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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

______________

FORM 10-K

(Mark One)

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2001

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

           78727

                             Austin, Texas

              (Address of principal executive offices)  

        (Zip Code)

(512) 335-4440

(Registrant’s Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Act:  NONE

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, No Par Value Per Share

(Title of Class)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K.   [  ]

The aggregate market value of the voting stock held by nonaffiliates of the registrant as of December 17, 2001 was approximately   1,328,114 based upon the closing sale price of the Common Stock as reported on the Nasdaq OTC Bulletin Board. Shares of common stock held by each executive officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

Indicated below is the number of shares outstanding of the registrant’s only class of common stock at December 17, 2001:

Number of Shares

Title of Class

    Outstanding

Common Stock, no par value

      24,147,534

Documents Incorporated by Reference

Portions of the Proxy Statement for the Annual Meeting of Stockholders (the “Proxy Statement”) to be held February 26, 2002, and to be filed pursuant to Regulation 14A within 120 days after registrant’s fiscal year ended September 30, 2001 are incorporated by reference into Part III of this report.

#

TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES

2001 ANNUAL REPORT ON FORM 10-K

INDEX

           PAGE

PART I     

Item 1.

Business…………………………………………………………………..……...….........…….…   

    4

Item 2.

Properties…………………………………………………………………...…...….........……….

 110

Item 3.

Legal Proceedings………………………………………………………………..…...….......….

 110

Item 4.

Submission of Matters to a Vote of Security Holders….………..…...…........……….…..

 110

PART II    

Item 5.

Market for the Company’s Common Equity and Related Stockholder Matters……..

 121

Item 6.

Selected Financial Data ……………………………………………………….…………………

 153

Item 7.

Management’s Discussion and Analysis of Financial Condition and

Results of Operations ……………………………………………………….……………………

 164

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.....................……………..

 295

Item 8.

Financial Statements and Supplementary Data ………………………………………..

 295

Item 9.

Changes in and Disagreements with Accountants on Accounting

and Financial Disclosure……………………………………………………………..…......…..

 5547

PART III.

Item 10.

Directors and Executive Officers of the Company ………………………………………...

5547

Item 11.

Executive Compensation………………………………………………………….……………..

560

Item 12.

Security Ownership of Certain Beneficial Owners and Management………………….

56

Item 13.

Certain Relationships and Related Transactions ………………………………………….

568

PART IV.

Item 14.

Exhibits, Financial Statement Schedules, and Reports on Form 8-K ………………….

568

SIGNATURES…………………………………………………………………..................………….

624

#

PART I.

ITEM 1.

BUSINESS

Forward-Looking Statements - Cautionary Statements

The following discussions contain trend information and other forward-looking statements that involve a number of risks and uncertainties. The actual results of Tanisys Technology, Inc., and its wholly owned subsidiaries, 1st Tech Corporation ("1st Tech"), DarkHorse Systems, Inc. ("DarkHorse") Rosetta Marketing and Sales, Inc. ("Rosetta"), and Tanisys (Europe) Ltd. (collectively, the “Company” or "Tanisys"), could differ materially from their historical results of operations and those discussed in the forward-looking statements. All of the stock of Tanisys (Europe) Ltd. was sold in December 1999 as part of the sale of the memory module manufacturing business.  The forward-looking statements are based on the beliefs of the Company's management as well as assumptions made by and information currentl y available to the Company's management. When used herein, the words "anticipate," "believe," "estimate," "expect" and "intend" and words or phrases of similar import, as they relate to the Company or its subsidiaries or the Company's management, are intended to identify forward-looking statements. Such statements reflect the current risks, uncertainties and assumptions related to certain factors. Factors that could cause actual results to differ materially include, but are not limited to, business conditions and growth in the electronics industry and general economies, both domestic and international; lower than expected customer orders; customer relationships and financial condition; relationships with vendors; the interest rate environment; governmental regulation and supervision; seasonality; distribution networks; delays in receipt of orders or cancellation of orders; competitive factors, including increased competition and new product offerings by compe titors and price pressures; the availability of parts and supplies at reasonable prices; changing technologies; acceptance and inclusion of the Company's technologies by original equipment manufacturers ("OEMs"); changes in product mix; new product development; the negotiation of new contracts; significant quarterly performance fluctuation due to the receipt of a significant portion of customer orders and product shipments in the last month of each quarter; product shipment interruptions due to manufacturing problems; 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. The forward-looking statements should be read in light of these factors and the factors identified in "Item 1. Business" and in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." All references to year periods refer to the Company's fiscal years ended September 30, 2001, 2000 or 1999, and references to quarterly periods refer to the Company's fiscal quarters ended December 31, March 31, June 30 and September 30.

General

The Company designs, manufactures and markets production level automated test equipment for a wide variety of semiconductor memory technologies, including Dynamic Random Access Memory (“DRAM”), Synchronous Dynamic Random Access Memory (“SDRAM”), Double Data Rate Synchronous DRAM (“DDR”), Rambus DRAM (“RDRAM®”) and Flash Memory. Operating under the Tanisys Technology name since 1994, the Company has developed into an independent manufacturer of memory test systems for standard and custom semiconductor memory.  These systems are used at semiconductor manufacturers, computer and electronics Original Equipment Manufacturers (“OEMs”) and independent memory module manufacturers. The Company markets a line of memory test systems under the DarkHorse® Systems brand name.  The Company's customer base covers a number of worldwid e markets including semiconductor manufacturers, memory module manufacturers, computing systems OEMs and contract manufacturing companies.

During fiscal 1999, a significant portion of the Company’s revenues were derived from manufacturing and sales of semiconductor memory modules.  Memory module sales accounted for 80.3% of total net sales for fiscal 1999.  In December of 1999, the Company sold certain assets and liabilities related to the memory module manufacturing business and exited the memory module manufacturing business.  Included in the sale was all the stock of Tanisys (Europe) Ltd., a wholly owned subsidiary of the Company.  A shortage of computer memory chips in the fourth fiscal quarter of 1999 and a rapid increase in memory prices during the same period severely disrupted the Company’s memory module manufacturing business.  After dropping by approximately 95% from 1996 to mid-1999, memory chip prices escalated rapidly in August and September 1999, before lev eling off in October 1999. During this period in 1999, the Company had great difficulties obtaining DRAM inventory and lost several key orders.  Further, the Company’s memory module manufacturing business in Scotland dropped off completely at the end of the fourth fiscal quarter due to the loss of the Company’s major U.K. customer, who was acquired by another semiconductor manufacturer and ceased doing business with the Company.  

The sale of the memory module manufacturing business has significantly reduced the Company’s revenues. Since 1999, the Company has concentrated all its resources on the memory test systems business as new technologies such as higher speed synchronous DRAM, Rambusâ memory, Double Data Rate synchronous DRAM and Flash memory become prevalent requirements of computing products.

Common Stock Reverse Split

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 or preferred stock.  Any stockholder otherwise entitled to any fractional share interest due to the Reverse Split received in lieu thereof, one additional share of Common Stock for the fractional share such stockholder would have been entitled to as a result of the Reverse Split.

The number of shares and per share amounts of the Company’s Common Stock, warrants and stock options set forth herein have been retroactively adjusted for all periods presented to reflect the Reverse Split.

Industry Overview

The economic downturn that has occurred during the fiscal year ended September 30, 2001 has had an impact on purchases and capital spending in many of the worldwide markets the Company serves.  Management is uncertain as to how long the current downturn may be in these markets.

The demand for semiconductor memory in digital electronic systems has grown significantly over the last several years, according to Dataquest, Semico Research and other market research firms. This demand results from the increased importance of memory in determining system performance. An increasing demand for greater system performance requires that electronics manufacturers increase the amount of semiconductor memory incorporated into a system.

Factors contributing to the demand for memory include unit sales of personal computers ("PCs") in the business and consumer market segments, increasing use of PCs to perform memory-intensive graphics tasks, increasingly faster microprocessors, the release of increasingly memory intensive software and the increasing performance requirements of PCs, workstations, servers and networking and telecommunications equipment. Additionally, there are future high growth requirements for semiconductor memory with the escalating needs of wireless and portable devices such as cell phones, digital cameras, personal digital assistants and other consumer oriented products.

Semiconductor memory products are segmented into three primary classes: Dynamic Random Access Memory ("DRAM"), Static Random Access Memory ("SRAM") and non-volatile memory, such as Flash memory. DRAM typically is the large "main" semiconductor memory of systems, SRAM provides higher performance and Flash memory and other non-volatile memory retain their contents when power is removed. In addition, within each of these broad categories of memory products, semiconductor manufacturers are offering an increasing variety of memory devices designed for application specific uses.

The growing variety of memory components drives the increasing demand for DarkHorse type cost-effective production memory test systems to test each of these categories of memory.

Memory Module Market

Since the memory module market influences the memory module test systems market, the Company feels it is appropriate to comment briefly about the memory module market. Semiconductor memory modules (“modules”) are small printed circuit board assemblies containing semiconductor memory devices and support components. Many computer and electronic systems use modules to permit OEMs to more easily upgrade their systems and to increase flexibility by permitting different types of modules to configure one base system for multiple price or performance targets. Semiconductor memory modules are nearly always attached to a main system board in a daughter card fashion rather than directly to a computer system board, for reasons of upgradeability and flexibility.  Memory modules permit OEMs to manufacture systems on a build-to-order (“BTO”) basis by configuring the system aft er the customer's order is placed. The benefits of BTO for OEMs are faster announcement of new systems, increased customer satisfaction, reduced inventory risk and reduced costs, all of which require cost effective, high speed, high quality and flexible memory module test systems capability.

Modules typically are manufactured by leading semiconductor memory component companies and independent third party suppliers. Semiconductor manufacturers sell modules almost exclusively to OEMs.  Third party manufacturers of modules supply product to two primary market segments: the OEM channel and the reseller channel. Third party suppliers to the OEM channel typically offer custom product, although some computer and peripheral OEMs use off-the-shelf modules. Third party suppliers to the reseller channel typically offer standard DRAM modules as an upgrade product sold through computer distributors and retail channels. Both semiconductor memory suppliers and independent third party module manufacturers are customers for memory module test systems.  In addition, contract manufacturing companies and systems OEMs have the requirement to test memory modules.

Memory Module Test Systems Market

Memory module test systems are important to assure that semiconductor memory modules meet the necessary specifications of performance. The memory module test systems market typically is segmented into memory semiconductor manufacturing and third party memory module manufacturers for PC OEMs and the aftermarket.  System OEMs typically require the manufacturer of their memory modules to test their completed modules under demands similar to actual use. Most module manufacturers perform "at-speed" testing of all modules with accurate test systems. The Company believes that module test system buyers typically evaluate reliability, productivity, accuracy, advanced automation, software flexibility, service, customer support and price as purchase criteria. Significant new purchases of capital equipment for test capacity are likely, due to changing memory technology architectures and strong growth in memory demand.

The actual test sequence for a memory module is unique to its design in terms of architecture, pinout, speed rating, voltage, organization and size and will use any of several common test algorithms. Therefore, the number of potential memory test configurations is much greater than the number of semiconductor memory module types. This makes test development a potentially costly and labor intensive task. The ability of a test system manufacturer to provide support for the development of low cost, accurate tests is a significant consideration in the buying decision.

Flash Memory Market

Flash memory is a non-volatile memory capable of retaining data even when power has been removed.  Flash is projected to be one of the fastest growing segments of the semiconductor industry, with unit shipments growing at a 15% compounded annual rate.  The Flash memory market consists primarily of device level and card level segments.  Device level Flash predominantly comes in two architecture types, NOR and NAND Flash. NAND Flash is projected to grow at over 60% annually over the next 5 years, as consumer applications such as digital cameras, camcorders, PDA’s, cell phones, and solid state replacements for CD audio/video and VHS tapes drive unit and density growth.

Flash cards are a growing end use application of Flash memory, with these cards being used in many of the consumer applications mentioned previously, specifically hand-held devices such as PDA’s, MP3 players, cell phones and digital cameras.  The Flash card market is projected to grow at nearly 30% annually over the next 5 years.

Flash Memory Test Systems Market

The market for test systems for Flash memory can be divided into two top-level segments: Flash card test and Flash device test.  The Flash device test system market is well established, with several large ATE companies offering solutions.  However, as Flash densities continue to skyrocket, there is a tremendous push from IDMs (Integrated Device Manufacturers) for lower cost test solutions, since the cost of test will rise dramatically as the densities grow.

The market for Flash card test is an emerging market, with very few entrenched competitors.  Many manufacturers currently use in-house test solutions, as their volumes have been too low in the past to justify an outside test product.  However, as volumes are projected to grow rapidly in the small form-factor flash-card market, most manufacturers are now looking for outside test solutions to meet their future needs.

Products and Services of the Company

The Company designs, manufactures and markets semiconductor memory test systems. The Company's memory test systems are oriented for both memory module assembly manufacturing and memory aftermarket purposes and include a broad line of test fixtures, test algorithm suites and test services.

Memory Module Test Systems Products

The Company's memory module test systems are marketed under the DarkHorse brand name to utilize existing brand awareness. The current product line includes various models of the SIGMA·3 aimed at specific variations in technology. The SIGMA·3 test system is sold to semiconductor memory manufacturers who build leading edge Synchronous Dynamic Random Access Memory (“SDRAM”) modules for the latest PC100/PC133 specification and who require high quality, maximum throughput and cost effectiveness in their production test systems.  In addition, the Company has continued to install its Rambusâ version of the SIGMA·3.  This system is targeted at one of the newest emerging memory technologies and operates at frequencies of over 800 MHz.  As the Rambusâ technology matures in the marketplace, the Company will continue to offer this system for its cus tomers’ expanding test capabilities.  The Company has also developed and continues to sell a version of the SIGMA·3 memory module test system with capabilities to test Double Data Rate SDRAM (“DDR”).  Another major feature of the SIGMA·3 test system is its backward compatibility to test older memory technologies such as EDO and Fast Page mode memory.

The Company differentiates its memory test systems by targeting its systems’ features specifically for the purpose of cost effective, high quality, production level testing of memory products. The Company’s memory test systems are designed for comparable performance at lower prices relative to the general-purpose test systems offered by competitors.

Flash Memory Test Systems Products

The Company markets its Flash memory test systems under the DarkHorse brand name to capitalize on existing brand awareness of its SIGMA·3 line of memory test systems.  The Company’s Flash memory test systems, the SIGMA·4™ Model 500, has been designed to provide Flash manufacturers with a scaleable, highly flexible test platform capable of testing NOR, NAND, and Serial Flash devices.  The SIGMA·4™ Model 500 has infinite expandability because of the Company’s Distributed Network Architecture ™ (“DNA”) which allows manufacturers unlimited scalability to meet their growing test capacity needs.

Customers, Sales and Marketing

In North America and Europe, a majority of the Company’s memory test systems are sold directly to semiconductor and independent memory module manufacturers.  In Asia, the Company also sells its test systems through distribution partners and independent sales representative organizations.  In fiscal 2001 and 2000, the Company’s ten largest customers accounted for 90.7% and 81.5% of net memory test system net sales, respectively.  In fiscal 2001 and 2000, the Company had one customer which accounted for 26.2% and 23.9% of the Company’s net memory test system sales, respectively.  In fiscal 1999, one customer accounted for 43.8% of the Company’s net test system sales.

Sales to distribution partners in Asia accounted for 1.6%, 11.7% and 2.7% of the Company’s net sales in fiscal 2001, 2000 and 1999, respectively. Sales to distribution partners are recognized as revenue by the Company upon the shipment of products because the distribution partners, like the Company’s other customers, have issued purchase orders with fixed pricing and are responsible for payment to the Company.

Backlog

Sales generally are made against standard customer purchase orders. The Company's backlog generally includes those customer orders for which it accepted purchase orders and planned shipment dates within the next year.   The Company does not consider its backlog of orders to be material to, or a significant factor in, evaluating and understanding is business.  Backlog is not an indicator of future sales, and orders in the backlog are subject to change in delivery terms or even cancellation. Accordingly, there is no assurance that current backlog will lead to future sales. The Company's total backlog of memory test systems was approximately $81,000 and $198,000 at fiscal 2001 and 2000 year end, respectively.

Competition

The memory module and memory test equipment industries are intensely competitive. These markets include a large number of established companies, several of which have achieved a substantial market share. Certain of the Company's competitors in these markets have substantially greater financial, marketing, technical, distribution and other resources, greater name recognition, and larger customer bases than the Company. In the memory module test systems market, the Company competes primarily with companies supplying automatic test equipment. The Company also faces competition from new and emerging companies that have recently entered or may in the future enter the markets in which the Company participates.

The Company expects its competitors to continue to improve the performance of their current products, to reduce their current product sales prices and to introduce new products that may offer greater performance and improved pricing, any of which could cause a decline in sales or loss of market acceptance of the Company's products. There can be no assurance that enhancements to or future generations of competitive products will not be developed that offer better prices or technical performance features than the Company's products. To remain competitive, the Company must continue to provide technologically advanced products, improve quality levels, offer flexible delivery schedules, deliver finished products on a reliable basis, reduce manufacturing costs and compete favorably on the basis of price. In addition, increased competitive pressure has led in the past, and may continue to lead to, intensified price competition, resulting in lower prices and gross margin, which could materially adversely affect the Company's business, financial condition and results of operations. There can be no assurance that the Company will be able to compete successfully in the future.

Sources and Availability of Raw Material

The Company’s operations utilize a wide variety of semiconductors, electromechanical components and assemblies, and other raw materials such as sheet metal.  The Company believes that the materials and supplies necessary for the manufacture and assembly of its products are presently available in the quantities required.  The materials, supplies and product subassemblies are purchased from a substantial number of vendors.  The Company has, for a number of its products, existing alternate sources of supply, or such sources are readily available.  Portions of the Company’s manufacturing and assembly operations are dependent upon the ability of suppliers to deliver quality components and subassemblies in time to meet manufacturing, assembly, and distribution schedules.  The failure of suppliers to deliver in a timely manner may adv ersely affect the Company’s operating results until alternative sources are developed.  In addition, the Company periodically experiences constrained supply of certain component parts in some product lines as a result of strong demand in the industry for those parts.  If such constraints persist for a period of time, they may adversely affect the Company’s results of operations.  However, the Company believes that alternate suppliers could be arranged within a reasonable time so that material long-term adverse impacts would be minimized.

Research and Development

The Company's management believes that the timely development of new memory test systems and technologies is essential to maintain the Company's competitive position. In the electronics market, the Company's research and development activities are focused primarily on new memory testing technology and continual improvement in its memory test products. Additionally, the Company provides research and development services for customers either as joint or contracted development. The Company plans to continue to devote substantial research and development efforts to the design of new memory test systems that address the requirements of semiconductor companies, OEMs and independent memory module manufacturers.

The Company's research and development expenses were $2,425,061 in fiscal 2001, $2,005,052 in fiscal 2000 and $1,602,131 in fiscal 1999. A portion of the research and development expense is focused on creating a patent portfolio to protect the Company’s intellectual property and to create a competitive edge over competitors.

Intellectual Property

The Company has filed the following applications with the U.S. Patent and Trademark Office for patents to protect its intellectual property rights in products and technology that have been developed or are under development:

Nested Loop Method of Identifying Synchronous Memories. Issued as U.S. Patent 5,812,472 on September 22, 1998. The patent describes how to automatically identify a synchronous memory module configuration using a table-based method with nested loops.

Parametric Test System and Method.   Issued as U.S. Patent 6,008,664 on December 28, 1999.  This patent describes a method for performing a leakage test more quickly.

Contact Test Method and System for Memory Testers.  Issued as U.S. Patent 5,956,280 on September 21, 1999.  This patent describes a contact test for determining pin-to-pin and ground shorts, as well as opens for memory modules.

Synchronous Memory Tester.  Issued as U.S. Patent 5,914,902 on June 22, 1999.  This patent describes the operation of the synchronous memory tester.

Synchronous Memory Test Method.  Issued as U.S. Patent 5,912,852 on June 15, 1999.  This patent describes the method of operation of the synchronous memory tester.

Method and System for Identifying a Memory Module Configuration.   Issued as U.S. Patent 5,999,468 on December 7, 1999.  This patent application describes a speedier approach for identifying memory modules.

Synchronous Memory Test System.   Issued U.S. Patent Number 5,995,424 on November 30, 1999. This patent describes the operation of the SYNC·LC memory tester.

Capacitance Sensitive Switch and Switch Array.  Issued as U.S. Patent 5,508,700 on April 16, 1998. The patent describes a broad range of applications for capacitance sensitive touch technology covering hardware, firmware, software and methods of operations.

Capacitive Sensitive Switch Method and System.  Issued as U.S. Patent 5,933,102 on August 3, 1999.  This patent deals with simultaneous measurement of multiple touch sensors.

Synchronous Memory Identification System.  Issued as U.S. Patent 6,183,253 on January 30, 2001.Serial Number 08/895,550 filed July 1997.  This patent application describes additional applications for the use of table-based method with nested loops to automatically identify a synchronous memory module configuration.

Microsequencer for Memory Test Systems.  Serial Number 09/033,363 filed March 1998. This patent application discusses the sequencer function in the SIGMA·3 tester with emphasis on exception handling and timing set compression through use of VLIW instructions.

Programmable Pulse Generator.  Issued as U.S. Patent 6,067,648 on May 23, 2000.  This patent describes the PPG operation in the SIGMA·3 tester.

Tester Systems.  Issued as U.S. Patent 6,064,948 on May 16, 2000.  This patent describes the code generation for the SIGMA·3 tester.

Method and System for Testing RAMBUS® Memory Modules.  Issued as U.S. Patent 6,285,962 on September 4, 2001.  This patent describes a low cost method of testing RAMBUS®  memory modules.

Method and System for Timing Control in the Testing of RAMBUS® Memory Modules.  This patent application with Serial Number 09/359,173 describes the method of performing timing measurements for RAMBUS® Memory Modules.

Method and System for Distributed Testing of Electronic Devices.  This patent application with Serial Number 60/236,756 describes a method to easily increase test capacity at a low cost.

Nested Loop Method of Identifying Synchronous Memories.  Issued as Taiwanese (ROC) Patent 132190 on April 21, 2001. The patent describes how to automatically identify a synchronous memory module configuration using a table-based method with nested loops.

Synchronous Memory Test System. Issued as Taiwanese (ROC) Patent 133631 on May 16, 2001.  This patent describes the operation of the SYNC·LC memory tester.

There can be no assurance that the pending patent applications will be approved or approved in the form requested. The Company expects to continue to file patent applications where appropriate to protect its proprietary technologies; however, the Company believes that its continued success depends primarily on factors such as the technological skills and innovation of its personnel rather than on patent protection. In addition, the Company attempts to protect its intellectual property rights through trade secrets, copyrights, trademarks and a variety of other measures, including non-disclosure agreements. There can be no assurance, however, that such measures will provide adequate protection for the Company's trade secrets or other proprietary information, that disputes with respect to the ownership of its intellectual property rights will not arise, that the Company's trade secrets or proprietary technology will not otherwise become known or be independently developed by competitors or that its intellectual property rights can otherwise be protected meaningfully. There can be no assurance that patents will issue from pending or future applications or that if patents are issued, they will not be challenged, invalidated or circumvented, or that rights granted thereunder will provide meaningful protection or other commercial advantage. Furthermore, there can be no assurance that third parties will not develop similar products, duplicate the Company's products or design around the patents owned by the Company or that third parties will not assert intellectual property infringement claims against the Company. In addition, there can be no assurance that foreign intellectual property laws will adequately protect the Company's intellectual property rights abroad. The failure of the Company to protect its proprietary rights could have a material adverse effect on its business, fi nancial condition and results of operations.

Employees

At September 30, 2001, the Company had 43 employees, including 27 engineering, product development, manufacturing and technical support employees, 9 finance and administration employees and 7 employees in the sales and marketing area.

Recruitment of personnel in the computer industry, particularly engineers, is highly competitive.  The Company believes that its future success will depend in part on its ability to attract and retain highly skilled management, engineering, sales, marketing, finance and technical personnel.  There can be no assurance of the Company’s ability to recruit and retain the employees that it may require.

ITEM 2.

PROPERTIES

At Sseptember 30, 2001, t1, THE he company had under lease 14,846 square feet of space for its corporate offices at 12201 Ttechnology Bboulevard, Ssuite 125, Aaustin, Ttexas.  Tthe company currently is paying annual rental of approximately $151,429 until Aapril 30, 2003, plus a pro rata charge for property taxes, common area maintenance and insurance.  

ITEM 3.

LEGAL PROCEEDINGS

None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II.

ITEM 5.

MARKET FOR THE COMPANY’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

Market Information

On May 25, 2000, the Company’s stock began trading under its current symbol of “TNIS” on the Nasdaq OTC Bulletin Board, which was established for securities that do not meet the Nasdaq SmallCap Market’s listing requirements.  Consequently, selling the Company’s common stock could be more difficult because of the smaller quantities of shares that could be bought and sold, transactions could be delayed, and security analysts’ and news media’s coverage of the Company stock could be reduced.  These factors could result in lower prices and larger spreads in the bid and ask prices for shares of the Company’s common stock.  From July 28, 1999 to May 24, 2000, the Company’s stock traded on the Nasdaq OTC Bulletin Board under the symbol “TNSU.”  From May 22, 1997 to July 27, 1999, the Company’s stock traded on the Na sdaq SmallCap Market under the symbol “TNSU.”  From March 20, 1995 to June 6, 1997, the Common Stock was traded on the Vancouver Stock Exchange (“VSE”) under the symbol “TNS.U,” with prices quoted in U.S. dollars.  On June 6, 1997, the Company voluntarily delisted its stock on the VSE, as a result of the change to Nasdaq.

At the Company’s Annual Meeting of Stockholders on May 23, 2000, the Company’s stockholders approved a one-for-two reverse stock split of the Company’s Common Stock (the “Reverse Split”) effective May 25, 2000.  The Reverse Split had no effect on the number of authorized shares of Common Stock, preferred stock or Series A Preferred Stock.  Any stockholder otherwise entitled to any fractional share interest due to the Reverse Split received in lieu thereof, one additional share of Common Stock for the fractional share such stockholder would have been entitled to as a result of the Reverse Split.

The table below sets forth the high and low closing prices of the Common Stock from October 1, 1999 through December 17, 2001, as reported on the Nasdaq OTC Bulletin Board.  These price quotations reflect interdealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions.  In addition, the  per share amounts have been retroactively adjusted for all periods presented to reflect the Reverse Split.

  Common Stock 

Quarter Ended

High

Low

Fiscal 2000:

December 31, 1999

$1.58

$0.48

March 31, 2000

  6.37

  0.51

June 30, 2000

  2.63

  0.52

September 30, 2000

  2.56

  1.00

Fiscal 2001:

December 31, 2000

  2.56

  0.55

March 31, 2001

  1.06

  0.55  

June 30, 2001

  0.55

  0.18   

September 30, 2001

  0.17

  0.05  

Fiscal 2002:

Through December 17, 2001

              0.09

               0.05

Stockholders

On September 30, 2001, there were 24,147,534 shares of Common Stock outstanding held by 159 holders of record.  The last reported sales price on the Common Stock on December 17, 2001, was $0.05 (rounded) per share.

Dividends

During the fiscal year ended September 30, 2000, the Company declared and issued dividends of 111,829 shares of Common Stock to the holders of record of its Series A Convertible Stock.  All of the Series A Convertible Stock had been converted to Common Stock as of September 30, 2000.  

In a private placement on August 13, 2001, the Company entered into a Series A Preferred Stock Purchase Agreement.  The Company recorded a dividend of 53,229 shares of its Series A Preferred Stock to the holders of the Company’s Series A Preferred Stock as of September 30, 2001.  The Company has not declared or paid any dividends with respect to the Common Stock, and the current policy of the Board of Directors is to retain earnings, if any, to provide for the growth of the Company’s business. Consequently, no cash dividends are expected to be paid on the Common Stock in the foreseeable future.  Further, there can be no assurance that the proposed operations of the Company will generate the revenue and cash flow needed to declare a cash dividend or that the Company will have legally available funds to pay dividends at any time in the future.

Private Placements

On June 30, 1998, the Company entered into a Convertible Stock Purchase Agreement with an accredited investment group.  The Company issued 400 shares of its Series A Convertible Stock, for $10,000 per share, with offering costs of approximately $460,000.  The Series A Convertible Stock was convertible into the Company's no par value common stock ("Common Stock") at the option of the holder beginning 90 days after the June 30, 1998 closing date.  The conversion price was the lesser of the fixed conversion price of $4.62 per share or a variable conversion price.  The Series A Convertible Stock also provided certain mandatory redemption rights which triggered upon the occurrence of certain events.  Attached to the Series A Convertible Stock were warrants to purchase 100,000 shares of Common Stock at $6.00 per share with a term of four ye ars.  The Company believes that the sale of the Series A Convertible Stock was exempt from registration under the Securities Act by reason of Section 4(2) of the Securities Act.  The underlying Common Stock was registered with the Securities and Exchange Commission under a Registration Statement on Form S-3 effective August 13, 1998; however, upon delisting of the Company’s stock from the Nasdaq SmallCap Market on July 27, 1999, the Company became ineligible to file or maintain certain registration statements.  The net proceeds from this offering were used as working capital for the Company and to make direct or indirect payments to others.

On July 27, 1999, the Company’s Common Stock was delisted from trading on the Nasdaq SmallCap Market, but is currently traded on the Nasdaq OTC Bulletin Board.  The delisting was a triggering event under the Convertible Stock Purchase Agreement, and the preferred stockholders have converted all of the Series A Stock as of September 30, 2000.  During the year ended September 30, 2000, the preferred stockholders converted 225 shares of Series A Convertible Stock for 4,672,541 shares of Common Stock.  In addition, the preferred stockholders exercised a portion of the attached warrants for 66,667 shares of Common Stock during the year ended September 30, 2000.  The remaining warrants are currently exercisable at $6.00 per share and expire on June 30, 2002.

In March 2000, the Company issued 1,528,750 shares of its Common Stock for consideration of $1,223,000.  The shares of Common Stock issued in the private placement are restricted securities (Rule 144).  The transaction was exempt from registration pursuant to Section 4(1) of the Securities Act of 1933, as amended.  Proceeds of the private placement were used for working capital.

On August 13, 2001, the Company closed a private placement financing by entering into a Series A Preferred Stock Purchase Agreement with an investment group led by New Century Equity Holdings Corp. (“New Century”) (Nasdaq: NCEH), a Delaware corporation. The Company issued 2,635,000 shares of its Series A Preferred Stock (“Series A Preferred”) for $1.00 per share, with offering costs of approximately $17186,000.  New Century participated in the financing through the purchase of 1,060,000 of the above shares of the Company’s Series A Preferred Stock.  The proceeds will be utilized to continue product development and marketing efforts and to provide working capital for the Company’s operations.

On September 28, 2001, the Company issued 7,200 shares of Series A Preferred in lieu of cash for costs relating to the offering.  

Each share of Series A Preferred is convertible into 33.334 shares of Common Stock.  The holders of the Series A Preferred will be entitled to a cumulative annual dividend of 15%, payable quarterly, which, at the option of the holders of the Series A Preferred may be paid in cash or in additional shares of Series A Preferred.  

The Company recorded a dividend of 53,229 shares of Series A Preferred Stock to the holders of the Company’s Series A Preferred Stock  as of September 30, 2001.

The financing consisted of the issuance of 2,642,200 shares of the Company’s Series A Preferred Stock including the 7,200 shares for costs related to the offering (see Note 9) and notes payable to the investors in the amount of $2,642,200 (see Note 7).

The holders of the Series A Preferred will have a liquidation preference in the event of any liquidation, sale, merger or similar event, and have registration rights and other customary rights.  The Company has also agreed to make payments to the holders of the Series A Preferred, to the extent its cash flow meets certain levels, until the holders have received the amount of their investment in the Series A Preferred and has granted a security interest in all of its assets to secure its obligation to make these payments subject to the security interest of the Company’s bank loan facility.  In addition, the Company has also agreed to issue additional shares of Series A Preferred equal to 50% of the then fully diluted Common Stock to the holders if the Company fails to return the amount of their investment, plus the mandatory dividends, by July 15, 2003.  The Company h as also agreed to issue, at up to six different times, additional shares of Series A Preferred to the investors equal to 25% of the then fully diluted Common Stock if the Company fails to meet any of certain financial targets, beginning with the quarter ended September 30, 2001 and December 31, 2001, and then for the four six-month periods ending June 30, 2002, December 31, 2002, June 30, 2003, and December 31, 2003.  On October 30, 2001, the Company issued 999,051 shares of Series A Preferred due to its failure to meet the financial targets for the quarter ended September 30, 2001 as set forth in the Series A Preferred Stock Purchase Agreement.  If the slowdown in the worldwide semiconductor industry continues for an extended period of time, the Company may not meet one or more of the remaining specified financial targets, thus triggering the issuance of additional shares of Series A Preferred. TIt appears that the Company does not expectwill not meet  to meet the specified financial targets for the quarter ended December 31, 2001.

The Company has also agreed to make payments to the holders of the Series A Preferred for the face amount of the notes payable, to the extent its cash flow meets certain levels, until the holders have been repaid $2,642,200.  The Company has also granted a security interest in all of its assets to secure its obligation to make these payments subject to the security interest of the Company’s bank loan facility. The financing consisted of the issuance of 2,642,200 shares of the Company’s Series A Preferred Stock (see Note 9) and a note payable to the investors for the amount of their investment of $2,642,200.  The notes haves no interest, cannot be prepaid, and matures on July 13, 2003.  Repayment on the notes can only be made with payments calculated by multiplying the excess of the quarterly EBITDA over specified financial targets less quarterly capital expendit ures over $300,000 by 50%.  These calculated payments are to be paid until the debt has notes have been repaid in full. However, if the notes havedebt has  not been repaid in full on or before July 15, 2003, New Century may at its sole option require the Company to issue to the investors additional shares of Series A Preferred Stock equal to 50% of the then outstanding Common Stock, Preferred Stock, and any Common Stock equivalents on an as-if-converted and fully diluted basis. Prior to maturity, the notes shall not include any interest payable. Upon maturity, and until such time that New Century exercises the option described above, the notes shall accrue interest at 18% per annum.

The Company obtained an appraisal of the Series A Preferred and the notes payable at August 13, 2001, and allocated the proceeds of the financing to both instruments based on the valuation. The proceeds of $2,642,200 were allocated to the Series A Preferred and the notes payable in the amount of $2,465,200 and $177,000, respectively.

The beneficial conversion feature (discount) in the amount of $7,439,168, for the convertible preferred stock is limited to the proceeds allocated to the Series A Preferred in the amount of $2,465,000. Due to the Series A Preferred being immediately convertible, the $2,465,000 has been recorded as a dividend in the consolidated financial statements.

The $177,000 allocated to the notes payable to the Series A Preferred stockholders consists of the face value of $2,642,200 net of a discount on the debt of $2,465,200 to be amortized over the term of the note.  For the fiscal year ended September 30, 2001, the Company charged $168,801 of the discount on the debt to interest expense leaving a September 30, 2001 note balance, net of discount, of $345,801.

The Series A Preferred shares will vote together with the Company’s Common Stock on an as-if-converted basis and not as a separate class.  Each share of Series A Preferred will have a number of votes equal to the number of Common Stock shares then issuable upon conversion of such shares of the Series A Preferred Stock.  Upon the closing of the Purchase Agreement, the Series A Preferred stockholders had 78% of the combined eligible voting power of the outstanding Common Stock and Series A Preferred.  As of December 31, 2001, the Series A Preferred stockholders will  controlled 84% of the voting power of all stockholders of the Company.  If none of the financial targets included in the Purchase Agreement are met and the Company fails to pay the note payable to return the amount of the Series A Preferred stockholders’ investment by July 15, 2003, then, by December 31, 2003, the Series A Preferred stockholders could potentially control approximately 94% of the voting power of the Company, inclusive of all potentially dilutive options and warrants.

 At the Company’s 2002 Annual Stockholders Meeting, the shareholders will vote on a proposal to authorize additional Common Stock necessary to facilitate the conversion of the Series A Preferred.  The holders of the Series A Preferred will be entitled to vote with the holders of the Common Stock at the meeting, and will control sufficient votes to approve the proposal.  

In connection with the transaction described above, two members of the Board of Directors of the Company resigned, and New Century, by authority designated in the Purchase Agreement, appointed Mr. David P. Tusa and Mr. Justin L. Ferrero to the Board.  Subject to certain requirements, New Century has the right to appoint a third member to the Company’s current five-member Board of Directors.  New Century has informed the Company that ten days following the mailing of the Proxy Statement to the Company’s stockholders, Mr. Parris H. Holmes, Jr. intends to resign as Chairman of the Board and New Century plans to appoint Mr. C. Lee Cooke as the Company’s new Chairman of the Board.  In accordance with the Purchase Agreement, New Century has the right to maintain the majority of Board positions in the event the Board is expanded beyond its current number of five m embers.

ITEM 6.

SELECTED FINANCIAL DATA

The selected consolidated financial data presented below are derived from the consolidated financial statements of the Company, which for the fiscal years ended September 30, 2001, 2000 and 1999 have been audited by Brown, Graham and Company, P.C., independent certified public accountants.

On May 21, 1996, the Company acquired 1st Tech Corporation and Darkhorse Systems, Inc.  The acquisitions were accounted for using the purchase method, resulting in total goodwill of $7.2 million to be amortized over a two-year period.  The results of operations have been included in the consolidated financial statements since the acquisition date.  The selected consolidated financial data set forth below are qualified in their entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto in this Annual Report on Form 10-K.