<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-Q/A
AMENDMENT NO. 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-23038
TANISYS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
WYOMING 74-2675493
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12201 TECHNOLOGY BLVD., SUITE 130
AUSTIN, TEXAS 78727 78727
(Address of principal executive offices) (Zip Code)
(512) 335-4440
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/ Yes / / No
Indicated below is the number of shares outstanding of the registrant's
only class of common stock at July 09, 1997:
NUMBER OF SHARES
TITLE OF CLASS OUTSTANDING
-------------- -----------
Common Stock, No par value 17,851,214
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TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Interim Consolidated Condensed Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets - December 31, 1996 and
September 30, 1996................................................... 3
Consolidated Condensed Statements of Loss - For the Three Month
Periods Ended December 31, 1996 and 1995 ............................ 4
Consolidated Condensed Statements of Cash Flows - For the Three
Month Periods Ended December 31, 1996 and 1995 ...................... 5
Notes to Interim Consolidated Condensed Financial Statements
(Unaudited) ......................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................... 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................................... 16
Item 5. Other Information ................................................... 16
Item 6. Exhibits ............................................................ 17
SIGNATURES ..................................................................... 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
DECEMBER 31, SEPTEMBER 30,
1996 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,794,323 $ 2,689,569
Trade accounts receivable, net of allowance of $98,450 and 6,401,032 5,069,399
$84,557, respectively
Accounts receivable from related parties 17,691 17,691
Inventory 2,043,833 1,804,458
Prepaid expense 373,468 217,570
- ----------------------------------------------------------------------------------------------
Total current assets 10,630,347 9,798,687
- ----------------------------------------------------------------------------------------------
Property and equipment, net of accumulated depreciation of
$1,081,516 and $906,589, respectively 2,131,481 1,817,479
Incorporation costs, net 896 1,024
Patents and trademarks, net 87,905 84,337
Goodwill, net of accumulated amortization of $2,390,333 and
$1,493,958, respectively 4,780,665 5,677,040
Other assets 84,127 84,000
- ----------------------------------------------------------------------------------------------
$ 17,715,421 $ 17,462,567
==============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,762,142 $ 2,920,530
Accounts payable to related parties - 64,618
Accrued liabilities 582,621 929,376
Revolving credit note 4,445,851 3,075,000
- ----------------------------------------------------------------------------------------------
Total current liabilities 7,790,614 6,989,524
- ----------------------------------------------------------------------------------------------
Obligations under capital lease 111,059 123,000
- ----------------------------------------------------------------------------------------------
Total liabilities 7,901,673 7,112,524
- ----------------------------------------------------------------------------------------------
Commitments and contingencies
Stockholders' equity:
Share capital-Common stock, no par value, 50,000,000 shares 21,634,576 20,469,136
authorized, 16,626,655 and 15,978,537 shares issued and
outstanding, at December 31, 1996 and September 30,
1996, respectively
Accumulated deficit (11,820,828) (10,119,093)
- ----------------------------------------------------------------------------------------------
Total stockholders' equity 9,813,748 10,350,043
- ----------------------------------------------------------------------------------------------
$ 17,715,421 $ 17,462,567
==============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF LOSS
(UNAUDITED)
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
1996 1995
- -------------------------------------------------------------------------------
Net sales $15,263,661 $ 83,643
Cost of goods sold 13,668,236 8,969
- -------------------------------------------------------------------------------
Gross profit 1,595,425 74,674
- -------------------------------------------------------------------------------
Operating expenses:
Research and development 518,708 100,611
Sales and marketing 697,986 73,053
General and administrative 859,474 298,224
Depreciation and amortization 1,020,590 18,692
Bad debt expense 46,841 0
- -------------------------------------------------------------------------------
Total operating expenses 3,143,599 490,580
- -------------------------------------------------------------------------------
Operating loss (1,548,174) (415,906)
- -------------------------------------------------------------------------------
Other income (expense):
Interest income 11,709 14,589
Interest expense (165,270) --
- -------------------------------------------------------------------------------
Net loss $(1,701,735) $(401,317)
- -------------------------------------------------------------------------------
Loss per weighted average common share $ (0.11) $ (0.04)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Weighted average number of common shares 16,163,626 9,097,305
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE
MONTHS ENDED
DECEMBER 31,
1996 1995
- -------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(1,701,735) $(401,317)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 1,020,590 18,692
(Increase) decrease in accounts receivable (1,331,633) 3,986
(Increase) decrease in inventory (239,375) 3,987
Increase in prepaid expense (155,898) (9,610)
Decrease in accounts payable and
accrued liabilities (569,761) (86,744)
- -------------------------------------------------------------------------
Net cash used in operating activities (2,977,812) (471,006)
- -------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of fixed assets (435,690) (7,720)
Patents and trademark costs (6,094) (8,831)
- -------------------------------------------------------------------------
Net cash used in investing activities (441,784) (16,551)
- -------------------------------------------------------------------------
Cash flows from financing activities:
Net proceeds from issuance of common stock - 115,000
Draws (payments) on revolving credit
note, net 1,370,851 -
Principal payments on capital lease
obligations (11,941) -
Net proceeds from exercise of stock options 10,440 -
Net proceeds from exercise of warrants 1,155,000 -
- -------------------------------------------------------------------------
Net cash provided by financing activities 2,524,350 115,000
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
Decrease in cash and cash equivalents (895,246) (372,557)
Cash and cash equivalents, beginning of period 2,689,569 1,317,024
- -------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,794,323 $ 944,467
=========================================================================
Supplemental disclosure of cash flow information:
Interest paid $165,270 $0
Interest received $11,709 $14,589
Non-cash activity:
Shares issued to related parties and
others to satisfy accrued liabilities $0 $47,000
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
TANISYS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 December 31, 1996, the consolidated results of
operations for the three-month periods ended December 31, 1996 and 1995 and
the consolidated cash flows for the three-month periods ended December 31,
1996 and 1995 have been made.
NOTE 2: RESTATEMENT TO THE FINANCIAL STATEMENTS
The Company previously issued financial statements reflecting the
acquisitions of 1st Tech and DarkHorse based on a $3.03 per share price for
the Company's common shares issued. This price was based on the closing
price of the Company's common stock on May 21, 1996 of $5.05 discounted by
40% to give effect to the restrictions on the shares and the risks involved
(the "Original per Share Price"). Immediately prior to the consummation of
the acquisitions, 1st Tech sold 1,150,000 shares of its common stock in a
private placement offering for a cash price of $2.00 per share (the "Private
Offering Price per Share"). The 1,150,000 shares then were converted into
1,150,000 shares of the Company's common stock effective May 21, 1996. Based
upon discussions with the Securities and Exchange Commission, the Company has
restated its financial statements utilizing a $2.00 per share price in
recording the acquisitions.
Goodwill originally recorded in connection with the acquisitions was
determined as the number of shares of the Company's common stock issued to
stockholders of 1st Tech and DarkHorse times the Original per Share Price.
Goodwill has been restated utilizing the Private Offering Price per Share.
The Consolidated Balance Sheets and the Consolidated Statements of Loss and
Cash Flows have been restated to reflect the foregoing item. The following
table sets forth selected information as originally reported and as restated
for the fiscal quarter ended December 31, 1996:
Fiscal Quarter Ended
Goodwill, net DECEMBER 31, 1996
<PAGE>
As originally reported $ 7,104,665
Adjustment ( 2,324,000)
------------
Restated Goodwill, net $ 4,780,665
-----------
Net loss:
As originally reported $(2,137,485)
Adjustment 435,750
-------
Restated net loss $(1,701,735)
------------
Net loss per share:
As originally reported $(0.13)
Adjustment 0.02
----
Restated net loss per share $(0.11)
-------
NOTE 3: RECEIVABLES
One customer accounted for a significant percentage of the Company's accounts
receivable at December 31, 1996. Accounts receivable from this one customer
represented $1.8 million, or 28%, of the $6.4 million balance of accounts
receivable at December 31, 1996. 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, the success of its customers' products and the
general economy. Factors affecting any of the Company's major customers and
their respective customers could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Note
8: Subsequent Events," below.
NOTE 4: INVENTORY
Inventory consists of the following:
December 31, September 30,
1996 1996
------------ -------------
Raw materials $1,306,194 $1,343,522
Work-in-process 131,411 203,017
Finished goods 606,228 257,919
---------- ----------
$2,043,833 $1,804,458
NOTE 5: REVOLVING CREDIT NOTE
At December 31, 1996, the Company did not comply with certain financial
covenants. The financial institution has waived compliance with those
covenants as of and for the three month period ended December 31, 1996. See
"Note 8: Subsequent Events," below.
NOTE 6: SHARE CAPITAL, OPTIONS AND WARRANTS
STOCK OPTIONS
During the first quarter of fiscal 1997, stock options were exercised for the
purchase of 4,000 common shares for total gross proceeds of $10,440.
WARRANTS
During the first quarter of fiscal 1997, warrants were exercised for the
purchase of 644,118 common shares for total gross proceeds of $1,155,000.
NOTE 7: COMMITMENTS AND CONTINGENCIES
<PAGE>
The Company is not currently using the computer game controller technology and
the associated royalty does not relate to any of the Company's current products.
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.
NASDAQ
On May 22, 1997 the Company began trading on the Nasdaq SmallCap market under
the symbol TNSU. As a result, the Company voluntarily delisted its stock from
the Vancouver Stock Exchange (VSE) at the close of business on June 6, 1997.
RECEIVABLES
For the period ending March 31, 1997 the Company had a bad debt write off of
$1.7 million for the customer referred to in Note 3 above.
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.
On June 30, 1997, the Company's financial institution informed the Company
that they would continue to entertain the Company's requests for loans beyond
the July 1 termination date until July 31, 1997 at the lender's sole and
absolute discretion so that the Company could finalize a new revolving credit
facility with another lender.
On June 27, 1997 the Company received approval of an $8.5 million, three-year
revolving credit facility from a different financial institution. Borrowings
under the line will be based on eligible accounts receivable, inventory and
equipment values subject to the terms and conditions of the final agreement.
While the company has received a commitment letter and the major terms and
conditions have been agreed upon, the loan documents have not been finalized.
Failure to secure a new line of credit could have a material adverse effect
on the Company's business, financial condition and results of operations.
ITEM 2.
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS AND INFORMATION RELATING TO THE COMPANY AND ITS SUBSIDIARIES (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.
<PAGE>
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 periods
ended December 31, 1996 and 1995. It should be read in conjunction with the
Interim Consolidated Condensed Financial Statements of Tanisys Technology,
Inc. (the "Company") and subsidiaries (collectively known as 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 December 31, 1996 and 1995.
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 quarter 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 of revenues of
$14.6 million, in excess of 4,000%, and in gross profit of $2.1 million, more
than 800%. Net losses increased to $3.7 million in fiscal 1996, or 24.6% of
gross revenues, from $2.4 million in fiscal 1995, or 681.6% of gross
revenues. The increases in revenues, gross profit and net losses are due
primarily to the acquisitions of 1st Tech and DarkHorse on May 20, 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
<PAGE>
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 period ended December 31, 1996 and 1995:
THREE MONTH PERIOD ENDED
DECEMBER 31,
------------------------
1996 1995
------ -------
Net sales 100.0% 100.0%
Cost of goods sold 89.5 10.7
----- ------
Gross profit 10.5 89.3
----- ------
Operating expenses:
Research and development 3.4 120.3
Sales and marketing 4.6 87.3
General and administrative 5.6 356.5
Depreciation and amortization 6.7 22.3
Bad Debt .3 0.0
----- ------
Total operating expenses 20.6 586.5
----- ------
Operating loss -10.1 -497.2
Other income (expense), net -1.0 17.4
----- ------
Net loss -11.1% -479.8%
===== ======
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 $15.3 million in the first quarter of fiscal 1997 from $84
thousand in the first quarter of fiscal 1996. The increase in fiscal 1997 is
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
in first quarter fiscal 1997 from $75 thousand in the first quarter of fiscal
1996. Gross margin decreased to 10.5% in first quarter 1997 from 89.3% in
first quarter fiscal 1996. The increase in gross profit as well as the
decrease in gross profit margin were due primarily 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.
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 $519 thousand in first quarter fiscal 1997 from $101 thousand in first
quarter fiscal 1996 representing an increase of 415.6% from period to period.
The substantial increase was due primarily to the acquisitions of the additional
product lines of 1st Tech and DarkHorse and the related research and development
expenditures.
<PAGE>
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 $698 thousand in first quarter fiscal 1997 from $73
thousand in first quarter fiscal 1996, an 855.5% increase. In the first
quarter of fiscal years 1997 and 1996, sales and marketing expenses expressed
as a percentage of revenues were 4.6% and 87.3%, respectively. The increase
in actual funds expended was connected with the acquisitions of the product
lines of 1st Tech and DarkHorse. The decrease in the expenses expressed as a
percent was revenues is primarily caused by the significant increase 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 all compensation and employee benefits, and support costs including
utilities, insurance, professional fees and all costs associated with a
reporting company. General and administrative expenses increased to $859
thousand in first quarter fiscal 1997 from $298 thousand in first quarter
fiscal 1996, a 188.3% increase. In the first quarter of fiscal years 1997 and
1996, general and administrative expenses expressed as a percentage of
revenues were 5.6% and 356.5% 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 revenue.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization includes the depreciation for all fixed
assets exclusive of those used in the manufacturing process and included as
part of "Cost of Sales" 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 first quarter
fiscal 1997 from $19 thousand in first quarter fiscal 1996. The substantial
increase is due primarily to the amortization of the goodwill recorded in
conjunction with the acquisitions of 1st Tech and DarkHorse.
OTHER INCOME (EXPENSE), NET
Net other income (expense), net consists primarily of interest income
less interest expense. Interest expense is attributable to borrowings from a
bank credit line. Substantially all of the interest expense relates to
credit line draws made for short-term inventory requirements and to fund
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 carryover 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 carryover prior to the expiration of the
carryover, the Tanisys Group would be able to incur taxable income in the
carryover period equal to the total loss carryover without the payment of
taxes. The existing carryover expires 15 years after the year in which it
was incurred.
<PAGE>
Therefore, if the carryover is not used to offset future taxable income, the
net operating loss carryover 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 carryover 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
kinds of ownership changes that can trigger carryover limitation: 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 an IRS 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 first quarter
fiscal 1997, the Company generated $2.5 million in net cash from financing
activities versus $.1 million in the first quarter fiscal 1996. The $2.5
million in fiscal 1997 consisted of $1.2 million from the exercise of
warrants and options to purchase common stock and $1.4 million of net 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 of its Common Stock in 1995,
the exercise of warrants, exercise of stock options, capital leases,
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, accounts
receivable balances and pay its general and administrative expenses. There
have been no further offerings or issuances of unregistered securities other
than in connection with the issuance of common stock upon the exercise of
warrants and stock options. At December 31, 1996 the Tanisys Group had
$1.794 million of cash and $2.840 million of working capital.
The Company had two customers with a total of $2.2 million in accounts
receivable which were not in compliance with the agreed payment terms at
December 31, 1996. Of this amount $1.7 million from one customer was written
off as of March 31, 1997 while the balance from the other customer was
collected. Until collection can be made, the Company will be required to use
virtually all of its cash and cash equivalents to carry these accounts.
Accounts over 90 days are excluded from the borrowing base and reduced the
available credit under the revolving credit note referenced in "Note 4" of
notes to the consolidated financial statements.
The Tanisys Group had a $6 million revolving credit note at a financial
institution bearing interest at the financial institution's prime rate plus a
percentage between one and three percent (8.25% as of December 31, 1996)
depending upon a ratio which is calculated monthly. This revolving credit
note was due on the earlier of demand or when note matured June 30, 1998 and
was secured by all the Company's asset. Draws were made as necessary from
funds available for borrowing, which were limited to the lower of the
commitment amount or a borrowing base amount calculated based on certain
levels of accounts receivable. At December 31, 1996 $4.4 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
certain minimum financial ratios including a minimum net worth and minimum
current ratio. As of December 31, 1996, the Tanisys Group did not comply
with certain financial covenants. The financial institution waived
compliance with the covenants as of and for the three months ended December
31, 1996. In connection with the granting of the waivers, the Company agreed
with the financial institution to phase the total amount of the revolving
credit note down to $4 million over a eight week period beginning on February
21, 1997, and to reduce the percentage of qualified accounts receivable
included in the borrowing base from 80% to 70% by 1% per week for five weeks
and then 1% per month over the subsequent five month period.
On March 21, 1997 the Company and the financial institution entered into
the First Amendment to Amendment and Restatement of Credit Agreement whereby
the company had a $5 million maximum borrowing limit until April 18, 1997,
which was 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,
<PAGE>
1997, 74% until April 18, 1997, and then was to be reduced by 1% each week
through the termination date, July 1, 1997, or upon the earlier of demand by
the financial institution, and was 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 July 1, 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. 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.
On June 30, 1997, the Company's financial institution informed the
Company that they would continue to entertain the Company's requests for
loans beyond the July 1 termination date until July 31, 1997 at the lender's
sole and absolute discretion so that Company could finalize a new revolving
credit facility with another lender.
On June 27, 1997 the Company received approval of an $8.5 million, three-
year revolving credit facility from a different financial institution.
Borrowings under the line will be based on eligible accounts receivable,
inventory and equipment values subject to the terms and conditions of the
final agreement. While the company has received a commitment letter and the
major terms and conditions have been agreed upon, the loan documents have not
been finalized.
Capital expenditures totaled approximately $436 thousand and $8 thousand
in the first quarter of fiscal years 1997 and 1996, respectively. These
expenditures were primarily for the purchase of manufacturing equipment, test
equipment and the expansion of manufacturing facilities. The Tanisys Group
plans to spend approximately $2 million in the remainder of fiscal 1997 in
capital expenditures for additional manufacturing capacity through working
capital, operating leases and capital leases.
The Tanisys Group has entered into certain capital lease arrangements.
The outstanding principal on these obligations at December 31, 1996 was $163
thousand.
The Tanisys Group believes that its existing funds, anticipated cash
flow from operations and amounts available from future vendor credits, bank
borrowings, the exercise of outstanding warrants issued in prior equity
financings, and equity financings will be sufficient to meet its working
capital and capital expenditure needs for the next 12 months. There is no
assurance that the Company will be able to locate an alternate source or
sources for the required increase in its outstanding debt or that it will be
successful in its attempts to raise a sufficient amount of funds in a
subsequent equity offering or offerings. In such event, the Company's
inability to raise needed funds could have a material adverse effect on the
Company.
SIGNIFICANT CUSTOMER CONCENTRATION
A significant percentage of the Tanisys Group's net sales is produced by
a relatively small number of customers. In the first quarter of fiscal 1997
and 1996, the ten largest customers accounted for approximately 73% and 66%
of net sales, respectively. In the first quarter of fiscal 1997, three
customers each produced more than 10% of net sales, 18.4%, 16.9%, and 14.9%.
No single customer produced as much as 10% of net sales during the first
quarter of fiscal 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
<PAGE>
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TANISYS TECHNOLOGY, INC.
Date: July 09, 1997 By: /s/ JOE O. DAVIS
-------------------------------------
Joe O. Davis
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
(Duly authorized and Principal
Financial Officer)
Date: July 09, 1997 By: /s/ DONALD R. TURNER
-------------------------------------
Donald R. Turner
CORPORATE CONTROLLER
(Duly authorized and Principal
Accounting Officer)
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
At the date hereof, there are no pending, or to the best knowledge of
the Company, threatened matters involving litigation involving the Company.
ITEM 5. OTHER INFORMATION
None.
<PAGE>
ITEM 6. EXHIBITS.
<TABLE>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
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)
4.1 Form of Warrant Agreement dated May 17, 1995 (Exhibit 4.1 to Form 10
Registration Statement filed November 26, 1996
4.2 Form of Class B Warrant (Exhibit 4.2 to Form 10 Registration Statement
filed November 27, 1996
4.3 Share Purchase Warrant Certificate dated October 13, 1995 (Exhibit 4.3
to Form 10 Registration Statement filed November 27, 1996)
4.4 Form of Warrant Agreement dated as of December 20, 1995 (Exhibit 4.4
to Form 10 Registration Statement filed November 27, 1996)
4.5 Form of Class C Warrant (Exhibit 4.5 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)
11.1 Statement regarding Computation of Per Share Earnings (filed herewith)
27.1 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE>
TANISYS TECHNOLOGY, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
Month Shares Outstanding at Month End
- ----- -------------------------------
Sept 96 15,978,537
Oct 96 15,978,537
Nov 96 16,070,773
Dec 96 16,626,655
-----------
4 month total 64,654,502
Weighted
Average Shares 16,163,626
Net Loss $(1,701,735)
Loss per Weighted
Average Shares ($0.11)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FISCAL 1997 FIRST QUARTER CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND THE
NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,794,323
<SECURITIES> 0
<RECEIVABLES> 6,401,032
<ALLOWANCES> 98,450
<INVENTORY> 2,043,833
<CURRENT-ASSETS> 10,630,347
<PP&E> 2,131,481
<DEPRECIATION> 1,081,516
<TOTAL-ASSETS> 17,715,421
<CURRENT-LIABILITIES> 7,790,614
<BONDS> 0
0
0
<COMMON> 21,634,576
<OTHER-SE> (11,820,828)
<TOTAL-LIABILITY-AND-EQUITY> 17,715,421
<SALES> 15,263,661
<TOTAL-REVENUES> 15,263,661
<CGS> 13,668,236
<TOTAL-COSTS> 13,668,236
<OTHER-EXPENSES> 3,143,599
<LOSS-PROVISION> 46,841
<INTEREST-EXPENSE> 165,270
<INCOME-PRETAX> (1,701,735)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,701,735)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,701,735)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
