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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23038
TANISYS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
WYOMING 74-2675493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12201 TECHNOLOGY BLVD., SUITE 130
AUSTIN, TEXAS 78727 78727
(Address of principal executive offices) (Zip Code)
(512) 335-4440
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at July 31, 1997:
TITLE OF CLASS NUMBER OF SHARES
-------------- OUTSTANDING
-----------
Common Stock, no par value 20,091,214
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
INDEX
<TABLE>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Interim Consolidated Condensed Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets - June 30,1997 and September 30, 1996 . . . . 3
Consolidated Condensed Statements of Loss - For the Three Month and Nine Month
Periods Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows - For the Nine Month Period
Ended June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Condensed Financial Statements.. . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 5. Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(b) Current Reports on Form 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
2
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PART L. FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
JUNE 30, SEPTEMBER 30,
1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 924,690 $ 2,689,569
Trade accounts receivable, net of allowance of $429,064 and 4,455,939 5,069,399
$84,557, respectively
Accounts receivable from related parties 12,691 17,691
Inventory 3,209,183 1,804,458
Prepaid expense 289,884 217,570
- ---------------------------------------------------------------------------------------------------
Total current assets 8,892,387 9,798,687
- ---------------------------------------------------------------------------------------------------
Property and equipment, net of accumulated depreciation of 2,449,979 1,817,479
$1,501,488 and $906,589, respectively
Incorporation costs, net 640 1,024
Patents and trademarks, net 82,853 84,337
Goodwill, net of accumulated amortization of $4,183,082 and 2,987,915 5,677,040
$1,493,958, respectively
Other assets 656,042 84,000
- ---------------------------------------------------------------------------------------------------
$15,069,816 $17,462,567
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,434,696 $ 2,920,530
Accounts payable to related parties 250 64,618
Accrued liabilities 479,501 929,376
Revolving credit note 2,840,354 3,075,000
- ---------------------------------------------------------------------------------------------------
Total current liabilities 9,754,801 6,989,524
- ---------------------------------------------------------------------------------------------------
Obligations under capital lease 79,763 123,000
- ---------------------------------------------------------------------------------------------------
Total liabilities 9,834,564 7,112,524
- ---------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $1 par value, 10,000,000 shares authorized,
no shares issued or outstanding 0 0
Common stock, no par value, 50,000,000 shares authorized; 22,988,004 20,469,136
17,851,214 and 15,978,537 shares issued and outstanding,
respectively
Accumulated deficit (17,752,752) (10,119,093)
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 5,235,252 10,350,043
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $15,069,816 $17,462,567
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
3
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(UNAUDITED)
<TABLE>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales 11,234,115 3,770,498 38,555,153 3,862,233
Cost of goods sold 9,757,174 3,234,179 33,879,602 3,243,410
- ----------------------------------------------------------------------------------------------
Gross profit 1,476,941 536,319 4,675,551 618,823
- ----------------------------------------------------------------------------------------------
Operating expenses:
Research and development 600,442 333,268 1,772,782 604,461
Sales and marketing 701,319 336,872 2,135,651 478,898
General and administrative 861,270 530,100 2,604,922 1,099,326
Depreciation and amortization 1,064,738 649,503 3,128,221 684,064
Bad debt expense 400,185 7,699 2,206,832 7,699
- ----------------------------------------------------------------------------------------------
Total operating expenses 3,627,954 1,857,442 11,848,408 2,874,448
- ----------------------------------------------------------------------------------------------
Operating loss (2,151,013) (1,321,123) (7,172,857) (2,255,625)
- ----------------------------------------------------------------------------------------------
Other income (expense):
Interest income 3,036 22,291 17,435 60,751
Interest expense (144,863) (32,716) (461,737) (32,716)
Other income (expense) - 2,393 - 2,393
- ----------------------------------------------------------------------------------------------
Net loss (2,292,840) (1,329,155) (7,617,159) (2,225,197)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Loss per weighted average common
share $ (0.13) $ (0.11) $ (0.45) $ (0.21)
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Weighted average number of
common shares 17,851,214 12,442,287 16,932,967 10,637,044
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
4
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
For the Nine months
Ended June 30,
- ---------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(7,617,159) $(2,225,197)
Adjustment to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,128,221 684,064
(Increase) decrease in accounts receivable 618,460 (384,544)
(Increase) decrease in inventory (1,404,725) 196,997
(Increase) decrease in prepaid expense (72,314) (133,338)
(Increase) in other assets (572,042) 0
Increase (decrease) in accounts payable and
accrued liabilities 2,999,923 (2,372,962)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (2,919,636) (4,234,980)
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (1,063,634) (57,906)
Incorporation costs - (32,500)
Patents and trademark costs (6,094) (19,349)
Acquisition of businesses 0 3,067,546
Other 0 (188,167)
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (1,069,728) 2,769,624
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock - 1,629,003
Draws (payments) on revolving credit note, net (234,646) (227,763)
Principal payments on capital lease obligations (43,237) (5,430)
Net proceeds from exercise of stock options 32,900 0
Net proceeds from exercise of warrants 2,485,968 217,500
Premerger tax distributions on retained earnings (16,500) 0
- ---------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,224,485 1,613,310
- ---------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (1,764,879) 147,954
Cash and cash equivalents, beginning of period 2,689,569 1,317,024
- ---------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 924,690 1,464,978
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid 420,930 32,716
Interest received 17,435 60,751
Non-cash activity:
Shares issued to related parties and others to
satisfy accrued liabilities 0 254,500
Stock issued to purchase businesses 0 12,574,500
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
5
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements present the consolidated financial
position, results of operations and cash flows of Tanisys Technology, Inc. and
its wholly owned subsidiaries (collectively referred to as "The Company") as of
the dates and for the periods indicated. All material intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. It is recommended that these interim consolidated
condensed financial statements be read in conjunction with the Company's
restated consolidated financial statements and the notes thereto for the fiscal
year ended September 30, 1996 contained in the Company's Form 10/A Amendment No.
3 to its Registration Statement on Form 10 (SEC File No. 0-29038) filed with the
Securities and Exchange Commission on April 25, 1997, which Form 10 Registration
Statement was subsequently amended by Form 10/A Amendment No. 4 filed on May 9,
1997 and Form 10/A Amendment No. 5 filed May 12, 1997.
In the opinion of management, all adjustments, which are of a normal recurring
nature, considered necessary to present fairly the consolidated financial
position as of June 30, 1997, the consolidated results of operations for the
three and nine-month periods ended June 30, 1997 and 1996 and the consolidated
cash flows for the nine-month period ended June 30, 1997 and 1996 have been
made.
RECENT ACCOUNTING PRONOUNCEMENTS
The financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 125 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," ("SFAS
125") in June 1996. This statement will require the Company to classify its
financial assets pledged as collateral separately in the financial
statements. This statement is effective for fiscal years beginning after
December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. The FASB issued SFAS No. 127,
"Deferral of the Effective Date of Certain Provisions of FASB Statement 125"
("SFAS 127"). SFAS 127 moves forward some, but not all, of the provisions of
SFAS 125 to December 31, 1997. The Company believes the adoption of this
statement will not have a material impact on the financial condition or
results of operation of the Company.
In February 1997, FASB issued SFAS No. 128, "Earnings per Share," which
establishes standards for computing and presenting earning per share
("EPS") for entities with publicly held common stock or potential common
stock. SFAS No. 128 simplifies the standards for computing EPS previously
found in Accounting Principles Board Opinion No. 15, "Earning Per Share," and
makes them comparable to international EPS standards. It replaces the
presentation of primary EPS with a presentation of basic EPS, which excludes
dilution. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures. SFAS No. 128 is effective for financial statements for periods
ending December 15, 1997 and early adoption is not permitted. Management of
the Company does not anticipate the adoption of SFAS No. 128 will have a
material difference from EPS currently presented.
6
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NOTE 2: RESTATEMENT TO THE FINANCIAL STATEMENTS
The Company previously issued financial statements reflecting the
acquisitions of 1st Tech Corporation and DarkHorse Systems, Inc. based on a
$3.03 per share price for the Company's common shares issued. This price was
based on the closing price (the "Original per Share Price") of the Company's
common stock on May 21, 1996 of $5.05 discounted by 40% to give effect to the
restrictions on the shares and the risks involved. Immediately prior to the
consummation of the acquisitions, 1st Tech sold 1,150,000 shares of its
common stock in a private placement offering for a cash price of $2.00 per
share (the "Private Offering Price per Share"). The Company has restated its
financial statements utilizing a $2.00 per share price in recording the
acquisitions. The 1,150,000 shares then were converted into 1,150,000 shares
of the Company's common stock effective May 21, 1996.
Goodwill originally recorded in connection with the acquisitions was determined
as the number of shares of the Company's common stock issued to stockholders of
1st Tech and DarkHorse times the Original per Share Price. Goodwill now has
been restated utilizing the Private Offering Price per Share.
The Consolidated Balance Sheets and the Consolidated Statements of Loss and Cash
Flows have been restated to reflect the foregoing item. The following table
sets forth selected information as originally reported and as restated for the
nine months ended June 30, 1996:
Nine months ended
June 30, 1996
-----------------
Goodwill, net:
As originally reported $ 9,379,042
Adjustment (2,805,628)
Restated Goodwill, net $ 6,573,414
-----------
Net loss:
As originally reported $(2,515,695)
Adjustment 290,498
-----------
Restated net loss $(2,225,197)
-----------
Net loss per share:
As originally reported $ (0.24)
Adjustment 0.03
-----------
Restated net loss per share $ (0.21)
-----------
NOTE 3: REVOLVING CREDIT NOTE
At July 1, 1997, the Company's revolving credit note expired and the
financial institution informed the Company that they would continue to
entertain the Company's requests for loans beyond the July 1 termination date
until July 31, 1997 at the lender's sole and absolute discretion so that the
Company could finalize a new revolving credit facility with another lender.
(See Note 9, Subsequent Events.)
NOTE 4: RECEIVABLES
The top ten receivables represent 63.0% of the total accounts receivable
balance at June 30, 1997. Accounts receivable from two customers represented
a total of $1.1 million, or 24%, of the balance of accounts receivable at
June 30, 1997. Both accounts are rated at "5A2" according to the Dun &
Bradstreet rating classification. Management believes these receivables will
be collected within the agreed upon terms, although there is no
assurance that such will be the case. The
7
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Company's business, financial condition and results of operations will depend
in significant part upon its ability to obtain orders from new customers, as
well as the financial condition and success of its customers, the success of
its customers' products and the general economy. Factors affecting any of
the Company's major customers and their respective customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
NOTE 5: INVENTORY
Inventory consists of the following:
June 30, September 30,
1997 1996
---------- -------------
Raw materials $2,479,158 $1,343,522
Work-in-process 104,590 203,017
Finished goods 625,435 257,919
---------- ----------
$3,209,183 $1,804,458
---------- ----------
---------- ----------
NOTE 6: LEASE COMMITMENTS
The Company leases certain equipment and office space under non-cancelable
leases with expiration dates ranging from 1997 through 2004.
Future minimum lease payments under all leases at June 30, 1997 were as
follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
1997 $ 14,319 $ 173,109
1998 57,275 538,288
1999 57,275 384,733
2000 41,821 379,209
2001 0 318,447
-------- ----------
Total minimum lease payments 170,690 $1,793,786
Amounts representing interest 38,671
--------
Present value of minimum capital
lease payments 132,019
Less: current portion 52,256
--------
Long-term capital lease obligation $ 79,763
--------
--------
Rent expense recorded under all operating leases was $173,670 and $32,225 for
the three months ended June 30, 1997 and 1996, respectively. Rent expense
recorded under all operating leases was $362,915 and $34,135 for the nine
months ended June 30, 1997 and 1996, respectively.
8
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NOTE 7: SHARE CAPITAL, OPTIONS AND WARRANTS
STOCK OPTIONS
During the nine months ended June 30, 1997, a stockholder of the Company
exercised stock options for the purchase of 12,500 shares of the Company's
common stock for total gross proceeds of $32,900.
WARRANTS
During the first quarter of fiscal 1997, stockholders of the Company
exercised warrants for the purchase of 644,118 shares of the Company's common
stock for total gross proceeds of $1,155,000.
During the second quarter of fiscal 1997, stockholders of the Company
exercised warrants for the purchase of 1,216,059 shares of the Company's
common stock for total gross proceeds of $1,330,968. The exercise prices of
the warrants were reduced in consideration of the early exercise date so that
the Company could repay the related party loan (see Note 8, Related Party
Transactions). The shares issued upon exercise of the warrants are subject
to resale restrictions.
During the third quarter of fiscal 1997, no warrants were exercised.
However, 200,000 warrants were issued at an exercise price of $.01 per share.
The shares issued upon exercise of these warrants will be subject to resale
restrictions. In addition, the Board of Directors authorized a private
placement to accredited investors for a minimum of 1,000,000 shares of common
stock at $2.50 per share. (See Note 9, Private Placement, Subsequent Events).
RETAINED EARNINGS
A final distribution in the amount of $16,500 was made in April 1997 to the
prior owners of DarkHorse Systems, Inc, pursuant to the terms of the
acquisition agreement. The purpose of this distribution was to cover federal
income taxes incurred by the prior owners as a result of their investment in
the S-corporation.
NOTE 8: RELATED PARTY TRANSACTIONS
The Company arranged a loan of $1 million from certain stockholders,
including related parties. The loan was utilized by the Company to take
advantage of an inventory purchase opportunity. The $1 million loan was
repaid in full from proceeds of the exercise of outstanding stock purchase
warrants. (See Note 7, Share Capital, Options and Warrants.)
NOTE 9: SUBSEQUENT EVENTS
REVOLVING CREDIT NOTE
On July 24, 1997, the Company signed a new $8.5 million, three-year revolving
credit facility with a financial institution. Borrowings under the line will
be based on eligible accounts receivable, inventory and equipment values
subject to the terms and conditions of the agreement.
PRIVATE PLACEMENT
The Company completed a private placement to accredited investors for
2,240,000 shares of common stock, generating proceeds $5.6 million. (See Note
7, Share Capital, Options and Warrants.)
9
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ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO THE COMPANY THAT ARE BASED ON THE
BELIEFS OF THE COMPANY'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN
THIS REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND
"INTEND" AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE
COMPANY OR ITS SUBSIDIARIES OR THE COMPANY'S MANAGEMENT, ARE INTENDED TO
IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT
RISKS, UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING,
WITHOUT LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS,
CUSTOMER CONCENTRATIONS, CUSTOMER RELATIONSHIPS AND FINANCIAL CONDITIONS,
RELATIONSHIPS WITH VENDORS, THE INTEREST RATE ENVIRONMENT, GOVERNMENTAL
REGULATION AND SUPERVISION, SEASONALITY, DISTRIBUTION NETWORKS, PRODUCT
INTRODUCTIONS AND ACCEPTANCE, TECHNOLOGICAL CHANGE, CHANGES IN INDUSTRY
PRACTICES, ONE-TIME EVENTS AND OTHER FACTORS DESCRIBED HEREIN. BASED UPON
CHANGING CONDITIONS, SHOULD ANY ONE OF MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD ANY UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. THE COMPANY DOES NOT INTEND TO
UPDATE THESE FORWARD-LOOKING STATEMENTS.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the three-month and nine-month
periods ended June 30, 1997 and 1996. It should be read in conjunction with
the Interim Consolidated Condensed Financial Statements of the Company, the
Notes thereto and other financial information included elsewhere in this
report. For purposes of the following discussion, references to year periods
refer to the Company's fiscal year ended September 30, and references to
quarterly periods refer to the Company's fiscal quarter ended June 30.
The Company was organized under the laws of the Province of British
Columbia, Canada, on January 27, 1984, as Montebello Resources Ltd., and
pursued oil and gas exploration in British Columbia and Manitoba, Canada. In
October 1992, the Company changed its name to First American Capital Group
Inc. Unsuccessful in the exploration business, the Company became dormant
pursuant to the rules and regulations of the Vancouver Stock Exchange
("VSE"). During the first two quarters of 1993, the Company was reorganized
in accordance with the rules of the VSE. As part of this reorganization, the
Company acquired Timespan Communications Corp. ("Timespan") and its computer
game controller technology. Timespan, a wholly owned subsidiary of the
Company, was dissolved as of October 23, 1996. The Company changed its name
to Rosetta Technologies Inc. in May 1993 and to Tanisys Technology, Inc. in
July 1994. Until May 21, 1996, the Company focused on research and
development of highly specialized applications of capacitive touch sensing
technology.
Effective May 21, 1996, the Company acquired, through mergers with its
wholly owned subsidiaries, all of the outstanding common stock of 1st Tech
Corporation ("1st Tech") and DarkHorse Systems, Inc. ("DarkHorse") and began
operations in Austin, Texas as a consolidated group of companies providing
custom design, engineering and manufacturing services, test solutions and
standard and custom module products to leading original equipment
manufacturers ("OEMs") in the computer networking and telecommunications
industries. In consideration for the acquisitions of 1st Tech and DarkHorse,
the Company issued 2,950,000 and 1,200,000 shares, respectively, of Common
Stock. Prior but subject to the consummation of the acquisitions of 1st Tech
and DarkHorse by the Company, 1st Tech issued 1,150,000 shares of its common
stock for $2.00 per share in an equity financing, raising a total of $2.3
million, the proceeds of which were used to reduce short-term debt and
provide working capital for 1st Tech.
The Company's net sales and gross profit increased dramatically in the
first three quarters of the current fiscal year and the last two quarters of
fiscal year 1996, due to the acquisitions of 1st Tech and DarkHorse. In
fiscal 1996, revenues were $15.0 million with gross profit of $2.3 million
(15.5% of revenue) versus fiscal 1995 revenues of $.4 million and gross
profit of $.2 million (69.4% of revenue). This is an increase in revenues of
$14.6 million, in excess of 4,000%, and in gross profit of $2.1 million, more
than 800%. Net losses increased to $3.7 million in fiscal 1996, or 24.6% of
gross revenues, from $2.4 million in fiscal 1995, or 681.6% of gross
revenues. The increases in revenues, gross profit and net losses are due
primarily to the acquisitions of 1st Tech and DarkHorse on May 21, 1996.
Management believes that revenues and gross profits will fluctuate due to the
continuing oversupply of memory chips, which dramatically drives down the
prices of the
10
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Company's products, the continuing fluctuations in the cost of memory and
components, the fact that many of the Company's competitors are better
capitalized and can purchase inventory in sufficient quantities to obtain
more favorable pricing, and other factors, including changes in pricing by
suppliers and competitors and changes in the proportion of contract
manufacturing done--where the customer consigns the material--versus
manufacturing on a turnkey basis--where the Company purchases the necessary
materials.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated income data of the
Company expressed as a percentage of net sales (unaudited) for the
three-month and nine-month periods ended June 30, 1997 and 1996:
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 86.9 85.8 87.9 84.0
----- ----- ----- -----
Gross profit 13.1 14.2 12.1 16.0
----- ----- ----- -----
Operating expenses:
Research and development 5.3 8.8 4.6 15.7
Sales and marketing 6.2 8.9 5.5 12.4
General and administrative 7.7 14.1 6.8 28.5
Depreciation and amortization 9.5 17.2 8.1 17.7
Bad debt expense 3.6 0.2 5.7 0.2
----- ----- ----- -----
Total operating expenses 32.3 49.2 30.7 74.5
----- ----- ----- -----
Operating loss (19.2) (35.0) (18.6) (58.5)
Other income (expense), net (1.3) (0.2) (1.2) 0.9
----- ----- ----- -----
Net loss (20.5%) (35.2%) (19.8%) (57.6%)
----- ----- ----- -----
----- ----- ----- -----
NET SALES
Net sales consist of custom manufacturing services, custom memory
modules, standard memory modules, design engineering fees, memory module test
solutions and advanced technology services, less returns and discounts. Net
sales increased to $11.2 million in the third quarter of fiscal 1997 from
$3.8 million in the same period of fiscal 1996. Net sales for the first nine
months of fiscal 1997 increased to $ 38.6 million from $ 3.9 million in the
same period of fiscal 1996. The increases in fiscal 1997 are primarily due
to the acquisitions of 1st Tech and DarkHorse and, to a lesser degree, to
increases in sales volume in both the memory and tester product lines.
COST OF SALES AND GROSS PROFIT
Cost of sales includes the costs of all components and materials
purchased for the manufacture of products and the direct labor and overhead
costs associated with manufacturing. Gross profit increased to $1.5 million
for the third quarter of fiscal 1997 from $536 thousand in the same period of
the prior year. Gross profit for the first nine months of fiscal 1997
increased to $4.7 million from $619 thousand in the same period of fiscal
1996. Gross profit margin decreased to 13.1% in third quarter fiscal 1997
from 14.2% in third quarter fiscal 1996 and to 12.1% from 16.0% in the first
nine months of 1997 versus the same period in 1996. The increases in gross
profit as well as the decreases in gross profit margin were primarily due to
the acquisitions of 1st Tech and DarkHorse and the dramatic change in the
types of products being sold by the Company before and after the
acquisitions. To a lesser extent, the improvement in the Company's gross
profit was due to the addition of consignment inventory of certain memory
components, shortening the manufacturing response time and making it possible
to compete on the basis of timeliness of delivery rather than on price alone,
while not exposing the Company's assets to the risk of carrying larger
inventories.
11
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses consist of the costs associated with
the design and testing of new technologies and products. These relate
primarily to the costs of materials, personnel, management and employee
compensation and engineering design consulting fees. Research and development
expenses increased to $600 thousand in third quarter fiscal 1997 from $333
thousand in third quarter fiscal 1996, representing an increase of 80% from
period to period. Research and development expenses increased to $1.8 million
in the first nine months of fiscal 1997 from $604 thousand in the same period
of fiscal 1996, representing a 193% increase from period to period. The
substantial increases were primarily due to the acquisitions of the
additional product lines of 1st Tech and DarkHorse and the related research
and development expenditures.
SALES AND MARKETING
Sales and marketing expenses include all compensation of employees and
independent sales personnel as well as the costs of advertising, promotions,
trade shows, travel, direct support and overhead. Sales and marketing
expenses increased to $701 thousand in third quarter fiscal 1997 from $337
thousand in third quarter 1996, a 108% increase. Sales and marketing
expenses increased to $2.1 million in the first nine months of fiscal 1997
from $479 thousand in the same period of fiscal 1996, a 346% increase. In
the third quarter of fiscal years 1997 and 1996, sales and marketing expenses
expressed as a percentage of revenues were 6% and 9%, respectively. In the
first nine months of fiscal years 1997 and 1996, sales and marketing expenses
expressed as a percentage of revenues were 6% and 12%, respectively. The
increases in actual funds expended are connected with the acquisitions of the
product lines of 1st Tech and DarkHorse. The decreases in the expenses
expressed as a percentage of revenues is primarily caused by the significant
increases in revenues related to the acquisitions of 1st Tech and DarkHorse.
Sales and marketing expenses are expected to remain approximately the same or
to grow slightly when expressed as a percentage of revenue and to continue to
increase significantly in terms of absolute dollars in future periods as
revenues continue to grow.
GENERAL AND ADMINISTRATIVE
General and administrative costs consist primarily of personnel costs,
including employee compensation and benefits, and support costs including
utilities, insurance, professional fees and all costs associated with a
reporting company. General and administrative expenses increased to $861
thousand in third quarter fiscal 1997 from $530 thousand in third quarter
fiscal 1996, a 62% increase. In the first nine months of fiscal years 1997
and 1996, general and administrative expenses increased to $2.6 million from
$1.1 million, a 137% increase. General and administrative expenses expressed
as a percentage of revenues were 7.7% and 14.1% in the third quarter of
fiscal years 1997 and 1996, respectively, and 6.8% and 28.5% in the first
nine months of fiscal years 1997 and 1996, respectively. The increase in
actual funds expended in fiscal 1997 is primarily due to the acquisitions of
1st Tech and DarkHorse. The decrease in expenses expressed as a percentage
of revenues is primarily caused by the significant increase in revenues
related to the acquisitions of 1st Tech and DarkHorse and, to a lesser
extent, to the institution of cost controls on general and administrative
expenses. The absolute dollar expenses associated with the general and
administrative area are expected to increase significantly in future periods
due to anticipated continued growth in business activity and increased costs
associated with being a reporting company. The general and administrative
expenses are not expected to grow significantly in future periods when
expressed as a percentage of sales.
BAD DEBT EXPENSE
Bad debt expenses consist of amounts charged to expense because of trade
accounts receivable becoming uncollectible. The Company's method of
accounting for bad debts is to use historical actual charge expenses to
estimate the amount of current sales which will be uncollectible and provide
for them by creating an allowance which is netted against the trade accounts
receivable so that the net balance is the amount that it is estimated will be
collected according to the terms of the sales. The amount of the allowance
account is determined by analyzing prior periods and applying the resulting
calculated percentage to current sales as an estimate of the amount that will
ultimately be collected. The Company writes off additional amounts related to
specific accounts as the collection of these accounts becomes questionable.
In the third quarter
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<PAGE>
of fiscal 1997, the amount charged to bad debt expense was $400 thousand. In
the first nine months of fiscal 1997, the amount charged to bad debt expense
was $2.2 million. Charges made in the third quarter of fiscal 1996 were $8
thousand which equals the amount charged for the first nine months of fiscal
1996. The increase in fiscal 1997 bad debt expense is primarily due to a
$1.7 million bad debt expense for one customer and to increased sales in
conjunction with the acquisitions of 1st Tech and DarkHorse.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization includes the depreciation for all fixed
assets and the amortization of intangibles, including goodwill incurred in
the acquisitions of 1st Tech and DarkHorse. Depreciation and amortization
increased to $1.1 million in third quarter fiscal 1997 from $650 thousand in
third quarter fiscal 1996. In the first nine months of fiscal 1997,
depreciation and amortization increased to $3.1 million from $684 thousand in
the first nine months of fiscal 1996. The substantial increases are due
primarily to the amortization of goodwill recorded in conjunction with the
acquisitions of 1st Tech and DarkHorse.
OTHER INCOME (EXPENSE), NET
Other income (expense), net consists primarily of interest income less
interest expense. Interest expense is primarily attributable to borrowings
from a revolving credit note. Substantially all of the interest expense
relates to credit line draws made for short-term inventory requirements and
to fund trade accounts receivable. Interest income relates to investment of
available cash in short-term interest bearing accounts and cash equivalent
securities. The Company had no debt and earned interest on its available
cash until its May 21, 1996 acquisitions of 1st Tech and DarkHorse.
Thereafter, the Company incurred net interest expense due to the increased
balances of inventories and accounts receivable. The Company expects to
continue to require borrowings to fund growth in inventories and accounts
receivable in the future and therefore expects to continue to reflect net
interest expense.
PROVISION FOR INCOME TAXES
The Company has never paid income taxes and at September 30, 1996 had a
net operating loss carryforward of $6 million. While there can be no
assurance that the Company will generate the taxable income required to use
all or any part of the carryforward prior to the expiration of the
carryforward, the Company would be able to incur taxable income in the
carryforward period equal to the total loss carryforward without the payment
of taxes. The existing carryforward expires 15 years after the year in which
it was incurred. Therefore, if the carryforward is not used to offset future
taxable income, the net operating loss carryforward at September 30, 1996
will expire in fiscal years 2010 and 2011.
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
ownership change as defined in Section 382 of the Code. This section states
that after reorganization or other change in corporate ownership, the use of
certain carryovers may be significantly limited or prohibited. There are two
types of ownership changes that can trigger carryover limitations: an
ownership change involving a 5% stockholder and any tax-free reorganization.
In either case, one or more 5% stockholders must have increased their
percentage of ownership in the corporation by more than 50% over the
pre-change ownership percentage, generally within three years of ownership
change. The Company does not believe that a Code Section 382 limitation
currently exists.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has used funds generated from operations,
equity financings, capital leases, vendor credits and certain bank borrowings
to support its operations, acquire capital equipment and finance inventory
acquisitions and accounts receivable balances. During the third quarter
fiscal 1997, the Company expended $2 million in net cash from financing
activities versus $213 thousand in the third quarter fiscal 1996. The
$2 million in third quarter fiscal 1997 and the $213 thousand in third quarter
fiscal 1996 were primarily to pay down the revolving credit line. For the
first nine months of fiscal 1997, the Company generated $2.2 million in net
cash from financing activities versus $1.6 million in the first nine months
of fiscal 1996. The $2.2 million in the first nine months of fiscal 1997
consisted of $2.5 million from the exercise of warrants and options and $278
thousand of net cash payments on the Company's revolving credit note and
principal payments on capital lease obligations.
13
<PAGE>
Since inception the Company has utilized the funds acquired in equity
financings of its Common Stock, in the exercise of warrants, exercise of
stock options, capital and operating leases, vendor credits, certain bank
borrowings and funds generated from operations to support its operations,
carry on research and development activities, acquire capital equipment,
finance inventories and accounts receivable and pay its general and
administrative expenses. At June 30, 1997, the Company had $925 thousand of
cash and a working capital deficit of $943 thousand. On July 31, 1997 the
Company completed a private offering to accredited investors generating
$5.6 million.
On June 27, 1997, the Company received approval of an $8.5 million,
three-year revolving credit facility from a different financial institution.
The transaction was completed on July 24, 1997. Borrowings under the line of
credit will be based on eligible accounts receivable, inventory and equipment
and subject to the terms and condition of the credit agreement. The line of
credit is collateralized by substantially all the Company's assets. The
interest rate on this line is prime plus 2%.
On June 30, 1997, the Company's financial institution informed the
Company that they would continue to entertain the Company's requests for
loans beyond the July 1 termination date until July 31, 1997 at the lender's
sole and absolute discretion so that the Company could finalize a new
revolving credit facility with another lender.
Capital expenditures totaled approximately $204 thousand and $47 thousand
in the third quarter of fiscal years 1997 and 1996, respectively. In the
first nine months of fiscal years 1997 and 1996, capital expenditures were
$1.1 million and $58 thousand, respectively. These capital expenditures were
primarily for the purchase of enterprise information systems, manufacturing
equipment, test equipment and the expansion of manufacturing facilities. The
Company expects to fund capital expenditures of approximately $500,000
thousand in the remainder of fiscal 1997 for additional manufacturing
capacity through working capital, operating leases and capital leases.
The Company entered into a 60-month operating lease for equipment valued
at $1.5 million effective March 1, 1997. This lease required a letter of
credit equal to approximately 40% of the equipment cost in year one, with
annual decreases in the letter of credit over the life of the lease.
The Company believes that its existing funds, anticipated cash flow from
operations, amounts available from future vendor credits, bank borrowings and
equity financings will be sufficient to meet its working capital and capital
expenditure needs for the next 12 months at the projected level of
operations. However, if there should be a significant increase in sales
levels which require additional investments in equipment, inventory and
accounts receivable, the Company would be required to obtain alternate
sources for additional debt and rely upon a future equity offering or
offerings for such funding. There is no assurance that the Company will be
able to locate an alternate source or sources for the required increase in
its outstanding debt or that it will be successful in its attempts to raise a
sufficient amount of funds in a subsequent equity offering or offerings. In
such event, the Company's inability to raise needed funds could have a
material adverse effect on the Company.
SIGNIFICANT CUSTOMER CONCENTRATION
A significant percentage of the Company's net sales is produced by a
relatively small number of customers. In the third quarter of fiscal 1997
and 1996, the ten largest customers accounted for approximately 54.1% and
68.9% of net sales, respectively. In the first nine months of fiscal 1997
and 1996, the ten largest customers accounted for approximately 54.6% and
67.2% of net sales, respectively. One customer accounted for 16.6% of total
sales in the third quarter of 1997, and one customer accounted for 13.8% of
total sales in the first nine months of fiscal 1997. Two customers accounted
for 12.5% and 12.2%, respectively, of total sales in the third quarter of
1996. The same two customers accounted for 12.2% and 11.8%. respectively, of
total sales in the nine months ended June 30,1996. While the Company expects
to continue to be dependent on a relatively small number of customers for a
significant percentage of its net sales, there can be no assurance that any
of the top ten customers in fiscal 1997 will continue to utilize the
Company's products or services. The actual customers producing the sales are
different between the two periods, and the Company expects this type of
variation of volume of purchases from a particular customer to continue
throughout this fiscal year.
The Company in general has no firm long-term volume commitments from its
customers and generally enters into individual purchase orders with its
customers. Customer purchase orders are subject to change, cancellation or
delay with
14
<PAGE>
little or no consequence to the customer. Therefore, the Company has
experienced such changes and cancellations and expects to continue to do so
in the future. The replacement of canceled, delayed or reduced purchase
orders with new business cannot be assured. The Company's business,
financial condition and results of operations will depend significantly on
its ability to obtain purchase orders from existing and new customers, upon
the financial condition and success of its customers, the success of
customer's products and the general economy. Factors affecting the
industries of the Company's major customers could have a material adverse
effect on the Company's business, financial condition and results of
operations.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
At the date hereof, there are no pending, or to the best knowledge of the
Company, threatened matters involving litigation involving the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The exhibits listed below are filed as part of or incorporated by reference
in this report. Where such filing is made by incorporation by reference to a
previously filed document, such document is identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Articles of Continuance dated June 30, 1993 (Exhibit 3.1 to General
Form for Registration of Securities on Form 10, filed November 27,
1996)
3.2 Articles of Amendment to Articles of Continuance dated July 11, 1994
(Exhibit 3.2 to General Form for Registration of Securities on Form
10, filed November 27, 1996)
3.3 Articles of Amendment dated April 28, 1995 (Exhibit 3.3 to General
Form for Registration of Securities on Form 10, filed November 27,
1996)
3.4 Articles of Amendment dated April 15, 1996 (Exhibit 3.4 to General
Form for Registration of Securities on Form 10, filed November 27,
1996)
3.5 Restated Bylaws of the Company (Exhibit 3.5 to General Form for
Registration of Securities on Form 10, filed November 27, 1996)
10.31 Second Amendment to Amendment and Restatement of Credit Agreement,
dated as of May 2, 1997, by and between 1st Tech, DarkHorse, the
Company and The Chase Manhattan Bank (filed herewith)
11.1 Statement regarding Computation of Per Share Earnings (filed
herewith)
27.1 Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K:
None.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TANISYS TECHNOLOGY, INC.
Date: August 13, 1997 By: /s/ JOE O. DAVIS
--------------------------------------
Joe O. Davis
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and Principal
Financial Officer)
Date: August 13, 1997 By: /s/ DONALD R. TURNER
--------------------------------------
Donald R. Turner
CORPORATE CONTROLLER
(Duly authorized and Principal
Accounting Officer)
17
<PAGE>
SECOND AMENDMENT TO AMENDMENT AND RESTATEMENT
OF CREDIT AGREEMENT
THIS SECOND AGREEMENT ("SECOND AMENDMENT"), dated effective as of May 2,
1997, is made and entered into by and among 1st TECH CORPORATION, a Delaware
corporation, DARKHORSE SYSTEMS, INCORPORATED, a Delaware corporation, and
TANISYS TECHNOLOGY, INC., a Wyoming corporation (collectively the
"BORROWERS"), and THE CHASE MANHATTAN BANK, a New York banking corporation
("LENDER").
RECITALS:
WHEREAS, Borrowers and Lender are parties to that certain Amendment and
Restatement of Credit Agreement dated as of February 21, 1997, as previously
amended pursuant to the terms of that certain First Amendment to Amendment
and Restatement of Credit Agreement ("FIRST AMENDMENT") dated effective March
21, 1997, by and among Borrowers and Lender (said Credit Agreement, as
previously amended by the First Amendment, being hereinafter referred to as
the "CREDIT AGREEMENT"); and
WHEREAS, Borrowers and Lender have agreed, on the terms and conditions
herein set forth, that the Credit Agreement be further amended in certain
respects.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth, and for other
good and valuable consideration, the receipt and sufficiency which are hereby
acknowledged and confessed, Borrowers and Lender do hereby agree as follows:
SECTION 1. GENERAL DEFINITIONS. Capitalized terms used herein which are
defined in the Credit Agreement shall have the same meanings when used herein.
SECTION 2. AMENDMENT OF MAXIMUM AMOUNT OF COMMITMENT. SECTION 1.1.b of
the Credit Agreement is hereby amended and restated in its entirety to
hereafter be and read as follows:
MAXIMUM AMOUNT OF COMMITMENT 1.1.B The "Maximum Amount" of the
Commitment shall be $4,500,000.
SECTION 3. AMENDMENT OF ADVANCE RATE FOR BORROWING BASE. SECTION
1.2(b)(/i) of the Credit Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:
(i) The Advance Rate (the amount by which Net Eligible
Receivables is multiplied in the Borrowing Base Certificate) shall be
seventy-three percent (73%).
<PAGE>
SECTION 4. AMENDMENT OF NEGATIVE COVENANTS. SECTION 5.1 of the Credit
Agreement is hereby amended and restated in its entirety to hereafter be and
read as follows:
INDEBTEDNESS 5.1 Create, incur, or permit to exist, or assume
or guaranty, directly or indirectly, or become or remain liable with
respect to, any Indebtedness, contingent or otherwise, EXCEPT: (a)
Indebtedness to Bank, or secured by Liens permitted by this Agreement,
or otherwise approved in writing by Bank, and renewals and extensions
(but not increases) thereof; (b) current accounts payable and
unsecured current liabilities, not the result of borrowing, to
vendors, suppliers and Persons providing services or for expenditures
for goods and services normally required by it in the ordinary course
of business, all on ordinary trade terms; and (c) Indebtedness to any
shareholders of any Borrower for the purpose of funding any working
capital shortfall of Borrowers arising on or after May 2, 1997, so
long as (i) such Indebtedness to shareholders is not secured by any
Liens on any Property of any Borrower, and (ii) such Indebtedness is
subordinated in payment to the Indebtedness owing to Bank under the
terms of this Agreement pursuant to terms that are satisfactory to,
and approved in writing by, Bank in its discretion (such subordination
terms to include, without limitation, a prohibition on any payment of
any such Indebtedness owing to shareholders prior to the full and
complete payment of the Indebtedness owing to Bank under this
Agreement and the termination of the Commitment in accordance with the
other terms of this Agreement).
SECTION 5. REPRESENTATIONS AND WARRANTIES. Borrowers represent and
warrant to Lender that the representations and warranties contained in
SECTION 3 of the Credit Agreement and in all of the other Loan Documents are
true and correct in all material respects on and as of the effective date
hereof as though made on and as of such effective date. Borrowers hereby
certify that no reported event has occurred and is continuing which
constitutes a Default or an Event of Default under the Credit Agreement, as
amended hereby, or which, upon the giving of notice or the lapse of time, or
both, would constitute a Default or an Event of Default. Borrowers also
hereby certify that no Borrower has any current actual knowledge of any event
that has occurred and is continuing which constitutes a Default or Event of
Default under the Credit Agreement, as amended hereby, or which, upon the
giving of notice or the lapse of time, or both, would constitute a Default or
Event of Default. Additionally, Borrowers hereby represent and warrant to
Lender that the resolutions of the Board of Directors of 1st Tech
Corporation, Darkhouse Systems, Incorporated and Tanisys Technology, Inc.
which are set out in the following described Secretary's Certificates remain
in full force and effect as of the effective date hereof and have not been
modified, amended, superseded or revoked:
(a) That certain Borrowing Resolution for Corporations/Professional
Associations and Secretary's Certificate dated June 18, 1996, executed and
delivered to Lender by the Secretary of 1st Tech Corporation in connection
with the Credit Agreement;
(b) That certain Borrowing Resolution for Corporations/Professional
Associations and Secretary's Certificate dated June 18, 1996, executed and
delivered to Lender by the Secretary of Darkhorse Systems, Incorporated in
connection with the Credit Agreement;
2
<PAGE>
(c) That certain Borrowing Resolution for Corporations and
Secretary's Certificate dated April 2, 1997, executed and delivered to
Lender by the Secretary of Tanisys Technology, Inc. in connection with the
First Amendment; and
(d) That certain Tanisys Technology, Inc. Certificate of Corporate
Resolution dated as of March 20, 1997, executed and delivered to Lender by
the Secretary of Tanisys Technology, Inc. in connection with the First
Amendment.
SECTION 6. CONDITIONS. This Second Amendment shall not become effective
until Lender has been provided, in Proper Form, with a copy of the letter of
intent which has been entered into by and among Borrowers and a third party
lender for the purpose of refinancing any and all Indebtedness outstanding
under the credit facility governed by the Credit Agreement (Borrowers
previously represented to Lender that such letter of intent has been entered
into and is currently in full force and effect).
SECTION 7. RATIFICATION. Borrowers hereby ratify and confirm that both
the Note and the Credit Agreement, as amended hereby, are in full force and
effect and are binding and enforceable against each Borrower in accordance
with the terms thereof. Additionally, Borrowers (and Gary W. Pankonien, by
his joinder below) confirm and ratify that the liens, security interests and
assignments granted in each and all Security Documents previously executed
and delivered in connection with the Loans (and ratified and supplemented by
the terms of the First Amendment) are in full force and effect and continue
to secure the Loans and all other Indebtedness of Borrowers which is now or
hereafter outstanding under the Credit Agreement, as amended hereby, and any
other Loan Documents. Without limitation, such Security Documents include
(a) those certain General Security Agreements dated effective May 20, 1996,
executed and delivered by 1st Tech Corporation and Darkhorse Systems,
Incorporated, respectively, (b) that certain Security Agreement-Pledge of
Certificate of Deposit and Assignment of Deposit Accounts dated effective May
20, 1996, executed and delivered by 1st Tech Corporation, (c) that certain
Third Party Security Agreement-Pledge dated effective May 20, 1996, executed
and delivered by Gary W. Pankonien, and (d) that certain Third Party Security
Agreement-Accounts and General Intangibles dated effective December 17, 1996,
executed and delivered by Tanisys.
SECTION 8. LIMITATIONS. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or
waiver, amendment or modification of, any other term or condition of the
Credit Agreement or any of the other Loan Documents, or (b) except as
expressly set forth herein, prejudice any right or rights which Lender may
now have or may have in the future under or in connection with the Credit
Agreement, the Loan Documents or any of the other documents referred to
therein. Except as expressly modified or amended hereby, the terms and
provisions of the Credit Agreement, the Notes and any other Loan Documents or
any other documents or instruments executed in connection with any of the
foregoing are and shall remain in full force and effect. In the event of a
conflict between this Second Amendment and any of the foregoing documents,
the terms of this Second Amendment shall be controlling.
SECTION 9. PAYMENT OF EXPENSES. Borrowers agree, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save
Lender harmless from and against liability for the payment of all reasonable
substantiated out-of-pocket costs and expenses arising in
3
<PAGE>
connection with the preparation, execution, delivery, amendment,
modification, waiver and enforcement of, or the preservation of any rights
under this Second Amendment, including, without limitation, the reasonable
fees and expenses of counsel for Agent and other charges which may be payable
in respect of, or in respect of any modification of, the Credit Agreement and
the other Loan Documents. The provisions of this Section shall survive the
termination of the Credit Agreement and the repayment of the Loans.
SECTION 10. DESCRIPTIVE HEADINGS, ETC. The descriptive headings of the
several Sections of this Second Amendment are inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
SECTION 11. ENTIRE AGREEMENT. This Second Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and
contemporaneous oral and written agreements of the parties hereto with
respect to the subject matter hereof, including, without limitation, any
commitment letters regarding the transactions contemplated by this Second
Amendment.
SECTION 12. COUNTERPARTS; FACSIMILE SIGNATURES. This Second Amendment
may be executed in any number of counterparts and by different parties on
separate counterparts and all of such counterparts shall together constitute
one and the same instrument. Complete sets of counterparts shall be lodged
with Borrowers and Lender. To facilitate the execution and delivery of this
Second Amendment and any other Loan Documents required by Lender in
connection herewith, the parties hereto may execute and exchange facsimile
counterparts of the signature pages of this Second Amendment and any of such
other Loan Documents required by Lender in connection herewith, and facsimile
counterparts of such signatures pages shall serve as originals of this Second
Amendment and any such other Loan Documents.
SECTION 13. REFERENCES TO CREDIT AGREEMENT. As used in the Credit
Agreement (including all Exhibits thereto) and all other Loan Documents, on
and subsequent to the effective date hereof, the term "Agreement" shall mean
the Credit Agreement, as amended by this Second Amendment.
SECTION 14. RELEASE OF CLAIMS. BORROWERS (AND GARY W. PANKONIEN, BY HIS
JOINDER BELOW) EACH HEREBY RELEASE, DISCHARGE, AND ACQUIT FOREVER LENDER,
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AND EACH OF THEIR RESPECTIVE
OFFICERS, DIRECTORS, AGENTS, EMPLOYEES AND COUNSEL FROM ANY AND ALL CLAIMS
EXISTING AS OF THE EFFECTIVE DATE HEREOF (OR THE DATE OF ACTUAL EXECUTION
HEREOF BY THE APPLICABLE PERSON OR ENTITY, IF LATER). AS USED HEREIN, THE
TERM "CLAIMS" SHALL MEAN ANY AND ALL LIABILITIES, CLAIMS, DEFENSES, DEMANDS,
ACTIONS, CAUSES OF ACTION, JUDGMENTS, COSTS OR EXPENSES (INCLUDING, WITHOUT
LIMITATION, COURT COSTS, PENALTIES, ATTORNEYS' FEES, DISBURSEMENTS, AND
AMOUNTS PAID IN SETTLEMENT) OF ANY KIND AND CHARACTER WHATSOEVER RELATING TO
THE LOANS AND THE CREDIT FACILITY GOVERNED BY THE CREDIT AGREEMENT, INCLUDING
WITHOUT LIMITATION, CLAIMS FOR BREACH OF CONTRACT, BREACH OF COMMITMENT, OR
FAILURE TO ACT IN GOOD FAITH, IN EACH CASE WHETHER NOW KNOWN OR UNKNOWN,
SUSPECTED OR UNSUSPECTED, ASSERTED OR UNASSERTED, OR
4
<PAGE>
PRIMARY OR CONTINGENT, AND WHETHER ARISING OUT OF WRITTEN DOCUMENTS,
UNWRITTEN UNDERTAKINGS, COURSE OF CONDUCT, TORT, VIOLATION OF LAWS, OR
REGULATIONS OR OTHERWISE. THIS RELEASE SHALL BE BINDING UPON BORROWERS, GARY
W. PANKONIEN, AND THEIR RESPECTIVE HEIRS, LEGAL REPRESENTATIVES, SUCCESSORS
AND ASSIGNS.
IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment
to be duly executed and delivered by their respective duly authorized offices
as of the date first above written.
1ST TECH CORPORATION,
a Delaware corporation
By: /s/ Mark C. Holliday
------------------------------
Mark C. Holliday
Chairman and CEO
By: /s/ Gary W. Pankonien
------------------------------
Gary W. Pankonien
President and COO
TANISYS TECHNOLOGY, INC.,
a Wyoming corporation
By: /s/ Mark C. Holliday
------------------------------
Mark C. Holliday
Chairman and CEO
DARKHORSE SYSTEMS, INCORPORATED,
a Delaware corporation
By: /s/ Mark C. Holliday
------------------------------
Mark C. Holliday
Chairman and CEO
By: /s/ Gary W. Pankonien
------------------------------
Gary W. Pankonien
President and COO
THE CHASE MANHATTAN BANK,
a New York banking corporation,
By: /s/ George Louis McKinley
------------------------------
George Louis McKinley
Vice President
5
<PAGE>
The undersigned (a) acknowledges and consents to the execution of the
foregoing Second Amendment, (b) confirms that any Security Agreement
previously executed or joined in by the undersigned with respect to the
Indebtedness governed by the Credit Agreement applies and shall continue to
apply to all Indebtedness evidenced by or arising pursuant to the Credit
Agreement, as amended hereby, or any other Loan Documents, notwithstanding
the execution and delivery of this Second Amendment by Borrowers and Lender,
(c) acknowledges that without this consent and confirmation, Lender would not
agree to the modifications of the Credit Agreement which are evidenced by the
foregoing Second Amendment, and (d) joins in the execution and delivery of
the ratification provisions of SECTION 7 of the foregoing Second Amendment
and the release of claims provisions of SECTION 14 of the foregoing Second
Amendment.
/s/ Gary W. Pankonien
------------------------
GARY W. PANKONIEN
6
<PAGE>
EXHIBIT 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1997
MONTH SHARES OUTSTANDING AT MONTH END
Sept 96 15,978,537
Oct 96 15,978,537
Nov 96 16,070,773
Dec 96 16,626,655
Jan 97 16,635,155
Feb 97 16,635,155
Mar 97 17,851,214 17,851,214
Apr 97 17,851,214 17,851,214
May 97 17,851,214 17,851,214
Jun 97 17,851,214 17,851,214
4 and 7-month totals 71,404,856 169,329,668
Weighted
Average Shares 17,851,214 16,932,967
Net Loss ($2,292,840) ($7,617,159)
Loss per Weighted
Average Share ($0.13) ($0.45)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR TANISYS TECHNOLOGY,
INC. AND SUBSIDIARIES AS OF AND FOR THE NINE MONTHS ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 924,690
<SECURITIES> 0
<RECEIVABLES> 4,455,939
<ALLOWANCES> 429,064
<INVENTORY> 3,209,183
<CURRENT-ASSETS> 8,892,387
<PP&E> 2,449,979
<DEPRECIATION> 1,501,488
<TOTAL-ASSETS> 15,069,816
<CURRENT-LIABILITIES> 9,754,801
<BONDS> 0
0
0
<COMMON> 22,988,004
<OTHER-SE> (17,752,752)
<TOTAL-LIABILITY-AND-EQUITY> 15,069,816
<SALES> 38,555,153
<TOTAL-REVENUES> 38,555,153
<CGS> 33,879,602
<TOTAL-COSTS> 33,879,602
<OTHER-EXPENSES> 11,848,408
<LOSS-PROVISION> 2,206,832
<INTEREST-EXPENSE> 461,737
<INCOME-PRETAX> (7,617,159)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,617,159)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,617,159)
<EPS-PRIMARY> (0.45)
<EPS-DILUTED> (0.45)
</TABLE>
