shareholder of 1st Tech Corporation. The balance was subsequently
paid during 1994.
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<PAGE>
In 1994, 1st Tech loaned approximately $40,000 to Granite
Software, Inc., a company 20 percent owned by 1st Tech's sole shareholder.
During 1995, this amount was written off as uncollectible.
During 1994, DarkHorse repurchased certain ownership interests from two
shareholders for amounts totaling approximately $74,000 in exchange for notes
payable bearing interest at 9 percent per annum. Principal payments totaling
approximately $69,000, representing the remaining outstanding balances, were
made during 1995 on these notes payable.
Additionally, as of December 31, 1994, approximately $232,400 of salaries and
bonuses were outstanding to 1st Tech's shareholders. During 1995, $152,400
was converted to notes payable bearing interest at 9 percent per annum; while
the remaining $80,000 was paid in cash. Principal payments totaling
approximately $92,000 were made on these notes payable during 1995. The
remaining amounts outstanding on the notes, including accrued interest, were
paid in full in April 1996.
10. SIGNIFICANT CUSTOMERS:
The Companies sell their products to a variety of domestic-based memory
aftermarkets and original equipment manufacturers in the electronics
industry. The Companies perform ongoing credit evaluations of their
customers' financial condition and, generally, require no collateral from
customers. If the financial condition and operations of these customers
deteriorate, the Companies' operating results could be adversely affected.
For the year ended December 31, 1994, the Companies had one customer that
accounted for approximately 13 percent of its total combined revenue. The
Companies had no customers whose sales accounted for greater than 10 percent
of combined revenue for the years ended December 31, 1995 and 1993.
1st Tech carries a business credit insurance policy covering certain accounts
receivable. The insurance policy provides protection against losses from
uncollectible accounts resulting from insolvency of specified customers. As
of December 31, 1995, the total available coverage under the policy was
approximately $9,925,000.
11. EMPLOYEE BENEFITS:
Effective January 1, 1995, 1st Tech sponsored an employee benefit plan (the
Plan) which qualifies under Section 401(k) of the Internal Revenue Code for
all eligible employees. Eligible employees may defer a portion of their
annual compensation under the Plan subject to maximum limitations. The
requirements for eligibility include a minimum age of 21 and a minimum of one
year of service.
Under the provisions of the Plan, 1st Tech makes a discretionary matching
contribution to the Plan for the benefit of the participants. 1st Tech made
contributions of approximately $41,000 during 1995.
Effective September 1, 1995, DarkHorse established a defined contribution
plan (the DarkHorse Plan) whereby eligible employees are allowed to
contribute up to 10 percent of their gross wages, subject to limitations.
All employees of DarkHorse are eligible to participate in the DarkHorse Plan.
Under the provisions of this plan, DarkHorse may make discretionary matching
contributions to the DarkHorse Plan for the benefit of the participants.
DarkHorse made matching contributions of approximately $33,000 during 1995.
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12. COMMITMENTS AND CONTINGENCIES:
On December 13, 1995, 1st Tech Molding, Inc. (Molding), a company 50 percent
owned by the sole shareholder of 1st Tech, entered into an office space lease
agreement. The lease agreement is for five years commencing on February 1,
1996, with total aggregate minimum lease payments of approximately $610,000.
1st Tech served as the guarantor for the Molding office space lease
agreement. In conjunction with the acquisition of the Companies, as
described in Note 14, the guarantee was removed.
Additionally, on February 14, 1996, Molding entered into a five-year loan and
security agreement used to purchase certain equipment totaling approximately
$476,000. 1st Tech served as the guarantor for the Molding loan and security
agreement. In conjunction with the acquisition of the Companies, as
described in Note 14, the guarantee was removed.
13. PREFERRED STOCK:
The Company is authorized to issue 1,000,000 shares of preferred stock.
There are no preferred shares issued and outstanding as of December 31, 1995
and 1994.
14. SUBSEQUENT EVENTS:
Effective May 20, 1996, Tanisys Technology, Inc., acquired all of the
outstanding common stock of the Companies in exchange for 4.15 million shares
of Tanisys' common stock. Prior to the closing of the acquisition and as a
precedent to the acquisition, 1st Tech completed a private placement of
1,150,000 shares of its common stock for gross proceeds of $2,300,000.
Additionally, DarkHorse issued 45,000 shares of its common stock to certain
key employees.
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(b) EXHIBITS
The exhibits listed below are filed as part of this report. See the
Index of Exhibits included with the exhibits.
3.1 Articles of Continuance dated June 30, 1993 (previously filed)
3.2 Articles of Amendment to Articles of Continuance dated
July 11, 1994 (previously filed)
3.3 Articles of Amendment dated April 28, 1995 (previously filed)
3.4 Articles of Amendment dated April 15, 1996 (previously filed)
3.5 Restated Bylaws of the Company (previously filed)
4.1 Form of Warrant Agreement dated May 17, 1995 (previously filed)
4.2 Form of Class B Warrant (previously filed)
4.3 Share Purchase Warrant Certificate dated October 13, 1995
(previously filed)
4.4 Form of Warrant Agreement dated as of December 20, 1995
(previously filed)
4.5 Form of Class C Warrant (previously filed)
4.6 Specimen of Common Stock Certificate (previously filed)
10.1 Credit Agreement dated as of May 20, 1996, by and between
1st Tech, DarkHorse, the Company and Chemical Bank (now The
Chase Manhattan Bank), as amended (previously filed)
10.2 Revolving Credit Note dated as of May 20, 1996, by and between
1st Tech, DarkHorse and Chemical Bank (now The
Chase Manhattan Bank) (previously filed)
10.3 Agreement and Plan of Merger dated as of April 9, 1996, by and
between Tanisys Technology, Inc., Tanisys Acquisition Corp.,
1st Tech Corporation and Gary W. Pankonien ("1st Tech Merger
Agreement") (previously filed)
10.4 Amendment No. 1 dated May 16, 1996, to 1st Tech Merger
Agreement (previously filed)
10.5 Articles of Merger (Delaware) of 1st Tech with and into
Tanisys Acquisition Corp., dated May 31, 1996 (previously filed)
10.6 Articles of Merger (Texas) of 1st Tech with and into
Tanisys Acquisition Corp., dated May 31, 1996 (previously filed)
10.7 Agreement and Plan of Merger dated as of April 9, 1996, by
and between Tanisys Technology, Inc., Tanisys Acquisition
Corp. II, DarkHorse Systems, Inc., Jack Little, Archer
Lawrence and Gary W. Pankonien ("DarkHorse Merger Agreement")
(previously filed)
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<PAGE>
10.8 Amendment No. 1 dated May 16, 1996, to DarkHorse
Merger Agreement (previously filed)
10.9 Articles of Merger (Delaware) of DarkHorse with and into
Tanisys Acquisition Corp. II, dated May 31, 1996
(previously filed)
10.10 Articles of Merger (Texas) of DarkHorse with and into
Tanisys Acquisition Corp. II, dated May 31, 1996
(previously filed)
10.11 Employment Agreement dated February 15, 1994 by and between
the Company and Mark C. Holliday (previously filed)
10.12 Employment Agreement dated April 18, 1994 by and between
the Company and Benjamin S. Marz (previously filed)
10.13 Consulting Contract dated October 3, 1994 by and between
the Company and Parris H. Holmes, Jr.,
as amended (previously filed)
10.14 Employment Agreement dated May 20, 1996 by and between
the Company and Gary W. Pankonien (previously filed)
10.15 Employment Agreement dated July 11, 1996 by and between
the Company and Joe Davis (previously filed)
10.16 Employment Agreement dated October 11, 1996 by and between
the Company and Guy Fielder (to be filed by amendment)
10.17 1993 Stock Option Plan, as amended through May 20, 1996
(previously filed)
10.18 Form of Stock Option Agreement (previously filed)
10.19 401(k) Plan (previously filed)
10.20 Lease Agreement dated May 18, 1993 by and between
Tanisys Technology, Inc., assumptor of 1st Tech Corporation,
and AEtna Life Insurance Company, as amended (previously filed)
10.21 Master Lease Agreement dated November 9, 1994 by and
between 1st Tech and Copelco Capital Inc.
(previously filed)
10.22 Manufacturing Agreement dated as of November 1, 1996 by and
between the Company and Siemens Components, Inc.
(to be filed by amendment)
10.23 Inventory Management Service Agreement dated as of
November 1, 1996 by and between the Company and
Siemens Components, Inc. (to be filed by amendment)
12.1 Statement re Computation of Per Share Earnings
(previously filed)
21.1 Subsidiaries of the Company (previously filed)
27.1 Financial Data Schedule (previously filed)
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized.
TANISYS TECHNOLOGY, INC.
Date: January 24, 1997 By: /S/ MARK C. HOLLIDAY
---------------------------------
Chairman of the Board and
and Chief Executive Officer
34
