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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 March 31, 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 May 14, 1997:
Title of Class Number of Shares
-------------- Outstanding
-----------
Common Stock, no par value 17,851,214
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
INDEX
<TABLE>
PAGE
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Interim Consolidated Condensed Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets - March 31, 1997 and September 30, 1996 . . . . . . 3
Consolidated Condensed Statements of Loss - For the Three Month and Six Month
Periods Ended March 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Condensed Statements of Cash Flows - For the Six Month
Periods Ended March 31, 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(b) Current Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,775,168 $ 2,689,569
Trade accounts receivable, net of allowance of $87,918 and 7,072,854 5,069,399
$84,557, respectively
Accounts receivable from related parties 143,691 17,691
Inventory 3,572,140 1,804,458
Prepaid expense 403,632 217,570
- ----------------------------------------------------------------------------------------------------------
Total current assets 12,967,485 9,798,687
- ----------------------------------------------------------------------------------------------------------
Property and equipment, net of accumulated depreciation of 2,411,969 1,817,479
$1,280,672 and $906,589, respectively
Incorporation costs, net 768 1,024
Patents and trademarks, net 85,379 84,337
Goodwill, net of accumulated amortization of $3,286,707 and 3,884,290 5,677,040
$1,493,958, respectively
Other assets 94,127 84,000
- ----------------------------------------------------------------------------------------------------------
$19,444,018 $17,462,567
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $6,581,018 $2,920,530
Accounts payable to related parties 0 64,618
Accrued liabilities 452,943 929,376
Revolving credit note 4,775,940 3,075,000
- ----------------------------------------------------------------------------------------------------------
Total current liabilities 11,809,901 6,989,524
- ----------------------------------------------------------------------------------------------------------
Obligations under capital lease 89,525 123,000
- ----------------------------------------------------------------------------------------------------------
Total liabilities 11,899,426 7,112,524
- ----------------------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Share capital-Common stock, no par value, 50,000,000 shares 22,988,004 20,469,136
authorized, 17,851,214 and 15,978,537 shares issued and
outstanding, respectively
Accumulated deficit (15,443,412) (10,119,093)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 7,544,592 10,350,043
- ----------------------------------------------------------------------------------------------------------
$19,444,018 $17,462,567
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES+E18
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $12,057,378 $8,092 $27,321,039 $91,735
Cost of goods sold 10,454,191 262 24,122,427 9,231
- -----------------------------------------------------------------------------------------------------
Gross profit 1,603,187 7,830 3,198,612 82,504
- -----------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 653,634 170,582 1,172,342 271,193
Sales and marketing 736,344 68,973 1,434,330 142,026
General and administrative 884,181 271,002 1,743,655 569,226
Bad Debt Expense 1,759,806 0 1,806,647 0
Depreciation and amortization 1,042,892 15,869 2,063,482 34,561
- -----------------------------------------------------------------------------------------------------
Total operating expenses 5,076,857 526,426 8,220,456 1,017,006
- -----------------------------------------------------------------------------------------------------
Operating loss (3,473,670) (518,596) (5,021,844) (934,502)
- -----------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 2,690 23,871 14,399 38,460
Interest expense (151,604) 0 (316,874) 0
- -----------------------------------------------------------------------------------------------------
Net loss ($3,622,584) ($494,725) ($5,324,319) ($896,042)
- -----------------------------------------------------------------------------------------------------
Loss per weighted average common share ($0.21) ($0.05) ($0.32) ($0.09)
- -----------------------------------------------------------------------------------------------------
Weighted average number of common shares 16,937,045 9,896,854 16,539,432 9,551,047
- -----------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
4
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($3,622,584) ($494,725) ($5,324,319) ($896,042)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 1,042,892 15,869 2,063,482 34,561
(Increase) decrease in accounts receivable (671,822) 37,463 (1,985,764) 41,449
(Increase) decrease in inventory (1,528,307) 319 (1,767,682) 4,306
(Increase) decrease in prepaid expense (156,164) 15,018 (329,753) 5,408
Increase (decrease) in accounts payable and accrued liabilities 3,689,199 18,925 3,119,438 (67,819)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activites (1,246,786) (407,131) (4,224,598) (878,137)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (434,353) (3,441) (870,043) (11,161)
Patents and trademark costs 0 814 (6,094) (8,017)
Other 0 (1,100) 0 (1,100)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (434,353) (3,727) (876,137) (20,278)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock 0 1,524,053 0 1,639,053
Draws (payments) on revolving credit note, net 330,090 0 1,700,941 0
Principal payments on capital lease obligations (21,534) 0 (33,475) 0
Net proceeds from exercise of stock options 22,460 0 32,900 0
Net proceeds from exercise of warrants 1,330,968 187,500 2,485,968 187,500
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,661,984 1,711,553 4,186,334 1,826,553
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Increase/decrease in cash and cash equivalents (19,155) 1,300,695 (914,401) 928,138
Cash and cash equivalents, beginning of period 1,794,323 944,467 2,689,569 1,317,024
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $1,775,168 $2,245,162 $1,775,168 $2,245,162
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $151,604 $0 $316,874 $0
Interest received $2,690 $23,871 $14,399 $38,460
Non-cash activity:
Shares issued to related parties and others to satisfy
accrued liabilities 0 0 0 47,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
5
<PAGE>
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 (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 March 31, 1997, the consolidated results of operations for the
three and six-month periods ended March 31, 1997 and 1996 and the consolidated
cash flows for the three and six-month periods ended March31, 1997 and 1996 have
been made.
NOTE 2: RECEIVABLES
One customer who owes the Company $1.7 million for an account receivable is
negotiating to pay the Company a discounted amount over three years. There can
be no assurance that the negotiations will be successful, and based on the
uncertainty of the customer's ability to pay, the Company has expensed the
entire $1.7 million to bad debt. The Company's business, financial condition
and results of operations will depend in significant part upon its ability to
obtain orders from new customers, as well as the financial condition and success
of its customers, its customers' products and the general economy. The factors
affecting any of the Company's major customers or their customers could have a
material adverse effect on the Company's business, financial condition and
results of operations.
NOTE 3: INVENTORY
Inventory consists of the following:
March 31, September 30,
1997 1996
--------- -------------
Raw materials $2,588,239 $1,343,522
Work-in-process 261,282 203,017
Finished goods 722,619 257,919
---------- ----------
$3,572,140 $1,804,458
---------- ----------
---------- ----------
NOTE 4: REVOLVING CREDIT NOTE
In February 1997, the Company agreed to reduce the maximum amount of available
borrowings of the revolving credit note from $6 million to $4 million over an
eight-week period. In conjunction with this reduction, the Company also agreed
to reduce the percentage of qualified accounts receivable included in the
borrowing base from its current 80% to 70%. This
6
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reduction would occur 1% per week over a five-week period and an additional 1%
per month over the subsequent five-month period. The Company had outstanding
borrowings against the revolving credit note of $4.8 million at March 31, 1997.
Effective May 2, 1997, the Company entered into the Second Amendment to
Amendment and Restatement of Credit Agreement with the financial institution.
See Note 8, Subsequent Events.
NOTE 5: LEASE COMMITMENTS
The Company leases certain equipment and office space under non-cancelable
leases with expiration dates ranging from 1997 through 2001.
Future minimum lease payments under all leases at March 31, 1997 were as
follows:
CAPITAL LEASES OPERATING LEASES
-------------- ----------------
1997 $ 28,637 $ 346,778
1998 57,275 538,288
1999 57,275 384,733
2000 41,821 379,209
2001 0 318,447
--------- ---------
Total minimum lease payments 185,008 $1,967,455
Amounts representing interest 43,227
---------
Present value of minimum capital
lease payments 141,781
Less: current portion 52,265
---------
Long-term capital lease obligation $ 89,525
---------
---------
Rent expense recorded under all operating leases was $164,000 and $955 for the
three months ended March 31, 1997 and 1996, respectively. Rent expense recorded
under all operating leases was approximately $329,000 and $1,910 for the six
months ended March 31, 1997 and 1996, respectively.
NOTE 6: SHARE CAPITAL, OPTIONS AND WARRANTS
STOCK OPTIONS
During the six months ended March 31, 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 7, Related Party Transactions). The
shares issued upon exercise of the warrants are subject to resale restrictions.
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NOTE 7: 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. All of the $1 million loan was repaid through
the exercise of outstanding stock purchase warrants (See Note 6, Share Capital,
Options and Warrants).
NOTE 8: SUBSEQUENT EVENTS
SEC FORM 10 FILING
On May 12, 1997, the Securities and Exchange Commission (the "Commission")
notified the Company that the Commission's Staff had no further comments on the
Company's General Form for Registration of Securities on Form 10, as amended,
which was originally filed on November 27, 1996. Therefore, the Company has
completed the requirements for registration under Section 12(g) of the
Securities Exchange Act of 1934, as amended.
REVOLVING CREDIT NOTE
At March 31, 1997, the Company had a revolving credit note at a financial
institution which had a $5 million maximum borrowing limit until April 18, 1997,
which was to be reduced by $250 thousand each Friday until the maximum amount
was reduced to $4 million. The percentage of qualified accounts was established
at 75% until April 4, 1997, 74% until April 18, 1997 and then would have been
reduced by 1% each week through the termination date (July 1, 1997) or upon the
earlier of demand by the financial institution. The revolving credit note is
secured by all of the Company's assets. Effective May 2, 1997, the Company
entered into the Second Amendment to Amendment and Restatement of Credit
Agreement with the financial institution. This amendment established the
maximum amount of the commitment at $4.5 million and the advance rate at 73%
until the July 1, 1997 termination date of the revolving credit note. The
revolving credit note also was amended to allow the stockholders of the Company
to make working capital loans which are subordinated to the amounts owed to the
financial institution, including a prohibition on any repayment of such loans
until the financial institution has been completely repaid.
8
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ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO TANISYS TECHNOLOGY, INC. (THE "COMPANY")
AND ITS SUBSIDIARIES (COLLECTIVELY THE "TANISYS GROUP") THAT ARE BASED ON THE
BELIEFS OF THE TANISYS GROUP'S MANAGEMENT AS WELL AS ASSUMPTIONS MADE BY AND
INFORMATION CURRENTLY AVAILABLE TO THE COMPANY'S MANAGEMENT. WHEN USED IN THIS
REPORT, THE WORDS "ANTICIPATE," "BELIEVE," "ESTIMATE," "EXPECT," AND "INTEND"
AND WORDS OR PHRASES OF SIMILAR IMPORT, AS THEY RELATE TO THE COMPANY OR ITS
SUBSIDIARIES OR THE TANISYS GROUP'S MANAGEMENT, ARE INTENDED TO IDENTIFY
FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS REFLECT THE CURRENT RISKS,
UNCERTAINTIES AND ASSUMPTIONS RELATED TO CERTAIN FACTORS INCLUDING, WITHOUT
LIMITATIONS, COMPETITIVE FACTORS, GENERAL ECONOMIC CONDITIONS, CUSTOMER
CONCENTRATIONS, CUSTOMER RELATIONSHIPS AND FINANCIAL 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 TANISYS GROUP 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 Tanisys Group for the three-month and six-month
periods ended March 31, 1997 and 1996. It should be read in conjunction with
the Interim Consolidated Condensed Financial Statements of the Tanisys Group,
the Notes thereto and other financial information included elsewhere in this
report. For purposes of the following discussion, references to year periods
refer to the Tanisys Group's fiscal year ended September 30, 1996 and references
to quarterly periods refer to the Tanisys Group's fiscal quarters ended March
31, 1997 and 1996.
The Company was organized under the laws of the Province of British
Columbia, Canada, on January 27, 1984, as Montebello Resources Ltd., and pursued
oil and gas exploration in British Columbia and Manitoba, Canada. In October
1992, the Company changed its name to First American Capital Group Inc.
Unsuccessful in the exploration business, the Company became dormant pursuant to
the rules and regulations of the Vancouver Stock Exchange ("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 Tanisys Group's net sales and gross profit increased dramatically in
the first two 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
9
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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 Tanisys Group's products, the continuing fluctuations in the
cost of memory and components, the fact that many of the Tanisys' Group's
competitors are better capitalized and can purchase inventory in sufficient
quantities to obtain more favorable pricing, and other factors, including
changes in pricing by suppliers and competitors and changes in the proportion of
contract manufacturing done--where the customer consigns the material--versus
manufacturing on a turnkey basis--where the Tanisys Group purchases the
necessary materials.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated income data of the
Tanisys Group expressed as a percentage of net sales (unaudited) for the
three-month and six-month periods ended March 31, 1997 and 1996:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 86.7 3.2 88.3 10.1
---------- ---------- ---------- ----------
Gross profit 13.3 96.8 11.7 89.9
---------- ---------- ---------- ----------
Operating expenses:
Research and development 5.4 2,108.0 4.3 295.6
Sales and marketing 6.1 852.4 5.2 154.8
General and administrative 7.3 3,349.0 6.4 620.5
Bad Debt Expense 14.6 0.0 6.6 0.0
Depreciation and amortization 8.7 196.1 7.6 37.7
---------- ---------- ---------- ----------
Total operating expenses 42.1 6,505.5 30.1 1,108.6
---------- ---------- ---------- ----------
Operating loss (28.8) (6,408.7) (18.4) (1,018.7)
Other income (expense), net (1.2) 295.0 (1.1) 41.9
---------- ---------- ---------- ----------
Net loss (30.0%) (6,113.7%) (19.5%) (976.8%)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
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 $12.1 million in the second quarter of fiscal 1997 from $8.1
thousand in the same period of fiscal 1996. Net sales for the first six months
of fiscal 1997 increased to $27.3 million from $91.7 thousand 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 the 1st Tech memory module product line.
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 $1.6 million for the second
quarter of fiscal 1997 from $7.8 thousand in the same period of the prior year.
Gross profit for the first six months of fiscal 1997 increased to $3.2 million
from $82.5 thousand in the same period of fiscal 1996. Gross profit margin
decreased to 13.0% in second quarter fiscal 1997 from 96.8% in second quarter
fiscal 1996 and to 11.7% from 89.9% in the first six 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 Tanisys Group's assets to the risk of
carrying larger inventories.
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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 $654 thousand in second quarter fiscal 1997 from $171 thousand in second
quarter fiscal 1996, representing an increase of 283.2% from period to period.
Research and development expenses increased to $1.2 million in the first six
months of fiscal 1997 from $271 thousand in the same period of fiscal 1996,
representing a 332.3% 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 $736 thousand in second quarter fiscal 1997 from $69 thousand in
second quarter 1996, a 967.6% increase. Sales and marketing expenses increased
to $1.4 million in the first six months of fiscal 1997 from $142 thousand in the
same period of fiscal 1996, a 909.9% increase. In the second quarter of fiscal
years 1997 and 1996, sales and marketing expenses expressed as a percentage of
revenues were 6.1% and 852.4%, respectively. In the first six months of fiscal
years 1997 and 1996, sales and marketing expenses expressed as a percentage of
revenues were 5.2% and 154.8%, 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 $884
thousand in second quarter fiscal 1997 from $271 thousand in second quarter
fiscal 1996, a 226.3% increase. In the first six months of fiscal years 1997 and
1996, general and administrative expensed increased to $1.7 million from $569
thousand, a 206.3% increase. General and administrative expenses expressed as a
percentage of revenues were 7.3% and 3,349.0% in the second quarter of fiscal
years 1997 and 1996, respectively, and 6.4% and 620.5% in the first six 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 reserve 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 second quarter of
fiscal 1997, the amount charged to bad debt expense was $1.8 million. In the
first six months of fiscal 1997, the amount charged to bad debt expense was $1.8
million. There were no charges made in the second quarter of fiscal 1996 or the
first six months
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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 a lesser extent,
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 $1.0 million in second quarter fiscal 1997 from $15.9 thousand in second
quarter fiscal 1996. In the first six months of fiscal 1997, depreciation and
amortization increased to $2.1 million from $34.6 thousand in the first six
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 Tanisys Group
incurred net interest expense due to the increased balances of inventories and
accounts receivable. The Tanisys Group expects to continue to require
borrowings to fund growth in inventories and accounts receivable in the future
and therefore expects to continue to reflect net interest expense.
PROVISION FOR INCOME TAXES
The Company has never paid income taxes and at September 30, 1996 had a net
operating loss carryforward of $4.3 million. While there can be no assurance
that the Tanisys Group will generate the taxable income required to use all or
any part of the carryforward prior to the expiration of the carryforward, the
Tanisys Group would be able to incur taxable income in the carryforward period
equal to the total loss carryforward without the payment of taxes. The existing
carryforward expires 15 years after the year in which it was incurred.
Therefore, if the carryforward is not used to offset future taxable income, the
net operating loss carryforward at September 30, 1996 will expire in fiscal
years 2010 ($2.5 million) and 2011 ($1.8 million).
The availability of the net operating loss carryforward and future tax
deductions to reduce taxable income is subject to various limitations under the
Internal Revenue Code of 1986, as amended (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 Tanisys Group
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 second quarter fiscal
1997, the Company generated $1.7 million in net cash from financing activities
versus $1.7 million in the second quarter fiscal 1996. The $1.7 million in
second quarter fiscal 1997 consisted of $1.4 million from the exercise of
warrants and options to purchase common stock and $.3 million of net draws on
the Company's revolving credit note. For the first six months of fiscal 1997,
the Company generated $4.2 million in net cash from financing activities versus
$1.8 million in the first six months of fiscal 1996. The $4.2 million in the
first six months of fiscal 1997 consisted of $2.5 million from the exercise of
warrants and options and $1.7 million of net cash draws on the Company's
revolving credit note.
Subsequent to the May 21, 1996 acquisitions, the Tanisys Group has utilized
the funds acquired in equity financings
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of its Common Stock in 1995, 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. There
have been no further offerings or issuances of unregistered securities other
than in connection with the exercise of warrants and stock options. At March
31, 1997, the Tanisys Group had $1.8 million of cash and $1.2 million of working
capital.
At March 31, 1997, the Tanisys Group had a revolving credit note at a
financial institution which had a $5 million maximum borrowing limit until April
18, 1997, which is reduced by $250 thousand each Friday until the maximum amount
is reduced to $4 million. The percentage of qualified accounts was established
at 75% until April 4, 1997, 74% until April 18, 1997, and then will be reduced
by 1% each week through the termination date, July 1, 1997, or upon the earlier
of demand by the financial institution, and is secured by all the Company's
assets. Effective May 2, 1997, the Tanisys Group entered into the Second
Amendment to Amendment and Restatement of Credit Agreement with the financial
institution. This amendment established the maximum amount of the commitment at
$4.5 million and the advance rate at 73% until July1, 1997, the termination date
of revolving credit note. The revolving credit note also was amended to allow
the stockholders of the Company to make working capital loans which are
subordinated to the amounts owed to the financial institution, including a
prohibition on any repayment of such loans until the financial institution has
been completely repaid. Draws are made as necessary from funds available for
borrowing, which are limited to the lower of the commitment amount or a
borrowing base amount calculated based on certain levels of accounts receivable.
At March 31, 1997, $4.8 million was outstanding and there were no additional
borrowings available under the revolving credit note.. The revolving credit
note has certain restrictions concerning, among other things, the payment of
dividends, additional debt and material changes in management and requires the
Tanisys Group to maintain a minimum net worth, and earnings before interest,
taxes, depreciation and amortization is required to be an amount greater than
zero. As of March 31, 1997, the Tanisys Group was in compliance with all
financial covenants and has been in compliance with all requirements of the
credit agreement, either by fulfilling all requirements or by waiver, from the
inception of the credit agreement.
The Company is negotiating with four lenders to replace the current
revolving credit facility and intends to have a new facility in place no later
than June 30, 1997. On April 3, 1997, a letter of intent was entered into with
one of the lenders and a majority of the due diligence procedures have been
completed but there is no definitive agreement in place and there is no
guarantee that one can be negotiated in the time frame specified. If an
agreement is not in place prior to the termination of the present agreement,
Tanisys Group management would approach the current lender and request an
extension of the termination date of the existing credit agreement.
Capital expenditures totaled approximately $434 thousand and $4 thousand in
the second quarter of fiscal years 1997 and 1996, respectively. In the first
six months of fiscal years 1997 and 1996, capital expenditures were $876
thousand and $20 thousand, respectively. These capital expenditures were
primarily for the purchase of manufacturing equipment, test equipment and the
expansion of manufacturing facilities. The Tanisys Group expects to fund
capital expenditures of approximately $.5 million in the remainder of fiscal
1997 for additional manufacturing capacity through working capital, operating
leases and capital leases.
The Tanisys Group 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 Tanisys Group 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.
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SIGNIFICANT CUSTOMER CONCENTRATION
A significant percentage of the Tanisys Group's net sales is produced by a
relatively small number of customers. In the second quarter of fiscal 1997 and
1996, the ten largest customers accounted for approximately 62.6% and 76% of net
sales, respectively. In the first six months of fiscal 1997 and 1996, the ten
largest customers accounted for approximately 59.9% and 100%, respectively. One
customer accounted for 24.9% of total sales in the second quarter of 1997, two
customers accounted for 11.1% and 10.9%, respectively, of total sales in the
first six months of fiscal 1997, and no single customer produced as much as 10%
of net sales during the second quarter of 1996 or the first six months of 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 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.
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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 5. OTHER INFORMATION
On November 27, 1996, the Tanisys Group filed with the Securities Exchange
Commission (the "Commission") its Registration Statement on Form 10 (the "Form
10"), registering the Company's common stock, no par value per share (the
"Common Stock"), under the Securities Exchange Act of 1934, as amended. The
Company has filed various amendments on Form 10/A to the Form 10 in response to
comments of the Commission's Staff. On May 12, 1997, the Commission completed
its review of the Form 10, as amended. The Company also has filed an
application with the National Association of Securities Dealers, Inc. for its
Common Stock to be listed on the Nasdaq Stock Market's SmallCap Market There
can be no assurance that the listing application will be approved.
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 Form
10 Registration Statement filed November 27, 1996)
3.2 Articles of Amendment to Articles of Continuance dated July 11,
1994 (Exhibit 3.2 to Form 10 Registration Statement filed
November 27, 1996)
3.3 Articles of Amendment dated April 28, 1995 (Exhibit 3.3 to Form
10 Registration Statement filed November 27, 1996
3.4 Articles of Amendment dated April 15, 1996 (Exhibit 3.4 to Form
10 Registration Statement filed November 27, 1996.
3.5 Restated Bylaws of the Company (Exhibit 3.5 to Form 10
Registration Statement filed November 27, 1996)
4.6 Specimen of Common Stock Certificate (Exhibit 4.6 to Form 10
Registration Statement filed November 27, 1996)
10.30 Master Lease Agreement dated January 30, 1997 by and between the
Company and Copelco Capital Inc. (filed herewith)
12.1 Statement regarding Computation of Per Share Earnings (filed
herewith)
27.1 Financial Data Schedule (filed herewith)
(b) Current Reports on Form 8-K:
None.
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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: May 14, 1997 By: /s/ JOE O. DAVIS
------------------------------------
Joe O. Davis
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and Principal Financial Officer)
Date: May 14, 1997 By: /s/ DONALD R. TURNER
------------------------------------
Donald R. Turner
CORPORATE CONTROLLER
(Duly authorized and Principal Accounting Officer)
16
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EXHIBIT 10.30
Master Lease No. 0743060
MASTER LEASE AGREEMENT
LESSOR: COPELCO CAPITAL, INC.
LESSEE: TANISYS TECHNOLOGY, INC.
TERMS AND CONDITIONS OF LEASE
I. LEASE OF EQUIPMENT
Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the
equipment described in one or more equipment schedules (the "Equipment
Schedule") substantially in the form of Exhibit A attached hereto, that may
hereafter be executed by Lessor and Lessee (the equipment, together with all
replacement parts, repairs, additions, substitutions and accessories shall be
referred to as the "Equipment") on the terms and conditions contained in this
Lease ("Lease") and in any Equipment Schedule. This Lease and each of the
terms, covenants, conditions, provisions and agreements herein contained will be
incorporated into each Equipment schedule in full to the same extent as if each
of the terms, covenants, conditions, provisions and agreements had been repeated
and set forth in full therein, and this Master Lease Agreement shall control and
be effective as to all such Schedules except to the extent that the Master Lease
Agreement may be inconsistent with the terms and provisions of such Equipment
Schedule, in which event the terms and provisions of such Equipment Schedule
shall prevail. Each Equipment Schedule shall constitute a separate lease and a
distinct and independent obligation of the Lessee. The parties intend this
Lease to be a "Financed Lease" under Article 2A of the Uniform Commercial Code.
II. ORDER AND DELIVERY OF EQUIPMENT; LESSOR'S RIGHT TO TERMINATE.
Lessee hereby requests Lessor to order the Equipment from the Vendor named on
the Equipment Schedule and to arrange for delivery of the Equipment to Lessee at
Lessee's expense, an to lease the Equipment to Lessee. If the Equipment is not
delivered to and accepted by Lessee in form satisfactory to Lessor, within
ninety (90) days from the date Lessor orders the Equipment, Lessor may terminate
the applicable Equipment Schedule and its obligations thereunder. Lessee
waives any requirement of Lessor to furnish Lessee a copy of Lessor's purchase
order for the Equipment.
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III. ACCEPTANCE
Lessee shall, as Lessor's agent, immediately inspect the Equipment after it is
delivered and installed. Lessee agrees that on the date the Equipment is
available for first use (the "Acceptance Date"), it shall execute and deliver
to Lessor a Delivery and Acceptance Certificate substantially in the form of
Exhibit B attached. Notwithstanding the foregoing, unless Lessee shall notify
Lessor in writing otherwise within five (5) days after the Acceptance Date,
Lessee shall be deemed to have irrevocably accepted the Equipment. THIS LEASE
AND ALL EQUIPMENT SCHEDULES ARE NONCANCELABLE and Lessee agrees to pay the total
rent for the term, which shall be the total amount of all rental payments stated
in any Equipment Schedule (the "Rent" or "Rental Payment"), plus any other sums
provided for herein.
IV. TERM AND RENT.
(A) The initial term ("Initial Term") of any Equipment Schedule to which this
Lease relates shall commence on the Acceptance Date and shall be of such
duration as is prescribed in such Equipment Schedule plus the Interim Term (as
hereinafter defined). Advance Rent and any Security Deposit as provided in any
Equipment Schedule shall be payable upon the execution of the applicable
Equipment schedule and shall not be refundable if the Initial Term for any
reason does not commence or if this Lease or the applicable Equipment Schedule
is duly terminated by Lessor. Rental Payments shall commence (the "Commencement
Date") on the first day of the month following the Acceptance Date unless the
Acceptance Date is the first day of the applicable period, in which case the
Commencement Date shall be the first day of the applicable period. Interim Rent
shall be payable upon demand for the period between the Acceptance Date and the
first day of the month following the Acceptance Date ("Interim Term") at a daily
rate equal to the periodic rental provided in any Equipment Schedule divided by
the number of days in the period. Subsequent rental payments shall be due
periodically in advance on the first day of each successive period thereafter
until all Rent and other sums chargeable to Lessee hereunder are paid in full.
LESSEE'S OBLIGATION TO PAY RENT AND LESSEE'S OTHER MONETARY OBLIGATIONS
HEREUNDER ARE ABSOLUTE AND UNCONDITIONAL AND ARE NOT SUBJECT TO ANY ABATEMENT,
SET-OFF, DEFENSE OR COUNTERCLAIM FOR ANY REASON WHATSOEVER. Any Security
Deposit shall secure all obligations of Lessee hereunder and may be applied at
Lessor's discretion to any past due obligation of Lessee and to the extent not
applied shall be returned to Lessee, without interest, at the expiration of the
applicable Equipment Schedule. All payments of Rent shall be made to Lessor at
the address Lessor shall designate in writing.
(B) Whenever any payment is not made by Lessee with ten (10) days of when due
hereunder, Lessee agrees to pay to Lessor, as additional rent, interest on all
monies due Lessor from and after the date same is due at the rate of one and
one-quarter (1-1/4%) percent per month until paid, but as to each of the
foregoing in no event more that the maximum rate permitted by law.
(C) As used herein, "Actual Cost" means the cost to Lessor of purchasing and
delivering the Equipment to Lessee, including taxes, transportation and other
charges. The amount of each Rental Payment and the Security Deposit set forth
in the Equipment Schedule are based on the total cost set forth in Lessor's
purchase order for the Equipment ("Estimated Costs"), which is an
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estimate, and shall be adjusted proportionately if the actual cost of the
Equipment is greater than said estimate. Lessee hereby authorizes Lessor to
adjust the amounts set forth in the Equipment Schedule when the Actual Cost
is known and to add to the amount of each Rental Payment any sales, use or
leasing tax that may be imposed on or measured by the Rental Payments.
Lessor will inform Lessee of the adjustments necessary to reflect Actual
Cost. If the Actual Cost of the equipment on any Equipment Schedule exceeds
the Estimated Cost by more than ten (10%) percent thereof (exclusive of
taxes), Lessor shall, if it desires to, add to the Estimated Cost an amount
in excess of 10% of Estimated Cost, so notify Lessee in writing. In such
instance, within fifteen (15) days thereafter, Lessee at its option may
terminate the relevant Equipment Schedule by giving notice to Lessor of its
intention to do so, effective the day of such notice, subject however to the
provisions of Section IV(A) hereof.
V. NO WARRANTIES BY LESSOR, DISCLAIMER OF IMPLIED WARRANTIES AND WAIVER OF
DEFENSES.
LESSOR IS NOT THE MANUFACTURER OR SUPPLIER OF OR A DEALER IN THE EQUIPMENT, AND
MAKES NO WARRANTY, EXPRESSED OR IMPLIED, TO ANYONE, AS TO THE SUITABILITY,
DURABILITY, DESIGN, CONDITION, CAPACITY, PERFORMANCE OR ANY OTHER ASPECT OF THE
EQUIPMENT OR ITS MATERIAL OR WORKMANSHIP INCLUDING THE WARRANTY OF
MERCHANTABILITY AND FITNESS FOR USE OR PURPOSE. AS TO LESSOR AND ITS ASSIGNS,
LESSEE LEASES THE EQUIPMENT "AS IS." LESSEE REPRESENTS THAT IT HAS SELECTED THE
EQUIPMENT AND THE SUPPLIER AND ACKNOWLEDGES THAT LESSOR HAS NOT RECOMMENDED THE
SUPPLIER. LESSOR SHALL HAVE NO OBLIGATION TO INSTALL, MAINTAIN, ERECT, TEST,
ADJUST, OR SERVICE THE EQUIPMENT, ALL OF WHICH LESSEE SHALL PERFORM, OR CAUSE
THE SAME TO BE PERFORMED BY QUALIFIED THIRD PARTIES. LESSOR AND LESSOR'S
ASSIGNEE SHALL NOT BE LIABLE TO LESSEE OR OTHERS FOR ANY LOSS, DAMAGE OR EXPENSE
OF ANY KIND OR NATURE CAUSED DIRECTLY OR INDIRECTLY BY ANY EQUIPMENT HOWEVER
ARISING, OR THE USE OR MAINTENANCE THEREOF OR THE FAILURE OF OPERATION THEREOF,
OR THE REPAIRS, SERVICE OR ADJUSTMENT THERETO. NO REPRESENTATION OR WARRANTY AS
TO THE EQUIPMENT OR ANY OTHER MATTER BY THE SUPPLIER OR OTHERS SHALL BE BINDING
ON LESSOR NOR SHALL THE BREACH OF SUCH RELIEVE LESSEE OF, OR IN ANYWAY AFFECT,
ANY OF LESSEE'S OBLIGATIONS TO LESSOR HEREIN. IF THE EQUIPMENT IS
UNSATISFACTORY FOR ANY REASON, LESSEE SHALL MAKE CLAIM ON ACCOUNT THEREOF SOLELY
AGAINST SUPPLIER, AND ANY OF SUPPLIER'S VENDORS, AND SHALL NEVERTHELESS PAY
LESSOR ALL RENT AND OTHER SUMS PAYABLE UNDER THIS LEASE. LESSOR HEREBY ASSIGNS
TO LESSEE, SOLELY FOR THE PURPOSE OF PROSECUTING SUCH A CLAIM, ALL (IF ANY) OF
THE RIGHTS WHICH LESSOR MAY HAVE AGAINST SUPPLIER AND SUPPLIER'S VENDORS FOR
BREACH OF WARRANTY OR OTHER REPRESENTATIONS RESPECTING THE EQUIPMENT.
REGARDLESS OF CAUSE, LESSEE WILL NOT ASSERT ANY CLAIM WHATSOEVER AGAINST LESSOR
FOR
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LOSS OF ANTICIPATORY PROFITS OR ANY OTHER INDIRECT, SPECIAL OR CONSEQUENTIAL
DAMAGES, NOR SHALL LESSOR BE RESPONSIBLE FOR ANY DAMAGES OR COSTS WHICH MAY BE
ASSESSED AGAINST LESSEE IN ANY ACTION FOR INFRINGEMENT OF ANY UNITED STATES
LETTERS PATENT. LESSOR MAKES NO WARRANTY AS TO THE TREATMENT OF THIS LEASE FOR
TAX OR ACCOUNTING PURPOSES. NOTWITHSTANDING ANY FEES WHICH MAY BE PAID BY
LESSOR TO SUPPLIER OR ANY AGENT OR SUPPLIER, LESSEE UNDERSTANDS AND AGREES THAT
NEITHER SUPPLIER NOR ANY AGENT OF SUPPLIER IS AN AGENT OF LESSOR OR IS
AUTHORIZED TO WAIVE OR ALTER ANY TERM OR CONDITION OF THIS LEASE.
VI. TITLE; PERSONAL PROPERTY.
The Equipment is, and shall at all times be owned by Lessor and Lessee shall
have no interest in the Equipment except that of a lessee. The Lessee shall
have no right to purchase or otherwise acquire title to or ownership of any of
the Equipment. If Lessor supplies Lessee with labels indicating that the
Equipment is owned by Lessor, Lessee shall affix such labels to and keep them in
a prominent place on the Equipment. LESSEE HEREBY AUTHORIZES LESSOR TO INSERT
ANY EQUIPMENT SCHEDULE THE SERIAL NUMBERS AND OTHER IDENTIFICATION DATA OF
EQUIPMENT WHEN DETERMINED BY LESSOR. To protect Lessor's rights in the
Equipment in the event this Lease is determined to be a security agreement,
Lessee hereby grants to Lessor a security interest in the Equipment, and all
proceeds, products, rents or profits from the sale, casualty loss or other
disposition thereof. Lessee hereby authorizes Lessor, at Lessee's expense, to
cause this Lease, or any statement or other instrument in respect of this Lease
showing the interest of Lessor in the Equipment, including Uniform Commercial
Code financing statements, to be filed or recorded and re-filed and re-recorded,
and grants Lessor the right to execute Lessee's name thereto. Lessee agrees to
execute, deliver and file any statement of instrument requested by Lessor for
such purpose, and if certificates of title are issued or outstanding with
respect to any of the Equipment, Lessee will cause the interest to Lessor to be
properly noted thereon, and agrees to pay or reimburse Lessor for any reasonable
searches, filings, recordings, stamp fees or taxes related to the filing or
recording of such instrument or statement, plus Lessor's handling charges.
Lessee shall, at its expense, protect and defend Lessor's title against all
persons claiming against or through Lessee and shall at all times keep the
Equipment free from any legal process or encumbrance whatsoever including
without limitation liens, attachments, levies and executions, and shall give
Lessor immediate written notice thereof and shall indemnify Lessor from any loss
caused thereby. Lessee shall, upon Lessor's request, execute or obtain from
third parties and deliver to Lessor such estoppel certificates, landlord's
waiver and such further instruments and assurances as Lessor deems necessary or
advisable for the confirmation or perfection of Lessor's rights hereunder. The
equipment is, and shall at all times be and remain, personal property
notwithstanding that the Equipment or any part thereof may now be or hereafter
become, in any manner, affixed or attached to real property or any improvements
thereon.
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VII. MAINTENANCE, USE AND LOCATION
Lessee shall, at its own cost and expense, maintain the Equipment in good
operating condition and repair and protect the Equipment from deterioration
other than normal wear and tear; shall use the Equipment in the regular course
of its business, within its normal operating capacity, without abuse; shall
comply with all laws, ordinances, regulations, requirements and rules with
respect to the use, maintenance and operation of the Equipment, shall not make
any modifications, alteration or additions to the Equipment without the prior
written consent of Lessor, which shall not be unreasonably withheld, except for
engineering changes recommended by and made by the manufacturer; shall install
on the Equipment all engineering changes offered by the manufacturer with out
charge which enhance the safety of the Equipment; shall not so affix the
Equipment to realty as to change its nature to real property or a fixture; and
shall keep the equipment at the location shown herein, and shall not remove the
Equipment without prior written consent of Lessor. Lessee will grant access to
the Equipment to Lessor and Lessor's designee during normal working hours for
inspection, repair, preventative maintenance, installation of engineering
changes and for any other reasonable purpose. Lessee shall, during the term of
this Lease, at its own expense, enter into and maintain in force a contract with
the manufacturer or other acceptable maintenance company covering the
maintenance of the Equipment and furnish a copy thereof to Lessor upon request.
If Lessor incurs any costs or expense to bring the Equipment up to good working
order and appearance, Lessee shall immediately reimburse Lessor for all such
costs or expenses.
VIII. RETURN OF EQUIPMENT; END OF LEASE OPTION.
After the end of the Initial Term and after each renewal term thereafter, this
Lease shall be automatically renewed and shall continue until such time as the
Lessee shall give the Lessor written notice of termination, not less than one
hundred twenty (120) days and not more than one hundred eighty (180) days prior
to the end of the then current term. Unless Lessee purchases the Equipment or
the term of an Equipment Schedule is renewed, within ten (10) days of the
expiration or earlier termination of the then current term, the Lessee shall, at
its expense, deinstall, inspect, test and pack the Equipment and return the
Equipment (including all cable, wiring, connectors, accessories and attachments
thereto), freight and insurance prepaid, to such location as designated by
Lessor in writing, in good repair, condition and working order, ordinary wear
and tear resulting from proper use thereof only excepted. Further, the
Equipment shall conform to any additional specification set forth in the
applicable Equipment Schedule. Lessee shall have the Equipment certifies by the
manufacturer as acceptable for the manufacturer's standard maintenance contract
and such certification shall be presented to Lessor at lease fourteen (14) days
prior to redelivery to Lessor. If lessee fails to return the Equipment as
provided herein, Lessee shall pay lessor a sum equal to six (6) months rent a
liquidated damages to compensate Lessor for the economic loss suffered by Lessor
as a result of its inability to realize the residual value of the Equipment when
anticipated. In addition, for the use of the Equipment, Lessee agrees to pay
Lessor periodic rent equal to 110% of the average annual Rental Payment
(adjusted, if necessary, to the period indicated on the applicable Equipment
schedule) provided herein. Nothing contained herein is intended to relieve
Lessee of its obligations to return the Equipment to Lessor as provided herein
or restrict Lessor's right to
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<PAGE>
recover the Equipment in the event of the failure of Lessee to so return the
Equipment at the expiration or termination of the applicable Equipment
Schedule.
IX. RISK OF LOSS.
Lessee shall bear all risks of loss or damage to the Equipment ( Loss") from any
cause whatsoever, from the date of the shipment of the Equipment to Lessee until
its return to Lessor. Lessee shall promptly notify Lessor of any Loss and no
Loss shall relieve Lessee of the obligation to pay Rent or of any other
obligation under this Lease and any Equipment Schedule. In the event of a Loss,
Lessee, at the option of Lessor, shall either (a) repair the Equipment so a s to
place it in as good condition as prior to the Loss, (b) replace the Equipment
with substantially identical Equipment in good condition and working order with
documentation creating clear title thereto in Lessor; or -C- pay to Lessor upon
demand the sum of the following amounts: (I) the aggregate Rent and other sums
then due and owing under the Equipment Schedule to which the Equipment is
subject plus (ii) the applicable stipulated loss value attached to the
Equipment schedule and made part thereof (the "Stipulated Loss Values") opposite
the Rent payment number preceding the date of the Loss, or if no Stipulated Loss
Values are attached to the Equipment schedule, then the present value of all
unpaid Rent and other sums due during the unexpired term of the Equipment
Schedule discounted at four (4%) percent per annum simple interest or the lowest
rate permitted by law plus Lessor's anticipated value of the Equipment at the
end of the Initial Term or applicable renewal term. Upon Lessor's receipt of
replacement Equipment or payment as provided in (b) or -C- hereof, Lessee and/or
Lessee's insurer shall be entitled to Lessor's interest in said item for salvage
purposes, in its then condition and location, without warranty, express or
implied.
X. INSURANCE.
Lessee shall keep the Equipment insured against all risks of loss or damage from
every cause whatsoever for not less than the full replacement value thereof or
the amount stated in Section IX(c) herein, whichever is greater, and shall carry
public liability and property damage insurance covering the Equipment and its
use in amounts customary for such Equipment. All such insurance shall be in
form and amount and with companies acceptable to Lessor and name Lessor and its
assignee as loss payee, as their interests may appear, with respect of property
damage coverage and as additional insureds, with respect to public liability
coverage. Lessee shall pay the premiums therefor and deliver said policies, or
duplicates thereof or certificates of coverage therefor to Lessor, with long
form Lender's Loss Payable endorsement upon the policy or policies or by
independent instrument, that provides Lessor a right to thirty (30) days'
written notice before the policy can be altered or canceled and the right
without obligation to payment of premium. Should Lessee fail to provide such
insurance coverage, Lessor may obtain such coverage for its benefit or the
benefit of Lessee and charge Lessee therefor. Lessee hereby appoints Lessor as
Lessee's attorney-in-fact to make claim for, receive payment of, and execute and
endorse all documents, checks, or drafts for loss or damage under any said
insurance policies and to apply to proceeds in furtherance of the exercise of
Lessor's options as provided herein.
6
<PAGE>
XI. TAXES AND CHARGES.
This Lease is intended to be a net lease, and all payments hereunder are
intended to be net to Lessor to the extent permitted by applicable law. Lessee
shall pay directly (or, at Lessor's option, reimburse Lessor for) all license
fees, assessments and other government charges, and all sales, use, excise,
franchise, personal property and other similar tax or taxes (herein
collectively called "Charges") now or hereafter imposed, levied or assessed by
any state, federal or local government or agency upon any of the Equipment or
upon the leasing, purchase, ownership, use, possession, financing or operation
thereof, or upon the receipt of rental payments therefor, even if Lessee's
status provides for its exemption from the Charges (excluding income taxes on
Rental Payments, except any such tax on Rental Payments which is a substitution
for, or relieves Lessee from, the payment of taxes which Lessee would otherwise
be obligated to pay or reimburse Lessor as herein provided) before the same
shall become in default or subject to the payment of any penalty or interest.
Lessee shall supply Lessor with receipts or other evidence of payment of all
Charges as may reasonably be requested by Lessor. Lessee shall further comply
with all state and local laws requiring the filing of ad valorem or other tax
returns relating to any Charges. Lessee shall notify the Lessor of the
imposition of , or, to Lessee's knowledge, the proposed imposition of, any
charges by supplying to Lessor (within five (5) days after receipt thereof by
Lessee) a copy of the invoice or other documents respecting such Charges.
Unless otherwise directed by Lessor in writing, Lessor shall pay all personal
property taxes with respect to the Equipment and Lessee shall reimburse Lessor
therefor upon demand.
XII. LEASE IRREVOCABILITY AND OTHER COVENANTS AND REPRESENTATION OF LESSEE.
LESSEE AGREES THAT THIS LEASE AND EACH EQUIPMENT SCHEDULE ARE IRREVOCABLE FOR
THE FULL TERM HEREOF AND THEREOF AND LESSEE'S OBLIGATIONS UNDER THIS LEASE AND
EACH EQUIPMENT SCHEDULE ARE ABSOLUTE AND SHALL CONTINUE WITHOUT ABATEMENT AND
REGARDLESS OF ANY DISABILITY OF LESSEE TO USE THE EQUIPMENT OR ANY PART THEREOF
BECAUSE OF ANY REASON INCLUDING, BUT NOT LIMITED TO WAR, ACT OF GOD,
GOVERNMENTAL REGULATIONS, STRIKE, LOSS, DAMAGE, DESTRUCTION, OBSOLESCENCE,
FAILURE OF OR DELAY IN DELIVERY, FAILURE OF THE EQUIPMENT TO OPERATE PROPERLY,
TERMINATION BY OPERATION OF LAW, OR ANY OTHER CAUSE. LESSEE REPRESENTS THAT; IT
IS DULY ORGANIZED, VALIDLY EXISTING AND IN GOOD STANDING UNDER THE LAWS OF THE
JURISDICTION IN WHICH THE ACTIVITIES OF LESSEE REQUIRE SUCH QUALIFICATION; THIS
LEASE HAS BEEN AND EACH EQUIPMENT SCHEDULE WILL BE DULY AUTHORIZED BY ALL
NECESSARY ACTION ON ITS PART, IS A VALID, BINDING AND LEGALLY ENFORCEABLE
OBLIGATION OF LESSEE IN ACCORDANCE WITH ITS TERMS AND IS NOT IN ANY RESPECT
INCONSISTENT WITH OR IN VIOLATION OF LESSEE'S CERTIFICATE OR ARTICLES OF
INCORPORATION OR BY-LAWS OR ANY LAW, REGULATION, ORDER OR AGREEMENT BINDING UPON
LESSEE; THE EQUIPMENT SHALL BE USED BY LESSEE SOLELY FOR BUSINESS PURPOSES; AND
THAT ALL FINANCIAL AND OTHER INFORMATION SUBMITTED TO LESSOR WAS AND WILL BE
TRUE AND CORRECT.
XIII. FINANCIAL STATEMENTS.
Lessee agrees to deliver to Lessor annual financial statements and such
quarterly financial statements, as Lessor requests.
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XIV. DEFAULT AND REMEDIES.
(A) The occurrence of any one or more of the following shall be deemed to be
an "Event of Default": (a) Lessee fails to pay any Rent or any other amount
hereunder when due; or (b) Lessee is in default under any other agreement
between Lessee and Lessor or upon an event of default under any other agreement
entered into by guarantors, the vendor of the Equipment, principals of Lessee
or others, which agreement(s) was or were executed to induce Lessor to enter
into this Lease or the applicable Equipment Schedule; or (c) Lessee fails to
perform or observe any of the terms, covenants or conditions contained in this
Lease, any Equipment Schedule or other lease or other agreement between Lessor
and Lessee, other than as provided above, and Lessee fails to cure any such
breach within ten (10) days after notice thereof or (d) any representation of
Lessee contained in this Lease or any other agreement between Lessor and Lessee,
or in any credit or other information submitted to Lessor in connection with
this transaction is untrue or incorrect; or (e) Lessee sells substantially all
of its assets out of the ordinary course of business, merges or consolidates
with any other person, or sustains a change in the ownership of more that 20\5
of its equity; or (f) Lessee becomes insolvent or makes an assignment for the
benefit of creditors; or (g) a receiver, trustee, conservator or liquidator of
Lessee or all or a substantial part of its assets is appointed with or without
the application or consent of Lessee; or (h) a petition is filed by or against
Lessee under the Bankruptcy Code or any amendment thereto, or under any other
insolvency law or laws, providing for the relief to debtors.
(B) Upon an Event of Default, the Lessor may to the extent permitted by
applicable law, exercise any one or more of the following remedies:
(i) Terminate this Lease with respect to all or any pat of the Equipment;
(ii) Recover from Lessee all Rent and other amounts then due and as they
shall thereafter become due hereunder and under the Equipment Schedules;
(iii) Take possession of any or all items of Equipment, wherever the same
may be located, without demand or notice, without any court order or other
process of law and without liability to Lessee for any damages occasioned
by such taking of possession, and any such taking of possession shall not
constitute a termination of this Lease;
(iv) Declare the entire unpaid balance of Rent and other amounts for the
unexpired term of each Equipment Schedule immediately due and payable and
recover from Lessee, with respect to any and all items of Equipment (with
or without repossessing same), the Stipulated Loss Value attached to each
Equipment Schedule opposite the Rent Payment number preceding the date of
such Event of Default or, if no Stipulated Loss Values are attached to the
applicable Equipment Schedule, then the present value of all unpaid Rent
and other sums due during the unexpired term of that Equipment Schedule
discounted at (4%) percent pre annum simple interest (or the lowest
discount rate permitted by law), plus Lessor's anticipated value of the
Equipment at the end of the Initial Term or any applicable renewal term of
the Equipment Schedule;
8
<PAGE>
(v) Upon repossession or surrender of any Equipment, Lessor shall sell,
lease or otherwise dispose of such Equipment in a commercially reasonable
manner, with or without notice and on public or private bid, and apply the
net proceeds thereof (after deducting all expenses, including attorneys'
fees incurred in connection therewith), to the sum of (vi) above;
(vi) Declare any other Equipment Schedules and leases between Lessor and
Lessee in default and exercise any of the remedies provided for herein; and
(vii) pursue any other remedy available at law or in equity, including but
not limited to seeking damages or specific performance an/or obtaining an
injunction.
(C) Lessee shall be liable and shall pay to Lessor all expenses incurred by
Lessor in connection with the enforcement of any of Lessor's remedies, including
all expenses of repossessing,, storing, shipping, repairing, and selling the
Equipment, and Lessor's reasonable attorney's fees. Lessor and Lessee
acknowledge the difficulty in establishing a value for the unexpired lease term
and owing to such difficulty agree that the provisions of this Section XIV
represent an agreed measure of damages and are not to be deemed a forfeiture or
penalty.
(D) All remedies of Lessor hereunder are cumulative, are in addition to any
other remedies provided for by law, and may, to the extent permitted by law, be
exercised concurrently or separately. The exercise of any one remedy shall not
be deemed to be an election of such remedy or to preclude the exercise of any
other remedy. No failure on the part of Lessor to exercise and no delay in
exercising any right or remedy shall operate as a waiver thereof or modify the
terms of this Lease or any Equipment Schedule. A waiver of default shall not be
a waiver of any other or subsequent default. If this Lease is determined to be
subject to any laws limiting the amount chargeable or collectible by Lessor then
Lessor's recovery shall in no event exceed the maximum amounts permitted by law.
XV. INDEMNITY.
Lessee shall indemnify and hold Lessor, its agents, employees, successors and
assigns, harmless from and against any and all claims, actions, suits,
proceedings, costs, expenses, damages and liabilities, including attorney's
fees, arising out of , connected with, or resulting from the Equipment, any
Equipment Schedule or this Lease, including without limitation, the manufacture,
selection, delivery, possession, use, lease, operation, removal or return of the
Equipment.
XVI. REPRODUCTION OF DOCUMENTS.
This Lease, any Equipment Schedule and all related documents, including (a)
amendments, addendum's, consents, waivers and modifications which may be
executed contemporaneously or subsequently herewith, (b) documents received by
the Lessor from the Lessee, and c) financial statements, certificates and
other information previously or subsequently furnished to the Lessor,
9
<PAGE>
may be reproduced by the Lessor by any photographic, photostatic, microfilm,
micro-card, miniature photographic, compact disk reproduction or other
similar process and the Lessor may destroy any original document so
reproduced. The Lessee agrees and stipulates that any such reproduction
shall, to the extent permitted by applicable law, be admissible in evidence
as the original itself in any judicial or administrative proceeding (whether
or not the original is in existence and whether or not the reproduction was
made by the Lessor in the regular course of business) and that any
enlargement , facsimile or further reproduction of the reproduction shall
likewise be admissible in evidence.
XVII. ASSIGNMENT; WAIVER OF DEFENSES; QUIET ENJOYMENT.
LESSEE SHALL NOT ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE, OR OTHERWISE DISPOSE OF,
ENCUMBER OR PERMIT A LIEN UPON OR AGAINST ANY INTERESTS IN THIS LEASE, ANY
EQUIPMENT SCHEDULE OR THE EQUIPMENT OR PERMIT THE EQUIPMENT TO BE USED BY ANYONE
OTHER THAN LESSEE OR LESSEE'S EMPLOYEES WITHOUT LESSOR'S PRIOR WRITTEN CONSENT.
Lessor may, without consent or notice to Lessee, assign or transfer this Lease
or any Equipment Schedule or grant a security interest in any Equipment, any
Rental Payments, or any other sums due or to become due hereunder, and in such
event Lessor's assignee, transfers to grantee shall have all the rights, powers,
privileges, and remedies of Lessor hereunder. Lessee agrees that, following its
receipt of notice of any assignment by Lessor of this Lease, any Equipment
schedule or the Rental Payments payable hereunder, it will pay the Rent Payments
due hereunder directly to the assignee (or to whomever the assignee shall
designate). Lessee agrees that no assignee of Lessor shall be bound to perform
any duty, covenant, condition or warranty attributable to Lessor, and Lessee
further agrees not to raise any claim or defense arising out of this Lease or
otherwise which it may have against Lessor as a defense, counterclaim, or offset
to any action by an assignee or secured party hereunder. Upon Lessor's request,
Lessee will execute a consent and acknowledgment of Lessor's assignment to its
assignee. Nothing contained herein is intended to relieve Lessor of any of its
obligations. Provided Lessee is not in default hereunder, Lessee shall quietly
use and enjoy the Equipment, subject to the terms hereof.
XVIII. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATIONS.
In the event Lessee fails to comply with any provisions of this Lease, Lessor
shall have the right, but shall not be obligated, to effect such compliance on
behalf of Lessee upon ten (10) days prior written notice to Lessee. In such
event, all monies expended by , and all expenses of Lessor in effecting such
compliance shall be deemed to be additional rent, and shall be paid by Lessee to
Lessor at the time of the next rent payment, together with interest at the rate
of one and one-quarter (1-11/4%) percent per month but in no event more than the
maximum permitted by law.
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XIX. GOVERNING LAW; JURISDICTION AND VENUE; WAIVER OF TRIAL BY JURY AND RIGHTS
AND REMEDIES UNDER THE UNIFORM COMMERCIAL CODE.
This Lease shall be governed by the laws of the State of New Jersey, provided
however, in the event this Lease or any provisions hereof it not enforceable
under the laws of the State of New Jersey, then the laws of the state where the
Equipment is located shall govern. LESSEE CONSENTS TO THE PERSONAL
JURISDICTION OF THE FEDERAL AND STATE COURTS OF THE STATE OF NEW JERSEY WITH
RESPECT TO ANY ACTION ARISING OUT OF THIS LEASE, ANY EQUIPMENT SCHEDULE OR THE
EQUIPMENT, PROVIDED, HOWEVER, LESSOR MAY IN ITS SOLE DISCRETION, ENFORCE THIS
LEASE AND ANY EQUIPMENT SCHEDULE IN ANY COURT HAVING LAWFUL JURISDICTION
THEREOF. THIS MEANS ANY LEGAL ACTION ARISING OUT OF THIS LEASE MAY BE FILED IN
NEW JERSEY AND LESSEE MAY BE REQUIRED TO DEFEND AND LITIGATE ANY SUCH ACTION IN
NEW JERSEY. LESSEE AGREES THAT SERVICE OF PROCESS IN ANY SUIT MAY B MADE BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO LESSEE AT THE ADDRESS ET
FORTH HEREIN. TO THE EXTENT PERMITTED BY LAW, LESSEE WAIVED TRAIL BY JURY IN
ANY ACTION BY OR AGAINST LESSOR HEREUNDER AND WAIVES ANY AND ALL RIGHTS AND
REMEDIES GRANTED TO LESSEE BY ARTICLE 2A OF THE UNIFORM COMMERCIAL CODE AND ANY
RIGHTS NOW OR HEREAFTER GRANTED BY STATUTE OR OTHERWISE THAT MAY LIMIT OR
MODIFY LESSOR'S RIGHTS AS DESCRIBED IN THIS LEASE OR THE EQUIPMENT SCHEDULES.
XX. GENERAL.
This Lease shall inure to the benefit of and is binding upon the heirs,
legatees, personal representatives, successors and permitted assigns of the
parties hereto. Time is of the essence of this Lease. This Lease and any
Equipment Schedule shall be effective when accepted by Lessor. This Lease and
the Equipment Schedules contain the entire agreement between Lessor and Lessee
with respect of the subject matter hereof, and all negotiations and
understandings have been merged herein. No modification of this Lease shall be
effective unless in writing and executed by both Lessor and Lessee. All
covenants and obligations of Lessee to be performed pursuant to this Lease,
including all payments to be made by Lessee hereunder, shall survive the
expiration or earlier termination of this Lease. If more than one Lessee is
named in this Lease, the liability of each shall be joint and several. In the
event any provision of this Lease shall be unenforceable, then such provision
shall be deemed deleted, however, all other provisions hereof shall remain in
full force and effect. Service of all notices under this Lease shall be
sufficient if given personally, mailed to the party intended at is address set
forth herein, or at such other addresses said party may provide in writing from
time to time by certified mail, or overnight mail service, or sent via facsimile
transmission. Any such notice mailed to said address shall be deemed effective
three (3) days after it is deposited in the United States mail, duly addressed
and with postage prepaid; all notices sent by other means shall be deemed
effective when received.
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IN WITNESS WHEREOF, the parties have executed this Lease as of January 30,
1997.
LESSEE: TANISYS TECHNOLOGY, INC.
By: /s/ Joe O. Davis
-------------------------------------
Joe O Davis, Chief Financial Officer
(PRINT OR TYPE NAME & TITLE OF ABOVE SIGNATURE)
ATTEST: /s/ Cynthia Ramones
---------------------------------
LESSOR: COPELCO CAPITAL, INC.
BY: /s/ H. Krollfeifer, Jr.
-------------------------------------
H. Krollfeifer, Jr., Senior Vice President
(PRINT OR TYPE NAME & TITLE OF ABOVE SIGNATURE)
Master Lease Agreement - Manufacturing Technology Division Revised
07/08/96
G:\MANUTECH\DORNEM\LEGAL.DOC\EQML.SAM PRN 07/09/96
12
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EXHIBIT A
Description Model/Serial No.
(4) NEW AMISTAR MODE PLACEPRO 5630 PICK AND PLACE MACHINES
W/ATTACHMENTS AND FEEDERS
(2) QUAD MODEL AVX-400 AUTOMATIC SCREEN PRINTERS
(2) CONCEPTRONICS MODEL HVC-60 480V REFLOW OVENS
(1) WESTEK MODEL TRITON SMT IN LINE AQUEOUS CLEANER
(1) TERADYNE MODEL Z1890MS TEST SYSTEM
VARIOUS CONVEYORS
ALL OF THE ABOVE INCLUDE ALL FEEDERS, ATTACHMENTS,
ACCESSORIES, REPLACEMENTS AND SUBSTITUTIONS
TANISYS TECHNOLOGY, INC. COPELCO CAPITAL, INC.
BY: /s/ Joe O. Davis BY: /s/ H. Krollfeifer, Jr.
----------------------------- ---------------------------
TITLE: Chief Financial Officer TITLE: Senior Vice President
DATE: January 30, 1997 DATE: February 13, 1997
13
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CORPORATE GUARANTY
THIS GUARANTY executed as of January 1, 1997 by Tanisys Technology, Inc.
("Guarantor") in favor of Copelco Capital, Inc. ("Copelco").
1. In order to induce Copelco to enter into one or more personal property
leases, installment sales contracts, and/or security agreements with, or to
otherwise extend financial accommodations (collectively called the
"Agreements"), in favor of 1st Tech Corporation (hereinafter called the
"Debtor") and in consideration of economic benefits inuring to Guarantor by
Copelco's entering into the Agreements with Debtor, Guarantor agrees as follows:
(a) Guarantor doe hereby unconditionally guaranty to Copelco the
prompt payment of any and all indebtedness or obligations of every kind or
nature, now or hereafter owing by the Debtor to Copelco however arising. THE
FOREGOING UNCONDITIONAL GUARANTY OF PAYMENT SHALL EXTEND TO ANY OBLIGATIONS
WHICH THE DEBTOR MAY HEREAFTER INCUR TO COPELCO BY REASON OF ANY AGREEMENT OR
FINANCIAL ACCOMMODATION INCLUDING, WITHOUT LIMITATION, LEASES OF PERSONAL
PROPERTY BETWEEN COPELCO AND THE DEBTOR MADE AFTER THE DATE HEREOF.
(b) Guarantor unconditionally guarantees the prompt, full and
faithful performance and discharge by the Debtor of each and every term,
condition, agreement, representation, warranty, and provision on the part of the
Debtor contained in any Agreement or in any modification, amendment or
substitution thereof and in any document or instrument evidencing a financial
accommodation between Copelco and Debtor.
(c) Guarantor shall on demand reimburse Copelco for all expenses
collection charges, court costs and attorney's fees incurred in endeavoring to
collect or enforce any of Copelco's rights and remedies against the Debtor
and/or Guarantor or any other person or concern liable thereon equal to 20
percent (or the highest rate permitted by law whichever is less) of the total
obligations due by the Debtor to Copelco.
(d) For all of the Debtor's obligations to Copelco, Guarantor agrees
to be directly, unconditionally, and primarily liable, jointly and severally
with the Debtor, with interest at the highest lawful contract rate, after due
until paid.
2. Guarantor shall pay for all of the foregoing amounts and perform all
of the foregoing terms, covenants and conditions notwithstanding that any part
of any of the Agreements or any financial accommodations shall be void or
voidable as against Debtor or any of Debtor's creditors, including a trustee in
bankruptcy of Debtor, by reason of any fact or circumstances including, without
limitation, failure by any person to file any document or to take any other
action to make any of the Agreements or any financial accommodation, enforceable
in accordance with their respective terms.
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3. Guarantor waives notice of acceptance hereof and of all notices and
demand of any kind to which it may be entitled, including without limitation
all demand of payment on and notice of non-payment protest and dishonor to it,
or the Debtor or the makers or endorsers of any notes of other instruments for
which it is or may be liable hereunder. Guarantor further waives notice of and
hereby consents to any agreement or arrangement for payment, extension,
subordination, composition, arrangement, discharge or release of the whole or
any part of the Debtor's obligation under any Agreement or Financial
accommodation or of other guarantors, or for compromise, in any way whatsoever;
and the same shall in no way impair Guarantor's liability hereunder.
4. All sums at any time to Guarantor's credit and any of Guarantor's
property at any time in Copelco's possession shall be deemed held by Copelco as
security for any and all of Guarantor's obligations to Copelco hereunder and to
any person which may now or at any time hereafter be Copelco's parent or
subsidiary.
5. Any and all present and future indebtedness and obligations of the
Debtor to Guarantor are hereby postponed in favor of and subordinated to the
full payment and performance of all present and future obligations of the Debtor
to Copelco.
6. Nothing shall discharge or satisfy Guarantor's liability hereunder
except, the full performance and payment of all the Debtor's obligation to
Copelco, with interest. Guarantor shall have no right of subrogation,
reimbursement or indemnity whatsoever and no right of recourse to or with
respect to any assets of property of the Debtor, unless and until all of said
obligations have been paid or performed in full.
7. Guarantor agrees that if Guarantor of the Debtor should at any time
become insolvent, or make a general assignment for the benefit of creditors, or
if a proceeding shall be commenced by, against or in respect of the Debtor under
any insolvency law, any and all of Guarantor's obligations under this Guaranty
shall, at Copelco's option forthwith become due and payable without notice.
This Guaranty shall continue to be effective or reinstated, applicable, if at
any time payment of any part of the obligations under any agreement is rescinded
or otherwise required to be returned by Copelco upon the insolvency, bankruptcy
or reorganization of Debtor or upon the appointment of a receiver, trustee or
similar officer for Debtor or its assets, all as though such payment to Copelco
had not been made, regardless of whether Copelco contested the order requiring
the return of such payment.
8. This Guaranty is continuing guaranty. This instrument shall continue
in full force and effect until terminated by the actual receipts by Copelco, by
register or certified mail, or written notice of termination from Guarantor.
Such termination shall be applicable only to transactions having their inception
thereafter, and rights and obligations arising out of transactions having their
inception prior to such termination shall not be affected.
9. Guarantor waives any right to require Copelco to: (a) proceed
against Debtor; (b) proceed against or exhaust any security held from Debtor; or
(c) pursue any other remedy which
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<PAGE>
Copelco may have, including against any other guarantors of the Debtor's
obligations to Copelco.
10. Guarantor waives any and all right to a trial by jury in any action or
proceeding based hereon. Guarantor also waives the benefit of any statute of
limitations affecting Guarantor's liability hereunder or the enforcement
thereof. This Guaranty cannot be changed or terminated orally. Upon default by
Guarantor under this Guaranty, Guarantor authorizes and empowers the
Prothonotary or Clerk of Court or any attorney of any court of record to appear
for Guarantor and enter a judgment by confession in any court of competent
jurisdiction in favor of Copelco or Copelco's assignee, for such sums as may be
payable under this Guaranty, together with all costs of suit, collection and
reasonable attorney's fees. Judgments may be confessed from time to time as
often as may be necessary. This instrument shall for all purposes be governed
by and interpreted in accordance with the laws of the State of New Jersey.
GUARANTOR CONSENTS TO THE PERSONAL JURISDICTION OF THE FEDERAL AND STATE COURTS
OF THE STATE OF NEW JERSEY WITH RESPECT TO ANY ACTION ARISING OUT OF THIS
GUARANTY OR THE AGREEMENTS, PROVIDED, HOWEVER, COPELCO MAY, IN COPELCO'S SOLE
DISCRETION, ENFORCE THIS GUARANTY IN ANY COURT HAVING LAWFUL JURISDICTION
THEREOF.
11. This Guaranty shall inure to Copelco's benefit and to the benefit of
Copelco's successors and assigns and shall be binding on Guarantor and its
heirs, administrators, executors, successors and assigns. No failure on the
part of Copelco to exercise and no delay in exercising any right hereunder shall
operate as a waiver thereof or modify the terms of this Guaranty. A waiver of
one default shall not be a waiver of any other default.
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty this 30 day of
January, 1997 by its duly authorized officer.
TANISYS TECHNOLOGY, INC.
(Print of Type Name of Guarantor)
ATTEST:
BY: /s/ Lynne A. Riley By: /s/ Gary W. Pankonien
------------------------ -------------------------------
12201 Technology Blvd., Suite 130
-----------------------------------
(Street Address of Above)
Austin, Texas 78727
-----------------------------------
(City, State and Zip of above)
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- --------------------------------------------------------------------------------
CORPORATE ACKNOWLEDGMENT
State of Texas )
)ss
County of Travis )
BE IT REMEMBERED, that on this 30 day of January, 1997, before me personally
appeared Gary W. Pankonien, the President & COO of Tanisys who I am satisfied is
the person(s) mentioned in the within instrument dated January 30, 1997, and
thereupon I acknowledge that the signed, sealed and delivered the same as his
act and deed, for the uses and purposes therein expressed.
By: Cynthia Ramones 1622 White Oak Loop
---------------------------------- ------------------------------------
Notary Public for said State and County Street Address
Cynthia Ramones Round Rock, Texas 78681
- --------------------------------------- ------------------------------------
Printed or Type Name of Above Signature City, State, Zip
Guaranty - Corporate
17
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RIDER
THIS RIDER dated January __, 1997 to Lease No 0743061 (the "Lease") by and
between Copelco Capital, Inc. as lessor (the "Lessor"), and Tanisys Technology
Inc., as the lessee (the "Lessee").
For good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. Provided no Event of Default exists uncured and notwithstanding
anything contained in the Lease to the contrary, upon the expiration of the
initial term of the Lease, Lessee by giving Lessor at least 120 days written
notice prior to the last day of the initial term agrees to select one of the
following alternatives (the "Alternative"):
(a) Renew the Lease for a term of 12 months at a monthly rental equal to
the "Fair Market Rental", as defined below (the "Renewal Option"); or
(b) Purchase all, but not less than all, of the equipment subject to the
Lease ( the "Equipment") for its "Fair Market Value", as defined
below (the "Purchase Option"); or
(c) Return the Equipment to Lessor in accordance with the terms and
conditions of the Lease.
2. The Fair Market Rental and Fair Market Value of the Equipment shall be
determined by Lessor based on the value of the Equipment in place and in use.
IF THE PURCHASE OPTION IS EXERCISED, THE EQUIPMENT WILL BE SOLD BY LESSOR TO
LESSEE "AS IS, WHERE IS", WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OR TITLE.
3. In the event Lessee does not select one of the Alternatives in the time
frame set forth above, Lessor by giving Lessee at least 10 days prior written
notice shall have the right to select one of the Alternatives on behalf of the
Lessee. In addition, Lessor may, in its sole discretion, extend or waive any
time period provided for in this Rider by so advising Lessee.
4. In the event that by written notice to Lessor within 15 days after
receiving Lessor's calculation of the fair Market Value or Fair Market Rental
(as applicable) Lessee shall dispute such calculation, then such value shall be
determined, in accordance with the foregoing definition, by an independent
appraiser selected by Lessor. The appraiser shall, at the expense of Lessee,
make such determination within a period of 30 days following selection and shall
promptly communicate such determination in writing to Lessor and Lessee. The
determination of the appraiser shall be conclusively binding upon both Lessor
and Lessee.
5. If upon the expiration of the initial term of the Lease, the parties
have not for any reason concluded the section of one of the Alternatives, Lessee
shall continue to made rental payments as provided in the Lease and otherwise
comply with the provisions of the Lease until such time as the section of one of
the Alternatives have been concluded.
6. Capitalized terms used but not defined herein shall have the meanings
ascribed to such terms in the Lease.
<PAGE>
7. Except to the extend modified by this Rider, the terms and conditions
of the Lease shall remain unchanged and in full force effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Rider to be
executed by its duly authorized officer, all as of the day and year first
above written.
TANISYS TECHNOLOGY, INC. COPELCO CAPITAL, INC.
BY: /s/ Joe O. Davis BY: /s/ H. Krollfeifer, Jr.
------------------------------- -------------------------------
TITLE: Chief Financial Officer TITLE: Senior Vice President
---------------------------- ---------------------------
2
<PAGE>
COPELCO CAPITAL, INC.
EQUIPMENT SCHEDULE NO: 0743061
This Equipment schedule ("Equipment Schedule") to that certain Master Lease
Agreement Number 0743060 (hereinafter called the "Master Lease") between
Lessor and the Lessee whose name appears below, together with Master Lease,
constitutes a lease of the Equipment described below (hereinafter,
collectively, this "Lease"). All the terms and conditions of the Master
Lease are incorporated herein as if all said terms and conditions were fully
set forth herein. All capitalized items used but not defined herein shall
have the meanings given such terms in the Master Lease. It is the intent of
the parties that this Equipment Schedule be separately enforceable as a
complete and independent lease, independent of all other Equipment Schedules
to the Master Lease.
- -----------------------------------------------------------------------------
LESSEE: SUPPLIER:
TANISYS TECHNOLOGY, INC. MULTIPLE
12201 TECHNOLOGY BOULEVARD, #130
AUSTIN, TEXAS 78727
- -----------------------------------------------------------------------------
Qty. DESCRIPTION OF EQUIPMENT (Indicate if Used Equipment) (Model No.)
(SERIAL NO.)
- -----------------------------------------------------------------------------
4 NEW AMISTAR MODEL PLACEPRO 5630 PICK AND PLACE MACHINES W/ATTACHMENTS AND
FEEDERS
2 QUAD MODEL AVX-400 AUTOMATIC SCREEN PRINTERS
2 CONCEPTRONICS MODEL HVC-60 480V REFLOW OVENS
1 WESTEK MODEL TRITON I SMT IN LINE AQUEOUS CLEANER
1 TERADYNE MODEL Z189OMS TEST SYSTEM
VARIOUS CONVEYORS
ALL OF THE ABOVE INCLUDE ALL FEEDERS, ATTACHMENTS, ACCESSORIES,
REPLACEMENTS AND SUBSTITUTIONS.
- -----------------------------------------------------------------------------
EQUIPMENT LOCATION IF DIFFERENT FROM ABOVE
- -----------------------------------------------------------------------------
INITIAL TERM OF LEASE 60 MONTHS
RENTAL PAYMENTS PAYABLE PERIODICALLY AS FOLLOWS: MONTHLY
TOTAL NO. AND AMOUNT OF EACH RENTAL PAYMENT DURING INITIAL TERM OF LEASE
1) ONE MONTHLY RENTAL PAYMENT @ $93,537.33 EACH FOLLOWED BY 59 RENTAL
PAYMENTS OF $26,537.22 EACH PLUS SALES TAX (IF APPLICABLE)
SECURITY DEPOSIT $0.00
<PAGE>
MONTHLY RENT: The first payment of monthly rent is due and payable on the
Commencement Date. Subsequent payments of monthly rent are due and payable on
the first day of each succeeding month.
CHATTEL PAPER: To the extent this Lease may be considered "Chattel paper" as
defined in the Uniform Commercial Code, only Counterpart Number One of any of
the manually executed counterparts of this Equipment Schedule incorporating the
terms of the Master Lease Agreement, shall constitute the original of this
Lease., and no interest in this Lease may be crated or transferred except by
transfer of possession of that counterpart.
RENTAL PAYMENTS: The parties agree that the Rental Payments are predicated on
the yield of like term Treasury Notes, as quoted daily in the Wall Street
Journal, of 6.09% as of December 31, 1996. Any increase in the yield of like
term Treasury Notes prior to the Acceptance Date will increase the effective
lease rate basis point for basis point.
EQUIPMENT SCHEDULE ACCEPTED BY:
TANISYS TECHNOLOGY, INC. COPELCO CAPITAL, INC.
BY: /s/ Joe O. Davis BY: /s/ H. Krollfeifer, Jr.
---------------------------- ----------------------------
(AUTHORIZED SIGNATURE) (AUTHORIZED SIGNATURE)
Joe O. Davis, H. Krollfeifer, Jr.,
Chief Financial Officer Senior Vice President
---------------------------- ----------------------------
(PRINT OR TYPE NAME & (PRINT OR TYPE NAME &
TITLE OF ABOVE SIGNATURE) TITLE OF ABOVE SIGNATURE)
EQUIPMENT SCHEDULE COUNTERPART NO. 1 OF 1
EQUIPMENT SCHEDULE -MASTER LEASE REVISED 6/30/94 G:\MANUTECH\AMIDOCS\DOCS
\EQSCH.SAM REVI 6/23/94 PRN 10/15/96
2
<PAGE>
QUIT CLAIM BILL OF SALE
For good and valuable consideration, the receipt of which is
acknowledged, TANISYS TECHNOLOGY, INC. ("Grantor"), confirming that is has no
right, title or interest in and to the equipment ("Equipment") described in
the schedule attached hereto as Exhibit A and made a part hereof and
acknowledging that Copelco Capital, Inc. ("Grantee") shall bind itself to
the lease of the Equipment to Grantor in reliance upon this Quitclaim Bill of
Sale, does hereby transfer, grant, and set unto Grantee, without warranty of
title, all of Grantor's right, title and interest, if any, in and to the
Equipment.
TANISYS TECHNOLOGY, INC.
BY: /s/ Joe O. Davis
---------------------------------------
TITLE: Chief Financial Officer
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
MONTH SHARES OUTSTANDING AT MONTH END
- ----- -------------------------------
<S> <C> <C>
Sept 96 15,978,537
Oct 96 15,978,537
Nov 96 16,070,773
Dec 96 16,626,655 16,626,655
Jan 97 16,635,155 16,635,155
Feb 97 16,635,155 16,635,155
Mar 97 17,851,214 17,851,214
---------- ------------
4 and 7-month totals 67,748,179 115,776,026
Weighted
Average Shares 16,937,045 16,539,432
Net Loss ($3,622,584) ($5,324,319)
Loss per Weighted
Average Share ($0.21) ($0.32)
</TABLE>
<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 SIX MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES
THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,775,168
<SECURITIES> 0
<RECEIVABLES> 7,072,854
<ALLOWANCES> 87,918
<INVENTORY> 3,572,140
<CURRENT-ASSETS> 12,967,485
<PP&E> 3,692,641
<DEPRECIATION> 1,280,672
<TOTAL-ASSETS> 19,440,018
<CURRENT-LIABILITIES> 11,809,901
<BONDS> 0
0
0
<COMMON> 22,988,004
<OTHER-SE> (15,443,412)
<TOTAL-LIABILITY-AND-EQUITY> 19,440,018
<SALES> 27,321,039
<TOTAL-REVENUES> 27,321,039
<CGS> 24,122,427
<TOTAL-COSTS> 24,122,427
<OTHER-EXPENSES> 8,220,456
<LOSS-PROVISION> 1,806,647
<INTEREST-EXPENSE> 316,874
<INCOME-PRETAX> (5,324,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,324,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,324,319)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.28)
</TABLE>
