|UNITED STATESSECURITIES
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 1934For the quarterly period ended March 31, 2001
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------

|or
|--

|[   ] |  | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from                 to
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------

|Commission File Number
0-29038


TANISYS TECHNOLOGY, INC.(Exact
name of registrant as specified in its charter)
|---------------------------------------------------------------------------------------------------------------

|Wyoming(State or other jurisdiction ofincorporation or organization) | 74-2675493(I.R.S. EmployerIdentification Number)
|-------------------------------------------------------------------- | ------------------------------------------------

|12201 Technology Blvd., Suite 125Austin, Texas(Address of principal executive offices) | 78727(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 10, 2001:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Title of Class             | Number of SharesOutstanding
|-------------------------- | ---------------------------
|Common Stock, no par value |                            

|1
|-

|TANISYS
TECHNOLOGY, INC. AND SUBSIDIARIES


INDEX
|-------------------------------------------------

|                                                                                    | 
|----------------------------------------------------------------------------------- | 
|PART I  FINANCIAL INFORMATION                                                       | 
|Item 1.  Interim Consolidated Financial Statements (Unaudited)                      | 
|Consolidated Balance Sheets - March 31, 2001 and September 30, 2000                 | 
|Consolidated Statements of Operations - For the Three Months and Six Months Ended   | 
|March 31, 2001 and 2000                                                             | 
|Consolidated Statements of Cash Flows - For the Three Months and Six Months Ended   | 
|March 31, 2001 and 2000                                                             | 
|Notes to Interim Consolidated Financial Statements                                  | 
|Item 2.  Managements Discussion and Analysis of Financial Condition and Results of | 
|Operations                                                                          | 
|Item 3.  Quantitative and Qualitative Disclosures About Market Risk                 | 
|                                                                                   
|PART II   OTHER INFORMATION                                                         | 
|Item 1.  Legal Proceedings                                                          | 
|Item 4.  Submission of Matters to a Vote of Security Holders                        | 
|SIGNATURES                                                                          | 

|2
|-

|PART 1.  
FINANCIAL INFORMATION



Item 1. 
Financial Statements



TANISYS
TECHNOLOGY, INC. and SUBSIDIARIESCONSOLIDATED
BALANCE SHEETS(UNAUDITED)
|---------------------------------------------------------------------------------------------------------------------------------------------------

|                                                            | March 31,2001 | September 30,2000
|----------------------------------------------------------- | ------------- | -----------------
|ASSETS                                                      |               |                  
|Current assets:                                             |              
|Cash and cash equivalents                                   |               | $      609,283   
|Restricted cash                                             |               | 50,000           
|Trade accounts receivable, net of allowance of $121,632 and |              
|$132,743, respectively                                      |               | 1,214,775        
|Inventory                                                   |               | 1,210,154        
|Prepaid expenses and other                                  |               | 113,393          
|                                                           
|Total current assets                                        |               | 3,197,605        
|Property and equipment, net of accumulated depreciation of  |              
|$900,099 and $954,945, respectively                         |               | 483,423          
|Other noncurrent assets                                     |               | 54,352           
|                                                           
|Total Assets                                                |               | $   3,735,380    
|                                                           
|                                                            |              
|LIABILITIES AND STOCKHOLDERS EQUITY                        |              
|Current liabilities:                                        |              
|Accounts payable                                            |               | $      596,609   
|Accrued liabilities                                         |               | 316,088          
|Revolving credit note                                       |               | 675,000          
|Current portion of obligations under capital lease          |               | 17,602           
|Net current liabilities of discontinued operations          |               | 681,137          
|                                                           
|Total current liabilities                                   |               | 2,286,436        
|Long-term portion of obligations under capital lease        |               | 22,975           
|Net long-term liabilities of discontinued operations        |               | 6,131            
|                                                           
|Total liabilities                                           |               | 2,315,542        
|                                                           
|Stockholders equity:                                       |              
|Common stock, no par value, 50,000,000 shares authorized,   |              
|24,157,534 and 24,097,358 shares issued and outstanding,    |              
|respectively                                                |               | 37,612,709       
|Additional paid-in capital                                  |               | 1,711,719        
|Accumulated deficit                                         |               | (37,904,590      
|                                                           
|Total stockholders equity                                  |               | 1,419,838        
|                                                           
|Total liabilities and stockholders equity                  |               | $   3,735,380    
|                                                           

|The accompanying notes
are an integral part of these interim consolidated financial statements.
3
|-------------------------------------------------------------------------------------------------

|TANISYS
TECHNOLOGY, INC. and SUBSIDIARIESCONSOLIDATED
STATEMENTS OF OPERATIONS(UNAUDITED)
|-----------------------------------------------------------------------------------------

|                                                    | For the Three MonthsEnded March 31, | For the Six MonthsEnded March 31,
|--------------------------------------------------- | ----------------------------------- | ---------------------------------
|
|Net sales                                           |                                     | $ 1,068,038                      
|Cost of goods sold                                  |                                     | 596,769                          
|                                                   
|Gross profit                                        |                                     | 471,269                          
|                                                   
|Operating expenses:                                 |                                    
|Research and development                            |                                     | 718,245                          
|Sales and marketing                                 |                                     | 426,602                          
|General and administrative                          |                                     | 203,544                          
|Depreciation and amortization                       |                                     | 36,802                           
|                                                   
|Total operating expenses                            |                                     | 1,385,193                        
|                                                   
|Operating income (loss)                             |                                     | (913,924                         
|Other income (expense):                             |                                    
|Interest income                                     |                                     | 7,131                            
|Interest expense                                    |                                     | (23,465                          
|Other                                               |                                     | (19,421                          
|                                                   
|Net income (loss)                                   |                                     | (949,679                         
|                                                   
|Preferred stock dividend                            |                                     |                                 
|                                                   
|Net income (loss) applicable to common stockholders |                                     | $  (949,679                      
|                                                   
|                                                    |                                    
|Basic income (loss) per common share:               |                                    
|Income (loss) applicable to common stockholders     |                                     | $         (.04                   
|                                                   
|Diluted income (loss) per common share:             |                                    
|Income (loss) applicable to common stockholders     |                                     | $         (.04                   
|                                                   

|The accompanying notes
are an integral part of these interim consolidated financial statements.
4
|-------------------------------------------------------------------------------------------------

|TANISYS
TECHNOLOGY, INC. and SUBSIDIARIESCONSOLIDATED
STATEMENTS OF CASH FLOWS(UNAUDITED)
|-----------------------------------------------------------------------------------------

|                                                     | For the Three MonthsEnded March 31, | For the Six MonthsEnded March 31,
|---------------------------------------------------- | ----------------------------------- | ---------------------------------
|
|CASH FLOWS FROM OPERATING ACTIVITIES:                |                                     |                                  
|Net income (loss)                                    |                                     | $  (949,679                      
|Adjustment to reconcile net income to net cash       |                                    
|provided by (used in) operating activities:          |                                    
|Depreciation and amortization                        |                                     | 58,415                           
|Gain (loss) on sale of fixed assets                  |                                     | (937                             
|Changes in operating assets:                         |                                    
|Restricted cash                                      |                                     |                                 
|Accounts receivable, net                             |                                     | 1,104,670                        
|Inventory, net                                       |                                     | (484,738                         
|Prepaid expenses and other                           |                                     | 1,135                            
|Other noncurrent assets                              |                                     |                                 
|Accounts payable                                     |                                     | 275,128                          
|Accrued liabilities                                  |                                     | 21,078                           
|                                                    
|Net cash provided by operating                       |                                    
|activities of continuing operations                  |                                     | 25,072                           
|                                                    
|CASH FLOWS FROM INVESTING ACTIVITIES:                |                                    
|Purchases of fixed assets                            |                                     | (99,098                          
|Proceeds from sales of fixed assets                  |                                     |                                 
|Net cash used in investing activities of             |                                    
|continuing operations                                |                                     | (99,098                          
|                                                    
|CASH FLOWS FROM FINANCING ACTIVITIES:                |                                    
|                                                     |                                    
|Draws (repayments) on revolving credit note, net     |                                     | (25,000                          
|Payment of debt financing costs                      |                                     |                                 
|Issuance of common stock for payment of services     |                                     | 32,500                           
|Repayments of debt to stockholders                   |                                     |                                 
|Proceeds from exercise of stock options and warrants |                                     | 360                              
|Proceeds from issuance of common stock               |                                     |                                 
|Proceeds (payments) on capital lease obligations     |                                     | 33,210                           
|                                                    
|Net cash provided by financing                       |                                    
|activities of continuing operations                  |                                     | 41,070                           
|                                                    
|Net cash used in discontinued operations             |                                     | (165,912                         
|Net increase (decrease) in cash and cash equivalents |                                     | (198,868                         
|Cash and cash equivalents at beginning of period     |                                     | 808,151                          
|                                                    
|Cash and cash equivalents at end of period           |                                     | $    609,283                     
|                                                    
|                                                     |                                    
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    |                                    
|Cash paid for interest                               |                                     | $      16,932                    
|NON-CASH INVESTING AND FINANCING ACTIVITIES:         |                                    
|Issuance of stock warrants for compensation          |                                     |                                 
|Preferred stock dividends paid in common stock       |                                     |                                 
|Conversion of preferred stock to common stock        |                                     |                                 
|                                                    

|The accompanying notes
are an integral part of these interim consolidated financial statements.
5
|-------------------------------------------------------------------------------------------------

|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 six
months ended March 31, 2000 (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, 2000 contained in the Companys
Form 10-K filed with the Securities and Exchange Commission on December 15,
2000.


The
Company designs, manufactures and markets production-level automated test
equipment for a wide variety of semiconductor memory technologies.


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. As of March 31, 2001, remaining future
costs associated with the disposition of the discontinued operations are
$687,268.
6
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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. Restricted cash
consists of a certificate of deposit pledged as collateral for a letter of
credit to a specific vendor which is expected to expire in April 2001.


NOTE 4:  
INVENTORY


Inventory
consists of the following:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|               | March 31,2001 | September 30,2000
|-------------- | ------------- | -----------------
|Raw materials  |               | $1,024,267       
|Work-in-proces |               | 36,165           
|Finished goods |               | 149,722          
|              
|Total inventor |               | $1,210,154       
|              

|Inventory
is stated at the lower of cost or market value. Inventory is accounted for on a
first in, first out basis. Inventory costs include direct materials and certain
manufacturing overhead costs.


NOTE 5:  
LONG-TERM DEBT


As
of March 31, 2001, and September 30, 2000, the Company had no long-term debt.
During the quarter ended March 31, 2000, all of the debt to certain stockholders
was converted to 4,000,000 shares of Common Stock. There was, however, interest
paid on this debt during the quarter ended March 31, 2000. Along with the notes
payable to these stockholders, all related discounts and debt issuance costs
have been charged to Common Stock on the Consolidated Balance Sheet for the
fiscal year ended September 30, 2000.


NOTE 6:  
PREFERRED STOCK


Pursuant
to a Convertible Stock Purchase Agreement dated June 30, 1998, 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. As of March 31, 2000,
the Company had converted all of the Series A Stock into shares of Common Stock.


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.
7
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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.


On
December 6, 2000, the Company filed a Registration Statement on Form S-8 with
the Securities and Exchange Commission requesting that 7,000,000 shares of
Common Stock be registered and set aside for the Companys stock option
plans.


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 quarters ended March
31, 2001 and 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. 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 and net income applicable to common
stockholders, and between basic and diluted shares outstanding:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                       | For the Three Months EndedMarch 31, | For the Six Months EndedMarch 31,
|-------------------------------------- | ----------------------------------- | ---------------------------------
|
|Net income (loss)                      |                                     | $  (949,679)                     
|Less-                                  |                                    
|Series A Stock dividends               |                                     |                                 
|                                      
|Net income (loss) applicable to common |                                    
|Stock (basic and diluted)              |                                     | $  (949,679)                     
|                                      
|Weighted average number of common      |                                    
|Shares used in basis earning per share |                                     | 24,155,733                       
|Effect of dilutive securities          |                                    
|Stock Options                          |                                     | 1,069,700                        
|Warrants                               |                                     | 358,334                          
|                                      
|Weighted average number of common      |                                    
|Shares and dilutive potential          |                                    
|Common Stock used in dilutive earning  |                                    
|per share                              |                                     | 25,583,767                       
|                                      

|NOTE 9:  SUBSEQUENT
EVENT(S)


None.


NOTE 10:  
CONTINGENCIES


The
Company is a defendant in a lawsuit filed by one of its customers related to the
discontinued memory module manufacturing business for alleged breach of
contract. The suit asks for actual damages, including all related expenses, in
the amount of $77,838. The Company believes the suit is without merit and is
vigorously defending its position. The Company believes it is unlikely that the
final outcome of this claim would have a material adverse effect on the
Companys financial position or results from operations.


A
former equipment financing company has filed a lawsuit claiming a breach of an
agreement for certain manufacturing equipment previously utilized in the
Companys discontinued memory module manufacturing business. The
manufacturing equipment has been sold at the direction of the equipment
financing company. The Company is unable at this time to determine the outcome
of this lawsuit. There can be no assurance that the resolution of this claim or
any future proceeding would not have a material adverse effect on the
Companys results of operations for the fiscal period in which such
resolution may occur.
8
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company is a defendant in a lawsuit filed by the purchaser of the Companys
discontinued memory module manufacturing business for alleged breach of
representations, warranties and covenants. The suit asks for $50,000 plus
attorneys fees and court costs. The Company believes the suit is without
merit and is vigorously defending its position. The Company believes it is
unlikely that the final outcome 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.


In
December 1999, the Company sold assets and liabilities related to its memory
module manufacturing business and exited the memory module manufacturing
business. Included in the sale was all of the capital stock of Tanisys (Europe)
Ltd., which was then a wholly owned subsidiary of the Company. Tanisys (Europe)
Ltd. (the Lessee) had executed a 15-year lease in April 1998
covering industrial premises situated in High Blantyre, Scotland. In connection
with the execution of the lease, the Company co-guaranteed the lease payments
along with the Scottish Enterprise. The initial annual rental payment was
approximately $200,000, plus increases based on reviews in 2003 and 2008. In
March or April 2000, Tanisys (Europe) Ltd., which is now owned by the purchaser
of the Companys discontinued memory module manufacturing business,
abandoned the premises, and accordingly, the landlord is seeking reimbursement
for its losses resulting from the Lessee vacating the property. The Company is
the first guarantor and the Scottish Enterprise is the second guarantor of the
lease. The Company has reached an agreement with the landlord and the Scottish
Enterprise in which the Company will be released from any guaranty of past or
future rental payments and other related expenses in connection with the default
of Tanisys (Europe) Ltd. The liability for this agreement is recorded in the
liabilities for discontinued operations.
9
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, 2001 and
2000. 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, 2000 filed with the Securities and Exchange
Commission on December 15, 2000. For purposes of the following discussion,
references to year periods refer to the Companys fiscal year ended
September 30, 2000 and references to quarterly periods refer to the
Companys fiscal quarters ended March 31, 2001 and 2000.


On
December 9, 1999, the Company sold its memory module manufacturing business,
including all of the common stock of Tanisys (Europe) Ltd. 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, has been recorded in the consolidated financial
statements as of September 30, 1999. As of March 31, 2001, the remaining future
costs associated with the disposition of the discontinued operations was
$687,268.


Since
consummating the sale transaction, the Company has refocused all of its efforts
on the development, manufacture and sale of production-level automated test
equipment.
10
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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, 2001 and 2000:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                              | For the ThreeMonths EndedMarch 31, | For the SixMonths EndedMarch 31,
|----------------------------- | ---------------------------------- | --------------------------------
|
|Net sales                     |                                    | 100                             
|Cost of goods sold            |                                    | 56                              
|                             
|Gross profit                  |                                    | 44                              
|                             
|Operating expenses:           |                                   
|Research and development      |                                    | 68                              
|Sales and marketing           |                                    | 40                              
|General and administrative    |                                    | 19                              
|Depreciation and amortization |                                    | 3                               
|                             
|Total operating expenses      |                                    | 130                             
|                             
|Operating income (loss)       |                                    | (86                             
|Other income (expense):       |                                   
|Interest income               |                                    | 1                               
|Interest expense              |                                    | (2                              
|Other income (expense)        |                                    | (2                              
|                             
|Net income (loss)             |                                    | (89                             
|                             

|Net Sales


Net
sales consist of sales of production-level automated test equipment along with
related hardware and software, less returns and discounts. Impacted by the
worldwide semiconductor industry slowdown, net sales decreased 48% to $1,068,038
in the second quarter of fiscal 2001 from $2,044,950 in the same period last
year. With semiconductor and memory module manufacturers reducing their
inventory levels and postponing new capital outlays, the resulting current
business environment is very challenging. The Company, which continues to
enhance and broaden its product line to support all memory technologies, is
expected to be well-positioned to take advantage of a recovering economy as it
occurs.


Cost of Sales
and Gross Profit


Cost
of sales includes the costs of all components and materials purchased for the
manufacture of products, direct labor and related overhead costs. Cost of sales
for the March 2001 quarter was $596,769, down in absolute dollars from the
$667,114 of the previous year, but higher in terms of percent of sales at 56%
versus 33% for the same quarter last year. The increase in cost of sales in
terms of both dollars and percent of sales was due to lower sales volume in the
March 2001 quarter, resulting in reduced absorption of fixed manufacturing
costs.


Gross
profit for the March 2001 quarter was $471,269, as compared to $1,377,836 from
the same quarter last year. Gross profit as a percent of sales was 44% and 67%
for the quarters ended March 31, 2001 and 2000, respectively. The decrease in
gross profit in terms of both dollars and percent of sales was due to lower
sales volume in the March 2001 quarter, resulting in reduced absorption of fixed
manufacturing costs.


Research and
Development


Research
and development expenses, which consist of all costs associated with the
engineering design and testing of new technologies and products, were $718,245
for the second quarter of fiscal year 2001 as compared to $437,631 for the same
quarter last year. The higher costs reflect the ongoing development of test
systems for both Double Data Rate (DDR) and Flash memory
technologies, as well as a new multi-site architecture that can be applied to
all memory technologies. In an effort to continually improve engineering
productivity, the Company invested in additional software and hardware tools
during the second fiscal quarter of 2001.
11
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|The
Company will continue to invest in research and development to develop new test
systems and enhance current test systems to meet the market demands for the
testing of new memory technologies.


Sales and
Marketing



Sales
and marketing expenses include compensation of sales and marketing related
employees and independent sales representatives, plus costs for travel,
advertising, trade shows and related overhead. Expenses of $426,602 for the
second fiscal quarter of 2001 were up by 40% when compared to
$305,802 for the same quarter last year. More aggressive marketing
efforts and the launch of new products are the reasons for the increase in sales
expenses. The Company continues to successfully sell tests systems to the
worlds largest semiconductor and memory module manufacturers.



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 2001
increased 24% to $203,544 from $164,457 for the same quarter of fiscal 2000. The
increase was primarily associated with the filing of a Form S-8 with the
Securities and Exchange Commission, which registered 7,000,000 shares of Common
Stock to be set aside for the Companys stock option plans.


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
increased to $36,802 in the second quarter of fiscal 2001 from $25,021 in the
same quarter of fiscal 2000. The increase reflects investment in new software
and hardware tools designed to maximize engineering efficiency as well as
additional amortization resulting from the issuance of new patents.


Other Income
(Expense), Net


Other
income (expense), net consists primarily of interest income less interest
expense. Substantially all of the interest expense relates to the
Companys working capital loan facility which is utilized 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) decreased to $35,755 in net
other expense for the March 2001 quarter from $40,591 in net other income from
last year. While interest expense has been reduced from a year ago,
non-recurring miscellaneous income enhanced results for the second quarter of
last year.


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.
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|During
the second quarter of fiscal 2001, the Company generated $25,072 in cash flow
from its operating activities of continuing operations. A decrease in accounts
receivable of $1,104,670 was countered by increases in both inventories and
accounts payable of $484,738 and $275,128, respectively. The Company had
$609,283 in unrestricted cash and working capital of $911,169 at March 31, 2001,
a decrease in working capital of $692,259 from September 30, 2000, the
Companys previous fiscal year end.


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 2001, the
ten largest customers accounted for approximately 98% of net sales compared to
93% in the same period in fiscal 2000. Three customers represented 39%, 22%, and
13% of sales, respectively, in the quarter ended March 31, 2001. The customer
that represented 13% of sales in the second quarter of fiscal 2001 also
represented 22% in the same period in fiscal 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


Information
on the Companys legal proceedings is contained in this Form 10-Q for the
quarterly period ended March 31, 2001 in Part 1 Financial
Information under the caption Notes to Consolidated Financial
Statements under Note 10: Contingencies, and is incorporated
herein by reference.



Item 4. Submission
of Matters to a Vote of Security Holders.


At
the Annual Meeting of Stockholders held on March 20, 2001, the following matters
were adopted by the margins indicated below, and additional information can be
obtained from the Companys Proxy Statement filed on February 8, 2001.


1.  To
elect as director Gordon H. Matthews to serve until the 2004 Annual Meeting of
Stockholders.
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| |  |             
| |  | ------------
| |  | For:        
| |  | Against:    
| |  | Abstentions:

|13
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|2.  To
elect as director Charles T. Comiso to serve until the 2004 Annual Meeting of
Stockholders.
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| |  |             
| |  | ------------
| |  | For:        
| |  | Against:    
| |  | Abstentions:

|3.  To
elect as director William D. Jobe to serve until the 2003 Annual Meeting of Stockholders.
|------------------------------------------------------------------------------------------------

| |  |             
| |  | ------------
| |  | For:        
| |  | Against:    
| |  | Abstentions:

|4.  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, 2001.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |             
| |  | ------------
| |  | For:        
| |  | Against:    
| |  | Abstentions:

|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.
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|                      | 
|Date:    May 15, 2001 | 
|                      | 
|                      | 
|                      | 
|                      | 
|                      | 
|Date:   May 15, 2001  | 
|                      | 
|                      | 
|                      | 

|14
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