<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 March 31, 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 May 1, 2000:
Number of Shares
Title of Class Outstanding
-------------- -----------
Common Stock, no par value 48,044,716
<PAGE>
TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets March 31, 2000 and September 30, 1999.................................... 3
Consolidated Statements of Operations - For the Three Months and Six Months Ended
March 31, 2000 and 1999........................................................................... 4
Consolidated Statements of Cash Flows - For the Three Months and Six Months Ended
March 31, 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................. 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings..................................................................................... 13
Item 2. Changes in Securities and Use of Proceeds............................................................. 13
Item 6. Exhibits and Reports on Form 8-K ..................................................................... 14
SIGNATURES....................................................................................................... 15
</TABLE>
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
TANISYS TECHNOLOGY, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
======================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,328,656 $ 684,949
Restricted cash - 290,511
Trade accounts receivable, net of allowance of $219,099
and $333,703, respectively 638,332 1,977,390
Inventory, net 378,297 540,458
Prepaid expenses and other 227,715 205,974
Net current assets of discontinued operations - 7,610,991
- ------------------------------------------------------------------------------------------------------
Total current assets 2,573,000 11,310,273
Property and equipment, net of accumulated depreciation of
$887,275 and $747,988, respectively 359,852 496,391
Other noncurrent assets 56,338 60,680
Net other assets of discontinued operations - 4,946,235
- ------------------------------------------------------------------------------------------------------
Total Assets $ 2,989,190 $ 16,813,579
======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 543,982 $ 1,199,200
Accrued liabilities 221,825 529,087
Revolving credit note 217,402 1,978,403
Current portion of obligations under capital lease 19,422 30,939
Net current liabilities of discontinued operations 1,398,539 14,191,919
- ------------------------------------------------------------------------------------------------------
Total current liabilities 2,401,170 17,929,548
Long-term debt to stockholders, net of discount - 1,722,749
Long-term portion of obligations under capital lease 5,459 9,920
Net other liabilities of discontinued operations - 1,023,982
- ------------------------------------------------------------------------------------------------------
Total liabilities 2,406,629 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,
48,044,716 and 24,390,404 shares issued and
outstanding, respectively 37,346,429 31,968,495
Additional paid-in capital 1,687,312 1,687,312
Accumulated deficit (38,451,180) (39,359,910)
- ------------------------------------------------------------------------------------------------------
Total stockholders' equity 582,561 (5,704,103)
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 2,989,190 $ 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 Six Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
================================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 2,044,950 $ 3,194,399 $ 4,061,610 $ 4,845,308
Cost of goods sold 667,114 1,255,362 1,425,252 2,123,709
- --------------------------------------------------------------------------------------------------------------------------------
Gross profit 1,377,836 1,939,037 2,636,358 2,721,599
- --------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 437,631 393,047 756,256 767,293
Sales and marketing 305,802 441,919 630,360 841,787
General and administrative 164,457 177,555 329,525 327,978
Depreciation and amortization 25,021 47,432 79,473 85,728
- --------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 932,911 1,059,953 1,795,614 1,922,786
- --------------------------------------------------------------------------------------------------------------------------------
Operating income 444,925 879,084 840,744 798,813
Other income (expense):
Interest income 4,730 3,979 6,989 9,075
Interest expense (115,587) (85,560) (205,508) (166,244)
Other 151,448 (2,326) 123,155 -
- --------------------------------------------------------------------------------------------------------------------------------
Net income before discontinued operations $ 485,516 $ 795,177 $ 765,380 $ 641,644
Loss from discontinued operations - (1,540,539) - (2,328,676)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) 485,516 (745,362) 765,380 (1,687,032)
================================================================================================================================
Income from continuing operations $ 485,516 $ 795,177 $ 765,380 $ 641,644
Preferred stock dividend and amortization of the value of the
beneficial conversion feature on the preferred stock (16,809) (249,837) (44,021) (733,860)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) from continuing operations applicable
to common stock holders 468,707 545,340 721,359 (92,216)
Loss from discontinued operations - (1,540,539) - (2,328,676)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock holders $ 468,707 $ (995,199) $ 721,359 $(2,420,892)
================================================================================================================================
Basic income (loss) per common shares:
Income from continuing operations applicable
to common stockholders $ 0.01 $ 0.02 $ 0.02 $ 0.01
Loss from discontinued operations - (0.06) - (0.11)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 0.01 $ (0.04) $ 0.02 $ (0.12)
================================================================================================================================
Diluted income (loss) per common shares:
Income (loss) from continuing operations applicable
to common stockholders $ 0.01 $ (0.02) $ 0.02 $ 0.01
Loss from discontinued operations - (0.06) - (0.11)
- --------------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stock $ 0.01 $ (0.04) $ 0.02 $ (0.12)
================================================================================================================================
</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 Six Months
Ended March 31, Ended March 31,
2000 1999 2000 1999
=================================================================================================================
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 485,516 $ (745,362) $ 765,380 $(1,687,032)
Deduct: Net loss from discontinued operations -- (1,540,539) -- (2,328,676)
- ----------------------------------------------------------------------------------------------------------------
Net income from continuing operations 485,516 795,177 765,380 641,644
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 58,406 40,376 150,481 92,260
Gain on sale of fixed assets (2,326) -- (2,326) --
Changes in operating assets:
Restricted cash -- 15,887 290,511 154,063
Accounts receivable, net 947,461 (365,025) 1,339,058 (1,289,481)
Inventory, net (65,387) 281,009 162,161 62,553
Prepaid expenses and other 24,600 (20,183) (21,741) (42,380)
Other noncurrent assets (1,270) 1,188 1,816 (8,105)
Accounts Payable (188,758) (402,115) (655,218) (13,353)
Accrued liabilities (232,815) (44,428) (281,433) (229,026)
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities of continuing operations 1,025,427 301,887 1,748,689 (631,824)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of fixed assets 4,000 -- 4,000 --
Purchases of fixed assets (13,090) (19,770) (13,090) (55,879)
- ----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities of continuing
operations (9,090) (19,770) (9,090) (55,879)
- ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt to stockholders -- -- -- 2,000,000
Draws (repayments) on revolving credit note, net (528,497) 497,339 (1,761,001) 1,354,341
Payment of debt financing costs 91,863 32,751 149,554 32,751
Issuance on common stock for payment of services 406,036 -- 406,036 --
(Repayments) of debt to stockholders (200,000) -- -- --
Proceeds from exercise of stock options and warrants 108,333 282,500 108,333 496,250
Proceeds from issuance of common stock 1,223,000 -- 1,223,000 --
(Payments) proceeds on capital lease obligations (10,434) (3,868) (15,978) 69,345
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities
of continuing operations 1,090,301 808,722 109,944 3,952,687
- ----------------------------------------------------------------------------------------------------------------
Net cash used in discontinued operations (842,758) (294,283) (1,205,836) (1,943,890)
- ----------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,263,880 796,556 643,707 1,321,094
Cash and cash equivalents, beginning of period 64,776 763,984 684,949 239,446
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,328,656 $ 1,560,540 $ 1,328,656 $ 1,560,540
================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 103,767 $ 83,533 $ 188,719 $ 162,509
Interest received 4,730 4,813 6,989 10,527
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital lease additions -- 95,000 -- 1,094,039
Issuance of stock warrants for compensation 60,000 -- 60,000 75,000
Issuance of stock warrants in connection with
issuance of debt to shareholders -- -- -- 461,538
Preferred stock dividends paid in common stock 28,103 45,973 55,315 51,768
Preferred stock dividends accrued -- 34,642 -- 77,767
Amortization of beneficial conversion feature on
preferred stock -- 215,195 -- 865,493
Conversion of preferred stock to common stock 1,709,383 732,593 1,831,482 1,180,289
================================================================================================================
</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
six months ended March 31, 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
$1,398,539 as of March 31, 2000, which represents the Company's best estimate of
the remaining costs associated with the disposition of the discontinued
operations.
6
<PAGE>
NOTE 3: INVENTORY
Inventory consists of the following:
March 31, September 30,
2000 1999
--------------------------------------------------------
Raw materials $216,090 $297,252
Work-in-process 30,304 21,648
Finished goods 131,903 221,558
--------------------------------------------------------
Total inventory $378,297 $540,458
--------------------------------------------------------
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 4: 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 dollar of debt, resulting in the
issuance of 2,000,000 stock warrants. Each warrant was exercisable into one
share of common stock beginning on December 1, 1998, at an exercise price of
$0.25 per share and increased to $0.50 per share after August 1, 1999. The
exercise price will increase to $1.00 per share after October 1, 2000. The
warrants expire on November 1, 2001. The Noteholders, as of March 31, 2000,
were issued 1,750,000 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. The
debt discount was being amortized to interest expense over the life of the
related debt.
In connection with the placement and issuance of this debt, the Company
incurred costs of $21,000 and issued 100,000 stock warrants to the Company's
chairman of the board and 25,000 stock warrants to its external counsel. Each
warrant is exercisable into one share of common stock at $0.01 per share
beginning on December 1, 1998, and the warrants expire on November 1, 2001. As
of March 31, 2000, all of these warrants had been exercised for 125,000 shares
of common stock. These shares of common stock carry no registration rights.
The Company valued the warrants at $0.60 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 and were being amortized over
the life of the related debt.
During the quarter ended March 31, 2000, all of the $2,000,000 in debt to
certain stockholders was converted to 8,000,000 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.
NOTE 5: 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
million.
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 $2.31 per share or a variable conversion
price. The Company has valued this beneficial conversion feature at $1,403,509
and has 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 changed to accumulated deficit as of the quarter ended March 31,
1999.
7
<PAGE>
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 March 31, 2000 and March 31, 1999, the Company paid dividends of $28,103
and $45,973 by issuing 145,553 shares and 35,791 shares of Common Stock,
respectively.
Attached to the Series A Stock were warrants to purchase 199,999 shares of
Common Stock. During the quarter ended March 31, 2000, a portion of these
warrants were exercised for 133,333 shares of Common Stock. The remaining
warrants are currently exercisable at $3.00 per share and expire on June 30,
2002. The Company has valued the original warrants at $283,803 and reflected
this amount in additional paid-in capital during the year ended September 30,
1998.
During the quarter ended March 31, 2000, the Company converted all of the
remaining 210 shares of Series A Stock for 8,814,106 shares of Common Stock.
NOTE 6: 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 March 31, 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 March 31, 1999, potentially dilutive securities have not been
included in the diluted loss per common share calculation as they would have
been antidilutive. The following table provides a reconciliation between basic
and diluted shares outstanding:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31, March 31,
2000 1999 2000 1999
========================================================================================================================
<S> <C> <C> <C> <C>
Net income (loss) $ 485,516 $ (745,362) $ 765,380 $ (1,687,032)
Less-
Series A Stock dividends (16,809) (34,642) (44,021) (83,562)
Amortization of the value of the
beneficial conversion feature
on the Series A Stock - (215,195) - (865,493)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to Common
Stock (basic and diluted) $ 468,707 $ (995,199) $ 721,359 $ (2,636,087)
========================================================================================================================
Weighted average number of common
shares used in basic earning per share 34,893,692 23,121,625 29,871,930 22,074,154
Effect of dilutive securities
Stock Options 1,890,217 - 1,890,217 -
Warrants 786,666 - 786,666 -
- ------------------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares and dilutive potential Common
Stock used in dilutive earning per share 37,570,575 23,121,625 32,548,813 22,074,154
========================================================================================================================
</TABLE>
8
<PAGE>
The following calculates the amount used in computing diluted earnings per share
and the effect on income:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
March 31, 2000 March 31, 2000
=======================================
<S> <C> <C>
Diluted earnings per share:
Income from continuing operations
applicable to common stockholders $ 468,707 $ 721,359
Income impact of assumed conversions:
Series A Stock dividends 16,809 44,021
----------------------------------------
Net income applicable to common
stockholders after assumed conversion
of dilutive securities $ 485,516 $ 765,380
========================================
</TABLE>
NOTE 7: 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 Six Months Ended
March 31, March 31,
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income (loss), as reported $ 485,516 $ (745,362) $ 765,380 $ (1,687,032)
Foreign currency translation adjustment - (53,521) - (16,898)
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 485,516 $ (798,883) $ 765,380 $ (1,703,930)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The adoption of this standard had no net effect on the Company's net loss
or stockholders' equity for the three months and six months ended March 31, 2000
and 1999, respectively. Prior year financial statements have been reclassified
to conform to the requirements of this standard.
NOTE 8: SUBSEQUENT EVENT(S)
On April 3, 2000, the Company entered into an agreement with Silicon Valley
Bank under an asset based lending agreement whereby the Company can borrow
against its outstanding accounts receivable up to a maximum of $2,000,000. This
agreement supersedes the December 17, 1999 Accounts Receivable Purchase
Agreement with the same lender and significantly improves the financing terms,
thus decreasing the costs of financing.
9
<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
March 31, 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 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 March 31, 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.
10
<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 six months ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
March 31, March 31,
2000 1999 2000 1999
================================================================================ ==================
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 32.6% 39.3% 35.1% 43.8%
- -------------------------------------------------------------------------------- ------------------
Gross profit 67.4% 60.7% 64.9% 56.2%
- -------------------------------------------------------------------------------- ------------------
Operating expenses:
Research and development 22.0% 12.4% 18.9% 15.9%
Sales and marketing 15.1% 13.9% 15.6% 15.3%
General and administrative 8.4% 5.7% 8.3% 6.9%
Depreciation and amortization 0.1% 1.2% 1.4% 1.6%
- -------------------------------------------------------------------------------- ------------------
Total operating expenses 45.6% 33.2% 44.2% 39.7%
- -------------------------------------------------------------------------------- ------------------
Operating income 21.8% 27.5% 20.7% 16.5%
- -------------------------------------------------------------------------------- ------------------
Other income (expense):
Interest income 0.2% 0.1% 0.2% 0.2%
Interest expense (5.6%) (2.7%) (5.1%) (3.4%)
Other income 7.4% 0.0% 3.0% 0.0%
- -------------------------------------------------------------------------------- ------------------
Net income before discontinued operations 23.7% 24.9% 18.8% 13.3%
- -------------------------------------------------------------------------------- ------------------
Loss from discontinued operations 0.0% (48.2%) 0.0% (48.1%)
- -------------------------------------------------------------------------------- ------------------
Net Income (loss) 23.7% (23.3%) 18.8% (34.8%)
================================================================================ ==================
</TABLE>
Net Sales
Net sales consist of memory module test systems, less returns and
discounts. Net sales decreased to $2,044,950 in the second quarter of fiscal
2000 from $3,194,399 in the same period of fiscal 1999. The quarter ended March
31, 1999 was an exceptional quarter for sales due to the introduction of the
SIGMA3 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 were
sustained for the quarter ended March 31, 2000 when compared to the quarter
ended December 31, 1999. 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 $1,939,037 in the
second quarter of fiscal 1999 to $1,377,836 in the second quarter of fiscal 2000
due to the revenue decrease for the same period. However, gross profit as a
percent of sales increased to 67.4% in the second fiscal quarter of 2000 from
60.7% in the second fiscal quarter of 1999. The increase in gross profit margin
was due primarily to increased manufacturing cost efficiencies.
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 $450,535 in the second quarter of fiscal 2000 from $396,254 in the second
quarter of fiscal 1999, representing a increase of 14%. 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.
11
<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 $308,418 in the second fiscal quarter of 2000 from $443,580 in the
same period of fiscal 1999. Sales and marketing expenses expressed as a
percentage of revenues in the second quarter of fiscal 2000 and 1999 were 15.1%
and 13.9%, respectively. The decrease in sales and marketing expenses are
attributable to additional expenses that were focused on introducing the
DarkHorse SIGMA3 memory module test system in the quarter ended March 31, 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 second quarter
of fiscal 2000 decreased 6%, or $10,704, to $171,432 from $182,136 for the same
quarter of fiscal 1999. When expressed as a percentage of sales, general and
administrative expenses increased from 6% in the second quarter of fiscal 1999
to 8% in same quarter of fiscal 2000. 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 $25,021 in the second quarter of fiscal 2000 from $47,432 in the
same quarter of fiscal 1999. This decrease was due to a non-recurring
adjustment in depreciation expense for the quarter ended March 31, 2000.
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 $40,591 of income in the second quarter of
fiscal 2000 from $83,907 of expense in the second quarter of fiscal 1999. The
increase in other income (expense) is primarily due to an increase in non-
recurring miscellaneous income.
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 second quarter of fiscal 2000, the Company closed a private
placement of its Common Stock for a total of $1,223,000, a major portion having
been purchased by employees of the Company. The Company also reduced its
revolving credit line by $528,497 and paid off $200,000 in short-term debt to
stockholders. In addition, the Company generated $1,025,427 of cash from its
operating activities of continuing operations during the quarter ended March 31,
2000. The Company had $1,328,656 in cash and working capital of $171,830 at
March 31, 2000, an increase in working capital of $2,381,836 from the prior
fiscal quarter ended December 31, 1999.
12
<PAGE>
Significant Customer Concentration
A significant percentage of the Company's net sales is produced by a
relatively small number of customers. In the second quarter of fiscal 2000, the
ten largest customers accounted for approximately 93% of net sales compared to
approximately 88% in the same period in fiscal 1999. Three customers represented
24%, 22% and 9% of sales, respectively, in the second quarter of fiscal 2000;
the customer that represented 22% of sales in the second quarter of fiscal 2000
also represented 54% 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
Nine 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 on 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 whose jobs were no longer needed at All Components, Inc. or the
Company. In the event of layoffs, the WARN Act stipulates that under certain
circumstances, specific notification periods must be followed. The Company
believes that it is in compliance with the WARN Act and is actively defending
its position.
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.
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) In February 2000, all of the $2,000,000 of unsecured debt issued by the
Company in November 1998 to certain stockholders of the Company, plus
accrued interest through the conversion date, was converted into equity
through the issuance of 8,042,626 shares of Common Stock.
13
<PAGE>
In February and March 2000, the Company issued 8,814,106 shares of its
Common Stock upon conversion by the holders of 210 shares of its 5% Series
A Convertible Preferred Stock, par value $1 per share ("Series A Stock"),
which represented all of the unconverted shares of Series A Stock. In
addition, 133,333 of the 199,999 warrants attached to the Series A Stock
were exercised for 133,333 shares of Common Stock.
In March 2000, the Company issued 3,057,500 shares of its Common Stock for
consideration of $1,223,000. The shares of Common Stock issued in the
private placement are restricted securities. The transaction was exempt
from registration pursuant to Section 4(1) of the Securities Act of 1933,
as amended. Proceeds of the private placement are being used for working
capital.
(d) Not applicable.
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 January 12, 2000, and filed January 20, 2000, reporting
a change in the Company's independent auditors.
Items 3, 4 and 5 are not applicable and have been omitted.
14
<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: May 9, 2000 By: /s/ CHARLES T. COMISO
------------------------------
Charles T. Comiso
Chief Executive Officer,
President and Director
Date: May 9, 2000 By: /s/ TERRY W. REYNOLDS
------------------------------
Terry W. Reynolds
Vice President of Finance
(Duly authorized and Principal
Accounting Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS FOR TANISYS TECHNOLOGY,
INC. AND SUBSIDIARIES AS OF AND FOR THE SECOND FISCAL QUARTER ENDED MARCH 31,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
AND THE NOTES THERETO.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 1,328,656
<SECURITIES> 0
<RECEIVABLES> 638,332
<ALLOWANCES> 219,099
<INVENTORY> 378,297
<CURRENT-ASSETS> 2,573,000
<PP&E> 359,852
<DEPRECIATION> 887,275
<TOTAL-ASSETS> 2,989,190
<CURRENT-LIABILITIES> 2,401,170
<BONDS> 0
0
0
<COMMON> 37,346,249
<OTHER-SE> (36,763,868)
<TOTAL-LIABILITY-AND-EQUITY> 2,989,190
<SALES> 4,061,610
<TOTAL-REVENUES> 4,061,610
<CGS> 1,425,252
<TOTAL-COSTS> 1,425,252
<OTHER-EXPENSES> 1,795,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 205,508
<INCOME-PRETAX> 765,380
<INCOME-TAX> 0
<INCOME-CONTINUING> 765,380
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 765,380
<EPS-BASIC> 0.02
<EPS-DILUTED> 0.02
</TABLE>
