<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-29038
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 125
Austin, Texas 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
common stock at August 11, 2000:
Number of Shares
Title of Class Outstanding
-------------- -----------
Common Stock, no par value 24,022,358
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - June 30, 2000 and September 30, 1999...................................... 3
Consolidated Statements of Operations - For the Three Months and Nine Months Ended
June 30, 2000 and 1999.............................................................................. 4
Consolidated Statements of Cash Flows - For the Three Months and Nine Months Ended
June 30, 2000 and 1999.............................................................................. 5
Notes to Interim Consolidated Financial Statements...................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations........................................................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.............................................. 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................................................... 14
Item 4. Submission of Matters to a Vote of Security Holders..................................................... 15
Item 6. Exhibits and Reports on Form 8-K........................................................................ 15
SIGNATURES........................................................................................................... 16
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
TANISYS TECHNOLOGY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
============================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,208,278 $ 684,949
Restricted cash - 290,511
Trade accounts receivable, net of allowance of $226,026 and
$333,703, respectively 1,803,494 1,977,390
Inventory, net 345,302 540,458
Prepaid expenses and other 127,062 205,974
Net current assets of discontinued operations - 7,610,991
------------------------------------------------------------------------------------------------------------
Total current assets 3,484,136 11,310,273
Property and equipment, net of accumulated depreciation of
$922,580 and $747,988, respectively 340,486 496,391
Other noncurrent assets 53,777 60,680
Net other assets of discontinued operations - 4,946,235
------------------------------------------------------------------------------------------------------------
Total Assets $ 3,878,399 $ 16,813,579
============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 658,115 $ 1,199,200
Accrued liabilities 416,564 529,087
Revolving credit note 604,434 1,978,403
Current portion of obligations under capital lease 15,274 30,939
Net current liabilities of discontinued operations 930,278 14,191,919
------------------------------------------------------------------------------------------------------------
Total current liabilities 2,624,665 17,929,548
Long-term debt to stockholders, net of discount - 1,722,749
Long-term portion of obligations under capital lease 2,771 9,920
Net other liabilities of discontinued operations - 1,023,982
------------------------------------------------------------------------------------------------------------
Total liabilities 2,627,436 20,686,199
------------------------------------------------------------------------------------------------------------
Mandatorily redeemable convertible preferred stock:
5% Series A Convertible Preferred Stock, $1 par value, 400 shares
authorized, 0 and 225 shares issued and outstanding, respectively - 1,831,483
------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, no par value, 50,000,000 shares authorized,
24,022,358 and 11,971,011 shares issued and outstanding,
respectively 37,346,429 31,968,495
Additional paid-in capital 1,710,589 1,687,312
Accumulated deficit (37,806,055) (39,359,910)
------------------------------------------------------------------------------------------------------------
Total stockholders' equity 1,250,963 (5,704,103)
------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 3,878,399 $ 16,813,579
============================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
3
<PAGE>
TANISYS TECHNOLOGY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
==============================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 2,430,272 $ 3,368,000 $ 6,491,882 $ 8,213,308
Cost of goods sold 834,203 981,707 2,259,455 3,105,416
------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,596,069 2,386,293 4,232,427 5,107,892
------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 621,632 412,065 1,377,888 1,179,358
Sales and marketing 380,343 412,969 1,010,703 1,154,756
General and administrative 185,655 179,284 515,180 507,262
Depreciation and amortization 26,273 36,799 105,746 122,527
------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,213,903 1,041,117 3,009,517 2,963,903
------------------------------------------------------------------------------------------------------------------------------
Operating income 382,166 1,345,176 1,222,910 2,143,989
Other income (expense):
Interest income 7,808 7,645 14,797 16,720
Interest expense (17,977) (107,332) (223,485) (273,576)
Other 23,129 2,130 146,284 2,130
------------------------------------------------------------------------------------------------------------------------------
Net income before discontinued operations 395,126 1,247,619 1,160,506 1,889,263
Income (loss) from discontinued operations 250,000 (1,707,659) 250,000 (4,036,335)
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 645,126 $ (460,040) $ 1,410,506 $ (2,147,072)
==============================================================================================================================
Income from continuing operations $ 395,126 $ 1,247,619 $ 1,160,506 $ 1,889,263
Preferred stock dividend and amortization of the
value of the beneficial conversion feature on the
preferred stock - (30,235) (44,021) (979,290)
------------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations applicable
to common stockholders 395,126 1,217,384 1,116,485 909,973
Income (loss) from discontinued operations 250,000 (1,707,659) 250,000 (4,036,335)
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stockholders $ 645,126 $ (490,275) $ 1,366,485 $ (3,126,362)
------------------------------------------------------------------------------------------------------------------------------
Basic income (loss) per common share:
Income from continuing operations applicable
to common stockholders $ 0.02 $ 0.10 $ 0.06 $ 0.08
Income (loss) from discontinued operations 0.01 (0.14) 0.01 (0.36)
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 0.03 $ (0.04) $ 0.08 $ (0.28)
------------------------------------------------------------------------------------------------------------------------------
Diluted income (loss) per common share:
Income from continuing operations applicable
to common stockholders $ 0.02 $ 0.10 $ 0.06 $ 0.08
Income (loss) from discontinued operations 0.01 (0.14) 0.01 (0.36)
------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 0.03 $ (0.04) $ 0.07 $ (0.28)
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
4
<PAGE>
TANISYS TECHNOLOGY, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
=============================================================================================================================
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 645,126 $ (460,040) $ 1,410,506 $ (2,147,072)
Deduct: Net income (loss) from discontinued operations 250,000 (1,707,659) 250,000 (4,036,335)
-----------------------------------------------------------------------------------------------------------------------------
Net income from continuing operations 395,126 1,247,619 1,160,506 1,889,263
Adjustment to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 61,287 38,131 211,768 130,389
Gain on sale of fixed assets 7,094 - 4,768 -
Issuance of common stock for payment of services - 30,000 406,036 30,000
Changes in operating assets:
Restricted cash - (144,809) 290,511 9,254
Accounts receivable, net (1,165,162) 215,360 173,896 (1,074,120)
Inventory, net 32,995 (156,942) 195,156 (94,389)
Prepaid expenses and other 100,653 42,501 78,912 121
Other noncurrent assets - (1,918) 1,816 (10,023)
Accounts payable 114,133 338,006 (541,085) 324,653
Accrued liabilities 194,739 (52,301) (76,010) (281,326)
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities of
continuing operations (259,135) 1,555,647 1,906,274 923,822
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of fixed assets - - 4,000 -
Purchases of fixed assets (46,455) (15,381) (59,545) (71,260)
------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing
operations (46,455) (15,381) (55,545) (71,260)
------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt to stockholders - - - 2,000,000
Draws (repayments) on revolving credit note, net 387,032 (420,154) (1,373,969) 934,187
Payment of debt financing costs - 50,000 149,554 82,752
Proceeds from exercise of stock options and warrants - - 108,333 496,250
Proceeds from issuance of common stock - - 1,223,000 -
(Payments) proceeds on capital lease obligations (6,836) (5,913) (22,814) 63,432
------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities
of continuing operations 380,196 (376,067) 84,104 3,576,621
------------------------------------------------------------------------------------------------------------------------------
Net cash used in discontinued operations (194,984) (2,168,304) (1,411,504) (4,112,194)
------------------------------------------------------------------------------------------------------------------------------
Net increase (decreased) in cash and cash equivalents (120,378) (1,004,105) 523,329 316,989
Cash and cash equivalents, beginning of period 1,328,656 1,560,540 684,949 239,446
------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,208,278 $ 556,435 $ 1,208,278 $ 556,435
==============================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 20,759 $ 146,139 $ 209,478 $ 308,648
Interest received 3,385 2,408 10,374 12,935
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease additions - - - 1,094,039
Issuance of stock warrants and options for
compensation 10,684 - 23,277 75,000
Issuance of stock warrants in connection with
issuance of debt to stockholders - - - 461,538
Preferred stock dividends paid in common stock - 33,279 55,315 85,047
Preferred stock dividends accrued - 30,235 - 108,002
Amortization of beneficial conversion feature on
preferred stock - - - 865,493
Conversion of preferred stock to common stock - 203,498 1,831,482 1,383,787
==============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
5
<PAGE>
Tanisys Technology, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited interim consolidated financial statements
include the accounts of Tanisys Technology, Inc. ("Tanisys") and its wholly
owned subsidiaries, 1st Tech Corporation ("1st Tech"), DarkHorse Systems, Inc.
("DarkHorse"), and Rosetta Marketing and Sales Inc., and also include the
accounts of Tanisys (Europe) Ltd., located in Scotland, for the three months and
nine months ended June 30, 1999 (collectively, the "Company"). The stock of
Tanisys (Europe) Ltd. was sold on December 9, 1999 (see Note 2 below). The
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles. All significant intercompany balances
and transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. It is recommended that these unaudited interim
consolidated financial statements be read in conjunction with the Company's
consolidated financial statements and the notes thereto for the fiscal year
ended September 30, 1999 contained in the Company's Form 10-K filed with the
Securities and Exchange Commission on February 23, 2000.
The Company designs, manufactures and markets memory module test systems
and provides design services in conjunction with the licensing of its touch
sensor products.
On December 9, 1999, the Company sold its memory module manufacturing
business, including all of the common stock of Tanisys (Europe), Ltd. The
assets, liabilities and the loss from the sale of the memory module
manufacturing business have been included in the accompanying interim
consolidated financial statements as discontinued operations.
NOTE 2. DISCONTINUED OPERATIONS
On December 9, 1999, the Company sold certain assets of its memory module
manufacturing business, including all the stock of Tanisys (Europe) Ltd., a
wholly owned subsidiary of the Company located in Scotland. The sale also
included the assumption of certain liabilities by the buyer. The results of the
memory module manufacturing business have been classified as discontinued, and
prior periods have been restated to reflect the sale.
The loss on the sale, as well as the costs associated with the disposition
of the memory module manufacturing business, has been recorded in the financial
statements as of September 30, 1999. Included in the loss is an accrual of
$930,278 as of June 30, 2000, which represents the Company's best estimate of
the remaining costs associated with the disposition of the discontinued
operations. This estimate reflects a reduction of $250,000 in the liabilities
for discontinued operations for an over accrual to a vendor directly related to
the discontinued operations. As a result, income from discontinued operations of
$250,000 is reflected in the earnings for the quarter ended June 30, 2000.
6
<PAGE>
NOTE 3: CASH AND CASH EQUIVALENTS
The Company invests its excess cash in money market funds, U.S. Treasury
obligations, and short-term debt instruments of U.S. corporations with strong
credit ratings. The Company has established guidelines with respect to the
diversification and maturities that maintain safety and liquidity. The Company
considers all highly liquid investments with an original maturity of three
months or less and money market funds to be cash equivalents.
NOTE 4: INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
========================================================
<S> <C> <C>
Raw materials $ 201,144 $ 297,252
Work-in-process 30,244 21,648
Finished goods 113,914 221,558
---------------------------------------------------------
Total inventory $ 345,302 $ 540,458
========================================================
</TABLE>
Inventory is stated at the lower of cost or market value. Inventory costs
include direct materials, direct labor and certain indirect manufacturing
overhead expenses.
NOTE 5: LONG-TERM DEBT
In November 1998, the Company issued $2,000,000 in debt with attached stock
warrants to certain stockholders of the Company. The debt was due in two years
and carried an interest rate of 10 percent per annum, due quarterly and payable
in either unregistered shares of common stock or cash, at the option of the
Company. One stock warrant was issued for each two dollars of debt, resulting in
the issuance of 1,000,000 stock warrants. Each warrant was exercisable into one
share of common stock beginning on December 1, 1998, at an exercise price of
$0.50 per share and increased to $1.00 per share after August 1, 1999. The
exercise price will increase to $2.00 per share after October 1, 2000. The
warrants expire on November 1, 2001. The Noteholders, as of June 30, 2000, were
issued 875,000 shares of common stock upon the exercise of certain warrants. The
stock warrants and underlying shares of common stock carry no registration
rights. The Company determined the fair value of the warrants to be
approximately $461,538 and reflected this value as a discount on the debt.
In connection with the placement and issuance of this debt, the Company
incurred costs of $21,000 and issued 50,000 stock warrants to the Company's
chairman of the board and 12,500 stock warrants to its external counsel. Each
warrant was exercisable into one share of common stock at $0.02 per share
beginning on December 1, 1998, and the warrants expire on November 1, 2001. As
of June 30, 2000, all of these warrants had been exercised for 62,500 shares of
common stock. These shares of common stock carry no registration rights. The
Company valued the warrants at $1.20 per share, or $75,000. The total debt
issuance costs of $96,000 have been reflected in other noncurrent assets in the
accompanying unaudited consolidated balance sheet.
During the quarter ended March 31, 2000, all of the $2,000,000 in debt to
certain stockholders was converted to 4,000,000 shares of common stock. Along
with the notes payable to these stockholders, all related discounts and debt
issuance costs have been charged to common stock on the accompanying unaudited
consolidated balance sheet.
7
<PAGE>
NOTE 6: PREFERRED STOCK
Pursuant to a Convertible Stock Purchase Agreement dated June 30, 1998 (the
"Stock Purchase Agreement"), the Company issued 400 shares of its 5% Series A
Convertible Preferred Stock, par value $1 per share ("Series A Stock"), for
$4,000,000.
The Series A Stock was convertible into the Company's no par value common
stock ("Common Stock") at the option of the holder. The conversion price was the
lesser of the fixed conversion price of $4.62 per share or a variable conversion
price. The Company valued this beneficial conversion feature at $1,403,509 and
reflected this amount in additional paid-in capital and as a charge to the
accumulated deficit. The $1,403,509 beneficial conversion feature was fully
amortized and charged to accumulated deficit as of the quarter ended March 31,
1999.
As of March 31, 2000, the Company had converted all of the Series A Stock
into shares of Common Stock.
Dividends were payable quarterly in either cash or shares of Common Stock.
However, all dividends were paid in shares of Common Stock. For the quarters
ended June 30, 2000 and June 30, 1999, the Company paid dividends of $0 and
$33,279 by issuing 0 shares and 16,256 shares of Common Stock, respectively.
Attached to the Series A Stock were warrants to purchase 100,000 shares of
Common Stock. As of June 30, 2000 there are 33,334 remaining warrants that are
currently exercisable at $6.00 per share and expire on June 30, 2002. The
Company valued the original warrants at $283,803 and reflected this amount in
additional paid-in capital during the year ended September 30, 1998.
NOTE 7: STOCKHOLDERS' EQUITY
At the Company's Annual Meeting of Stockholders on May 23, 2000, the
Company's stockholders approved a one-for-two reverse stock split of the
Company's Common Stock (the "Reverse Split") effective May 25, 2000. The Reverse
Split had no effect on the number of authorized shares of Common Stock,
preferred stock, or Series A Preferred Stock. Any stockholder otherwise entitled
to any fractional share interest due to the Reverse Split received in lieu
thereof, one additional share of Common Stock for the fractional share such
stockholder would have been entitled to as a result of the Reverse Split.
The number of shares and per share amounts of the Company's Common Stock
set forth herein have been retroactively adjusted for all periods presented to
reflect the Reverse Split.
NOTE 8: EARNINGS PER SHARE
Basic income or loss per common share is computed based on the weighted
average number of common shares outstanding during each period. For the quarter
ended June 30, 2000, diluted income per common share is computed based on the
weighted average number of common shares outstanding after giving effect to the
potential issuance of Common Stock on the exercise of options and warrants. For
the quarter ended June 30, 1999, potentially dilutive securities have not been
included in the diluted loss per common share calculation as they would have
been antidilutive. All Common Stock amounts and per share information have been
restated to reflect the Reverse Split for all periods presented. The following
table provides a reconciliation between net income (loss) and net income (loss)
applicable to common stockholders, and between basic and diluted shares
outstanding:
8
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
========================================================================================================
<S> <C> <C> <C> <C>
Net income (loss) $ 645,126 $ (460,040) $ 1,410,506 $ (2,147,072)
Less-
Series A Stock dividends - (30,235) (44,021) (113,797)
Amortization of the value of the
beneficial conversion feature
on the Series A Stock - - (865,493)
--------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common
stockholders (basic and diluted) $ 645,126 $ (490,275) $ 1,366,485 $ (3,126,362)
========================================================================================================
Weighted average number of common
shares used in basic earning per
share 24,022,358 11,909,811 18,074,184 11,327,989
Effect of dilutive securities
Stock Options 485,500 - 485,500 -
Warrants 443,334 - 443,334 -
========================================================================================================
Weighted average number of common
shares and dilutive potential
Common Stock used in dilutive
earning per share 24,951,192 11,909,811 19,003,018 11,327,989
========================================================================================================
</TABLE>
The following calculates the amount used in computing diluted earnings per share
and the effect on income:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
June 30, 2000 June 30, 2000
======================================
<S> <C> <C>
Diluted earnings per share:
Income from continuing operations
applicable to common stockholders $ 395,126 $ 1,116,485
Income impact of assumed conversions:
Series A Stock dividends - 44,021
--------------------------------------
Income from continuing operations
applicable after assumed conversion
of dilutive securities 395,126 1,160,506
Income from discontinued
operations 250,000 250,000
--------------------------------------
Net income applicable to common
stockholders after assumed conversion of
dilutive securities $ 645,126 $ 1,410,506
======================================
</TABLE>
9
<PAGE>
NOTE 9: COMPREHENSIVE INCOME
Effective October 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." This standard establishes rules for the reporting of
comprehensive income and its components. Comprehensive income consists of net
income and foreign currency translation adjustments, as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
June 30, June 30,
2000 1999 2000 1999
========================================================================================================
<S> <C> <C> <C> <C>
Net income (loss), as reported $ 645,126 $ (460,040) $ 1,410,506 $ (2,147,072)
Foreign currency translation
adjustment - (34,982) - (51,880)
--------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 645,126 $ (495,022) $ 1,410,506 $ (2,198,952)
========================================================================================================
</TABLE>
The adoption of this standard had no net effect on the Company's net income
(loss) or stockholders' equity for the three months and nine months ended June
30, 2000 and 1999. Prior year financial statements have been reclassified to
conform to the requirements of this standard.
NOTE 10: SUBSEQUENT EVENT(S)
None.
10
<PAGE>
This Quarterly Report on Form 10-Q contains certain forward-looking statements
and information relating to Tanisys and its subsidiaries that are based on the
beliefs of the Company's management as well as assumptions made by and
information currently available to the Company's management. When used in this
report, the words "anticipate," "believe," "estimate," "expect," and "intend"
and words or phrases of similar import, as they relate to the Company or its
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 or more of these risks or uncertainties
materialize, or should any underlying assumptions prove incorrect, actual
results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The following is a discussion of the interim consolidated financial
condition and results of operations of the Company for the three months ended
June 30, 2000 and 1999. It should be read in conjunction with the unaudited
interim Consolidated Financial Statements, the Notes thereto and other financial
information included elsewhere in this report, and in the Company's Annual
Report on Form 10-K for the year ended September 30, 1999 filed with the
Securities and Exchange Commission on February 23, 2000. For purposes of the
following discussion, references to year periods refer to the Company's fiscal
year ended September 30, 1999 and references to quarterly periods refer to the
Company's fiscal quarters ended June 30, 2000 and 1999.
On December 9, 1999, the Company sold its memory module manufacturing
business, including all of the common stock of Tanisys (Europe), Ltd. The
assets, liabilities and the loss from the sale of the memory module
manufacturing business have been included in the accompanying interim
consolidated financial statements as discontinued operations.
Following the sale of its memory module manufacturing business, the Company
has refocused its efforts on its memory module test systems business. The
Company also retained its proprietary Tanisys Touch technology, available for
licensing to third parties. After closing of the sale of the memory module
manufacturing business, the Company has the same directors and retains its
officers associated with the memory module test systems business, including
Charles T. Comiso as the Company's President and Chief Executive Officer.
Although there can be no assurance that the sale of the memory module
manufacturing business will have the intended effect on the Company's financial
condition and continuing operations, management believes that the Company's
retained memory module test systems business will be able to succeed on its own,
generate a positive cash flow and yield net profits for the Company.
The results of the memory module manufacturing business have been
classified as discontinued operations, and prior periods have been restated to
reflect the sale. The loss on the sale, as well as the costs associated with the
disposition of the memory module manufacturing business, have been recorded in
the Consolidated Financial Statements as of September 30, 1999.
11
<PAGE>
Results of Operations
The following table sets forth certain consolidated operations data of the
Company expressed as a percentage of net sales (unaudited) for the three months
and nine months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
For the Three For the Nine
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
====================================================================== ==================
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 34.3% 29.1% 34.8% 37.8%
---------------------------------------------------------------------- -------------------
Gross profit 65.7% 70.9% 65.2% 62.2%
---------------------------------------------------------------------- -------------------
Operating expenses:
Research and development 25.6% 12.2% 21.2% 14.4%
Sales and marketing 15.7% 12.3% 15.6% 14.1%
General and administrative 7.6% 5.3% 7.9% 6.2%
Depreciation and amortization 1.1% 1.1% 1.6% 1.5%
---------------------------------------------------------------------- -------------------
Total operating expenses 49.9% 30.9% 46.4% 36.1%
---------------------------------------------------------------------- -------------------
Operating income 15.7% 39.9% 18.8% 26.1%
---------------------------------------------------------------------- -------------------
Other income (expense):
Interest income 0.3% 0.2% 0.2% 0.2%
Interest expense (0.7%) (3.2%) (3.4%) (3.3%)
Other income 1.0% 0.1% 2.3% 0.0%
---------------------------------------------------------------------- -------------------
Net income before discontinued operations 16.3% 37.0% 17.9% 23.0%
---------------------------------------------------------------------- -------------------
Income (loss) from discontinued operations 10.3% (50.7%) 3.9% (49.1%)
---------------------------------------------------------------------- -------------------
Net Income (loss) 26.5% (13.7%) 21.7% (26.1%)
====================================================================== ===================
</TABLE>
Net Sales
Net sales consist of memory module test systems, less returns and
discounts. Net sales decreased to $2,430,272 in the third quarter of fiscal 2000
from $3,368,000 in the same period of fiscal 1999. The quarter ended June 30,
1999 was an exceptional quarter for sales due to the introduction of the SIGMA.3
and its acceptance into the marketplace to test the newly accepted industry
standard of PC 100 Sync DRAM for personal computers. Therefore, the decline in
net sales is primarily due to the initial success of a new product offering in
the second fiscal quarter of 1999. However, net revenues increased $385,322 for
the quarter ended June 30, 2000 when compared to the quarter ended March 31,
2000. Many factors will affect the Company's ability to increase and/or maintain
sales levels. See the Company's Form 10-K filed with the Securities and Exchange
Commission on February 23, 2000 for a complete list of "Risk Factors."
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 decreased from $2,386,293 in the
third quarter of fiscal 1999 to $1,596,069 in the third quarter of fiscal 2000
due primarily to the revenue decrease for the same period. Gross profit as a
percent of sales decreased to 65.7% in the third fiscal quarter of 2000 from
70.9% in the third fiscal quarter of 1999. The decrease in gross profit margin
was due in large to the mix of products sold as well as the decline in revenues.
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 $621,632 in the third quarter of fiscal 2000 from $412,065 in the third
quarter of fiscal 1999, representing an increase of 50.9%. The increase in
research and development expenses is due to expenditures for development of test
systems for new technologies. Research and development expenditures are expected
to continue to increase as resources are allocated to develop new test systems
and enhance current test systems to meet the market demands for the testing of
new memory technologies.
12
<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
decreased to $380,342 in the third fiscal quarter of 2000 from $412,969 in the
same period of fiscal 1999. Sales and marketing expenses expressed as a
percentage of revenues in the third quarter of fiscal 2000 and 1999 were 15.7%
and 12.3%, respectively. The decrease in sales and marketing expenses is
attributable to additional expenses that were focused on introducing the
DarkHorse SIGMA.3 memory module test system in the quarter ended June 30, 1999,
as well as larger sales commissions that were paid due to higher revenue for the
third fiscal quarter of 1999. Sales and marketing expenses are expected to
increase in terms of absolute dollars and to decrease as a percentage of
revenues in future periods as growth in revenue occurs.
General and Administrative
General and administrative expenses 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 for the third quarter of
fiscal 2000 increased 3.6%, or $6,371, to $185,655 from $179,284 for the same
quarter of fiscal 1999. When expressed as a percentage of sales, general and
administrative expenses increased from 5.3% in the third quarter of fiscal 1999
to 7.6% in the same quarter of fiscal 2000 primarily due to the higher revenue
in the third fiscal quarter of 1999. The absolute dollar expenses associated
with the general and administrative area are expected to increase at a much
slower pace than revenues in future periods with the anticipated continued
growth in business activity.
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 Goods Sold" and the amortization of intangibles, including patents
related to memory module test systems technology. Depreciation and amortization
decreased to $26,273 in the third quarter of fiscal 2000 from $36,799 in the
same quarter of fiscal 1999. This decrease was due to the declining depreciable
basis of the Company's fixed assets.
Other Income (Expense), Net
Other income (expense), net consists primarily of interest income less
interest expense. Interest expense is attributable to the Company's working
capital loan facilities. 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 the investment of available cash
in short-term interest bearing accounts and cash equivalent securities. Other
income (expense) increased to $12,960 of income in the third quarter of fiscal
2000 from ($97,557) of expense in the third quarter of fiscal 1999. The increase
in other income (expense) is primarily due to an increase in non-recurring
miscellaneous income and the reduction of interest expense.
Liquidity and Capital Resources
Since inception, Tanisys has utilized the funds acquired in equity
financings of its Common Stock and preferred stock, the exercise of stock
warrants and 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 and accounts receivable balances, and pay its
general and administrative expenses.
During the third quarter of fiscal 2000, the Company utilized $259,135 of
cash in its continuing operations associated primarily with the increase in
accounts receivable of $1,165,162. The vast majority of the Company's accounts
receivable is with strong companies in the memory module business. The Company's
financing activities generated $380,196 due to an increase in its revolving
credit line. The Company had $1,208,278 in cash and working capital of $859,471
at June 30, 2000, an increase in working capital of $687,641 from the prior
fiscal quarter ended March 31, 2000.
13
<PAGE>
Significant Customer Concentration
A significant percentage of the Company's net sales is produced by a
relatively small number of customers. In the third quarter of fiscal 2000, the
ten largest customers accounted for approximately 98% of net sales compared to
approximately 94% in the same period in fiscal 1999. Two customers represented
57% and 19% of sales, respectively, in the third quarter of fiscal 2000; the
customer that represented 57% of sales in the third quarter of fiscal 2000
represented only 5% of sales in the same period in fiscal year 1999. However,
there were no other customers to compare between the second quarters in both
1999 and 2000. 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 will continue
to utilize the Company's products or services.
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. The Company has experienced
such changes and cancellations and expects to continue to do so in the future.
The replacement of cancelled, 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 customers' 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not believe that there is any material risk exposure with
respect to derivative or other financial instruments which would require
disclosure under this item.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Fourteen former employees have filed a lawsuit against the Company claiming
a violation of the U.S. Department of Labor's Worker Adjustment and Retraining
Notification Act (the "WARN Act"). The Company laid off 20 employees effective
October 21, 1999, to reduce costs. When the Company agreed to sell its memory
module manufacturing business to All Components, Inc., the Company laid off 47
employees effective November 30, 1999, whose jobs were no longer needed at All
Components, Inc. or the Company. The plaintiffs' original request for a class
action lawsuit has been denied by the court. The Company complied with the WARN
Act and is actively defending its position.
Under the terms of a lease agreement between Tanisys (Europe), Ltd. and
Akeler, Ltd., the Company guaranteed the payment of rent on the manufacturing
facility located in Scotland in the approximate amount of $200,000 per year. On
December 9, 1999, the Company sold its memory module manufacturing business,
including all of the common stock of Tanisys (Europe), Ltd. Subsequently,
Tanisys (Europe), Ltd. defaulted on the lease payment and demand has been made
by the landlord upon the Company to bring the rent current. The Company has
refused to do so. The Company is unable at this time to determine the outcome of
any lawsuit that might be filed against the Company. There can be no assurance
that the resolution of this claim or any future proceeding would not have an
adverse material effect on the Company's results of operations or the fiscal
period in which such resolution occurred.
The Company believes it is unlikely that the final outcome of the above
lawsuit or any other known or unknown claims to which the Company is or becomes
a party would have a material adverse effect on the Company's financial position
or results from operations; however, due to the inherent uncertainty of
litigation, there can be no assurance that the resolution of any particular
claim or proceeding would not have a material adverse effect on the Company's
results of operations for the fiscal period in which such resolution occurred.
14
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Stockholders held on May 23, 2000, the following
matters were adopted by the margins indicated below, and additional information
can be obtained from the Company's Proxy Statement filed on April 3, 2000. All
share amounts have been restated to reflect the Reverse Split.
1. To ratify the sale of certain assets and the assumption of certain
liabilities related to the Company's memory module manufacturing business and
the sale of stock of the Company's wholly owned subsidiary, Tanisys (Europe)
Ltd., to Tanisys Operations, LP, pursuant to an Asset Purchase Agreement dated
December 9, 1999.
For: 12,767,205
Against: 40,886
Abstentions: 107,256
Broker non-votes: 7,254,299
2. To amend the Articles of Continuance of the Company to effect a one-
for-two reverse stock split.
For: 19,646,349
Against: 473,494
Abstentions: 49,804
Broker non-votes: 0
3. To ratify the appointment of Brown, Graham and Company, P.C. as
independent public accountants of the Company for the fiscal year ending
September 30, 2000.
For: 20,032,238
Against: 29,128
Abstentions: 108,280
Broker non-votes: 0
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The exhibit listed below is filed as part of this report.
Exhibit
Number Description
------ -----------
27.1 Financial Data Schedule (filed herewith)
(b) Current Reports on 8-K:
Form 8-K dated May 23, 2000, and filed May 25, 2000, reporting an
amendment to the Company's Articles of Continuance to effect a reverse
split of the Company's Common Stock, no par value, on the basis of one
share for each two currently issued shares effective at the opening of
business on May 25, 2000.
Items 2, 3 and 5 are not applicable and have been omitted.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TANISYS TECHNOLOGY, INC.
Date: August 14, 2000 By: /s/ CHARLES T. COMISO
-----------------------
Charles T. Comiso
Chief Executive Officer,
President and Director
Date: August 14, 2000 By: /s/ TERRY W. REYNOLDS
-----------------------
Terry W. Reynolds
Vice President of Finance
(Duly authorized and Principal
Accounting Officer)
16
