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)15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 20012002

or

 [  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)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 of 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 nonaffiliatesnon-affiliates of the registrant as of December 17, 200130, 2002 was approximately 1,328,114$40,000 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, 2001:30, 2002:

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

20012002 ANNUAL REPORT ON FORM 10-K

INDEX

           PAGE

PART I     

Item 1.

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

 4

Item 2.

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

 11011

Item 3.

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

 11011

Item 4.

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

 11011

PART II    

Item 5.

Market for the Company’s Common Equity and Related

Stockholder Matters……..

12112

Item 6.

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

15316

Item 7.

Management’s Discussion and Analysis of Financial Condition and

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

 16417

Item 7A.

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

 29529

Item 8.

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

 29530

Item 9.

Changes in and Disagreements with Accountants on Accounting

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

 554757

PART III.

Item 10.

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

554757

Item 11.

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

56059

Item 12.

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

5666

Item 13.

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

56869

Item 14.

Controls and Procedures

71

PART IV.

Item 14.15.

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

56871

SIGNATURES…………………………………………………………………..................………….Signatures

62478

Certification of Chief Executive Officer Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

79

Certification of Chief Financial Officer Pursuant to Section 302 of the

Sarbanes-Oxley Act of 2002

80

Exhibits

81

#

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 ycurren tly 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 titorscom petitors 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 factorsfactor s 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, 2002, 2001 2000 or 1999,2000, 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 eworldw ide markets including semiconductor manufacturers, memory module manufacturers, computing systems OEMs and contract manufacturing companies.

During fiscalEffective May 21, 1996, the Company acquired, through mergers with its wholly owned subsidiaries, all of the outstanding common stock of 1^stTech Corporation (“1^st Tech”) and DarkHorse Systems, Inc. (“DarkHorse”) and began operations in Austin, Texas. The consolidated group of companies began providing custom design, engineering and manufacturing services, test solutions and standard and custom semiconductor memory module products to leading original equipment manufacturers (“OEMs”) in the computer, networking and telecommunications industries.

Until December 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.

The Company was incorporated under the laws of the State of Wyoming in 1993.  The Company’s offices are located at 12201 Technology Boulevard, Suite 125, Austin, Texas 78727, and the telephone number is 512-335-4440.  The Company’s worldwide website address is www.tanisys.com.

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

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

Industry Overview

The severe economic downturn in the worldwide semiconductor industry that has occurred duringbegan affecting the Company in early 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 becontinue in these markets.

TheAccording to Dataquest, Semico Research and other market research firms, 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.years. 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 intensivememory-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 the Company’s DarkHorse typebrand of 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 feelsbelieves 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 ersyste m after 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 newNew 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.industry.  The Flash memory market consists primarily of device level and card level segments.  Device levelThe Flash predominantly comes in two architecture types, NOR and NAND Flash. NAND Flashmemory market is projected to grow at over 60% annuallysignificantly 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 projectedcontinue to grow rapidly in the small form-factor flash-card market, most manufacturers are now looking formoving to 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 SDRAM, EDO and Fast Page mode memory.  In addition, the Company has continued to install its Rambusâ version of the SIGMA·3 which operates at frequencies of over 800 MHz.

The Company’s DarkHorse SIGMA·3 Model 400e DDR Memory Test System provides manufacturers of memory modules with an affordable and reliable test solution for DDR DRAM Memory.  The DDR memory architecture has been selected as one of the standard memory module technologies for the next generation of personal computers.  The Model 400e gives the industry a flexible and affordable at-speed test solution for DDR modules.  Currently providing a full 333 MHz data rate, this test system is designed for high volume production environments, characterization and failure analysis.

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,system, the SIGMA·4™ Model 500, has been designed to provide Flash manufacturers with a scaleable,scalable, highly flexible test platform capable of testing NOR, NAND,small form-factor flash cards such as the MultiMedia Card™ (“MMC”), Secure Digital Card (“SD”), Compact Flash and Serial Flash devices.Memory Stick.     The SIGMA·4™ Model 500system has infiniteimmense expandability because of the Company’s Distributed Network Architecture ™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 2002, 2001 and 2000, the Company’s ten largest customers accounted for 83.0%, 90.7% and 81.5% of net memory test system net sales, respectively.  In fiscal 2002, 2001, and 2000, the Company had one customer which accounted for 7.7%, 26.2%, and 23.9% of the Company’s net memory test system net 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%6.5%, 11.7%1.6% and 2.7%11.7% of the Company’s net sales in fiscal 2002, 2001 2000 and 1999,2000, 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 isits 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$544,000 and $198,000$81,000 at fiscal 20012002 and 20002001 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 has led, and may continue to leadle ad, 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, forFor a number of its products, the Company has 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 erselyad versely 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 as 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 $1,506,138 in fiscal 2002, $2,425,061 in fiscal 2001 and $2,005,052 in fiscal 2000 and $1,602,131 in fiscal 1999.2000. 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 1997.2001.  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®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®Rambus® Memory Modules.  Issued as U.S. Patent 6,480,799 on November 11, 2002.  This patent application with Serial Number 09/359,173 describes the method of performing timing measurements for RAMBUS® Memory Modules.is a continuation from U.S. Patent 6,285,962 issued on September 4, 2001.

Method and System for Distributed Testing of Electronic Devices.  This patent application with Serial Number 60/236,75609/966,541 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 133631118906 on May 16, 2001.December 18, 2000.  This patent describes the operation of the SYNC·LCsynchronous memory tester.

Synchronous Memory Identification System.  Issued as Taiwanese (ROC) Patent 133631 on October 4, 2001.  This patent describes additional applications for the use of table-based method with nested loops to automatically identify a synchronous memory module configuration.

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'sCompany '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 issuebe issued 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 nancialbusine ss, financial condition and results of operations.

Employees

At September 30, 2001,2002, the Company had 4322 employees, including 2711 engineering, product development, manufacturing and technical support employees, 97 finance and administration employees and 74 employees in the sales and marketing area.

Recruitment of personnel in the computer industry, particularly engineers, is highly competitive.competitive for those individuals with proven technical skills necessary for the Company’s products, although it has become less competitive over the last year.  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 SseptemberSeptember 30, 2001, t1, THE he2002, the company had under lease 14,846 square feet of space under lease for its corporate offices at 12201 Ttechnology Bboulevard, SsuiteTechnology Boulevard, Suite 125, Aaustin, Ttexas.  TtheAustin, Texas.  The company is currently is paying annual rentalrent of approximately $151,429$89,000 until AaprilApril 30, 2003, plus a pro ratapro-rata charge for property taxes, common area maintenance and insurance.  On May 1, 2003, the Company will be paying annual rent of approximately $125,000 until April 30, 2004, plus a pro-rata charge for property taxes, common area maintenance and insurance.  On May 1, 2004, the Company will be paying annual rent of approximately $160,000 until April 30, 2005, 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.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, buying or 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 tradedtrad ed on the Na sdaqNasdaq 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, as a result of the change to Nasdaq, the Company voluntarily delisted its stock on the VSE, as a result of the change to Nasdaq.VSE.

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.

At the Company’s Annual Meeting of Stockholders on February 26, 2002, the Company’s stockholders approved an increase in the number of shares of the Company’s common stock authorized for issuance to 1,000,000,000 shares and an increase in the number of the Company’s preferred stock authorized for issuance to 50,000,000 shares.

The table below sets forth the high and low closing prices of the Common Stock from October 1, 19992000 through December 17, 2001,30, 2002, 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 20002001:

December 31, 19992000

$1.582.56

$0.480.55

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 17,31, 2001

  0.09

  0.05

March 31, 2002

  0.08

  0.04  

June 30, 2002

  0.05

  0.01   

September 30, 2002

  0.05

  0.01

Fiscal 2003:

Through December 30, 2002

              0.01

               0.002

Stockholders

On September 30, 2002 and 2001, there were 24,147,534 shares of Common Stock outstanding held by 285 and 159 holders of record.record, respectively.  The last reported sales price onof the Common Stock on December 17, 2001,30, 2002, was $0.05 (rounded)$0.002 per share. As of September 30, 2002, the Series A Preferred stockholders controlled 91% 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 the Series A Preferred stockholders’ 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.

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 dividenddividends of 831,190 shares and 53,229 shares of its Series A Preferred Stock to the holders of the Company’s Series A Preferred Stock as offor the fiscal years ended September 30, 2001.  2002 and 2001, respectively.

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.years.  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 expireexpired 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 arewere 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.$171,000.  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 bewere 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 PreferredNew Century may be paid in cash or in additional shares of Series A Preferred.  

The Company recorded a dividenddividends of 831,190 shares valued at $408,646 and 53,229 shares valued at $53,229 of Series A Preferred Stock to the holders of the Company’s Series A Preferred Stock as offor the fiscal years ended September 30, 2001.2002 and 2001, respectively.  Included in these amounts were dividends to New Century of 322,608 shares valued at $159,000 and 21,346 shares valued at $21,346 for the fiscal years ended September 30, 2002 and 2001, respectively.

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)9 to the accompanying consolidated financial statements) and notes payable to the investors in the amount of $2,642,200 (see Note 7)7 to the accompanying consolidated financial statements).

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 agreedissued a note payable to make payments to the holders of the Series A Preferred stockholders in the amount of $2,642,200 with repayments only to be made to the extent itsthe Company’s cash flow meets certain levels, untillevels.  In conjunction with the holders have receiveddebt, the amount of their investment in the Series A Preferred andCompany 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 returnrepay the amount of their investment,note, plus the mandatory dividends, by July 15, 2003.  The Company h asCompa ny has 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 periodNew Century received 400,794 of time, the Company may not meet one or more of the remaining specified financial targets, thus triggering the issuance of additionalthese shares of Series A Preferred.  TIt appears thatOn January 30, 2002, the Company issued 1,340,510 shares of Series A Preferred due to its failure to meet the December 31, 2001 financial targets, including 537,780 shares of Series A Preferred issued to New Century.  On July 31, 2002, the Company issued 1,693,696 shares of Series A Preferred due to its failure to meet the June 30, 2002 financial targets, including 657,091 shares of Series A Preferred issued to New Century.  The Company does not expectwill not meetexpect to meet the specified financial targets for the quarter endedsix months ending December 31, 2001.2002.

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 payablenotes do not bear interest prior to the investors for the amount of their investment of $2,642,200.  The notes haves no interest,maturity, cannot be prepaid, and maturesmature 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 uresexpenditures 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 hashave not been repaid in full on or before July 15, 2003,2 003, 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.statements for the year ended September 30, 2001.

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 yearyears ended September 30, 2002 and 2001, the Company charged $1,283,592 and $168,801 of the discount on the debt to interest expense, leaving arespectively.  At September 30, 20012002, the note balance totals $1,607,006, net of discount, of $345,801.discount.

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 havehas 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,September 30, 2002, the Series A Preferred stockholders will  controlled 84%91% 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 stockholdersstockhol ders 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 tomaintain the majority of Board members.  As of September 30, 2002, New Century holds three of the Company’s current five-memberfive Board of Directors.  New Century has informedpositions including 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.  Currently, only four Board andpositions are filled, with three being held by New Century plans to appoint Mr. C. Lee Cooke as the Company’s new Chairman of the Board.Century.  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.members.

In February 2002, the Company issued 293,772 shares of its Series A Preferred to Parris H. Holmes, Jr., Chairman of the Board of New Century, for advisory services to the Tanisys Board of Directors for a three-year period beginning December 12, 2001 and ending December 12, 2004.  The Series A Preferred issued to Mr. Holmes has the same rights as those shares issued on August 13, 2001.  These shares will be earned by Mr. Holmes over the three-year period with one-third being earned on each annual anniversary date beginning on December 12, 2002.

In March 2002, the Company repurchased 121,856 shares of its Series A Preferred for $150,000 in accordance with a repurchase agreement with a certain investor.  The purchase amount is to be paid monthly through June 2003.

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 year ended September 30, 2002 have been audited by Burton, McCumber & Cortez, L.L.P., independent certified public accountants. The consolidated financial statements for the fiscal years ended September 30, 2001 and 2000, and 1999 have beenwere audited by Brown, Graham and Company, P.C., independent certified public accountants.

On May 21, 1996, the Company acquired 1st Tech Corporation and DarkhorseDarkHorse 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.

#

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

The following is a discussion of the consolidated financial condition and results of operations of the Company for the fiscal years ended September 30, 2002, 2001 2000 and 1999.2000.  It should be read in conjunction with the Consolidated Financial Statements of the Company, the Notesnotes thereto and other financial information included elsewhere in this report.  For purposes of the following discussion, references to year periods refer to the Company’s fiscal year ended September 30 and references to quarterly periods refer to the Company’s fiscal quarters ended December 31, March 31, June 30 and September 30. (See “Business – Forward-Looking Statements – Cautionary Statements” included in Part I, Item 1.)

Effective May 21, 1996,The Company has operated under the Tanisys Technology name since 1994 and designs, manufactures and markets production level automated test equipment for a wide variety of semiconductor memory technologies.  The Company sells its products to semiconductor manufacturers, computer and electronics Original Equipment Manufacturers (“OEMs”) and independent memory module manufacturers.

Revenues have declined in both fiscal 2002 and 2001 during what the Company acquired, through mergers with its wholly owned subsidiaries, all of the outstanding common stock of 1^stTech Corporation (“1^st Tech”) and DarkHorse Systems, Inc. (“DarkHorse”) and began operations in Austin, Texas. The consolidated group of companies began providing custom design, engineering and manufacturing services, test solutions and standard and custom semiconductor memory module productsbelieves to leading original equipment manufacturers (“OEMs”)be a severe cyclical downturn in the computer, networkingworldwide semiconductor industry.  There is uncertainly as to if and telecommunications industries.  In consideration forwhen the acquisitionsnext cyclical growth phase will occur as well as the growth rate and length of 1^st   Techsuch an upturn.

The Company’s operating results are affected by a number of factors that have caused in the past and, DarkHorse,more likely than not, will cause significant fluctuations in revenues, gross margins, and operating results in the Company issued 1,475,000future.  These factors include the cyclicality in the semiconductor market, the timing of new product announcements and 600,000 shares, respectively, of Common Stock.  Prior, but subject to the consummation of the acquisitions of 1^st Tech and DarkHorseintroductions by the Company 1st Tech issued 1,150,000 sharesand its competitors, the timing of significant customer orders, fluctuations in product costs, changes in product and customer mix, and general economic conditions.  Due to these and other potential factors, the historical results and percentage relationships discussed in this Annual Report on Form 10-K may not be indicative of the results of operations for any future period.

The Company markets its products using a direct sales organization throughout the world except for Asia where it markets through distribution partners.

The Company has historically sold its test systems primarily to customers that produce the memory technologies related to computers and electronics that utilize volatile memory, such as DRAM, SRAM, DDR and Rambus^Ò.  During fiscal 2002, the Company completed the development of and sold its first non-volatile Flash memory test system.  The Company expects its Flash memory test systems to be a significant portion of its Common Stock for $2.00 per sharerevenues in an equity financing, raising a total of approximately $2,300,000, the proceeds of which were used to reduce short-term debt and provide working capital for 1^st  Tech.fiscal 2003.

Until the fiscal year ended Sepember 30, 2000, the Company’s consolidated operations had been unprofitable since the merger with 1^st TechCritical Accounting Policies and DarkHorse in May 1996.  Although the Company was able to develop increasing revenues from its memory module manufacturing business, it was not able to generate gross margins at the requisite sales volumes in order to make the business profitable.  A number of factors contributed to the Company’s inability to establish adequate profit margins.  Estimates

The Company failed to achieve the projected revenues that were required to produce sufficient margin to meet the Company’s ongoing fixed costs. The Company also failed to win,discussion and on occasion lost, the business of several large customers due to the Company’s weak financial condition, which caused potential customers to be concerned about the Com pany’s ability to deliver.  Additionally, the Company often faced an unpredictable cost structure due to uncertainties regarding inventory costs.  The market for Dynamic Random Access Memory (“DRAM”) chips, the principal component in semiconductor memory modules, became highly volatile at various times in terms of pricing and inventory availability.  Manyanalysis of the Company’s competitors had greater financial resourcescondition and were ableresults of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires the Company to obtain more advantageous prices,make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities.  On an ongoing basis, the Company evaluates its estimates, including those related to product returns, bad debts, inventories, warranty obligations, and contingencies.  Estimates are based on historical experience, current knowledge, and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgme nts about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

Revenue from sales is recognized when persuasive evidence of an arrangement exists, such as well as secure allocations of DRAM during high demand periods.a purchase order; the related products are shipped to the purchaser, typically freight on board shipping point or at the time the services are rendered; the price is fixed or determinable; and collectibility is reasonably assured.  The Company was, at times, forcedwarrants products against defects, and accrues the cost of warranting these products as the items are shipped.  The only volume discounts given by the Company are those that are negotiated prior to pay top market pricesfuture sales and for a predetermined fixed period of time.  Therefore, no estimated volume discounts are required to procure DRAM, whichbe accounted for in turn caused margin problems. Further, the Company’s customers generally werefinancial statements.

Inventory is valued at standard cost, which approximates actual cost computed on a single-orderfirst-in, first-out basis, with no long-term commitmentsnot in excess of market value.  Inventory costs include direct materials and certain indirect manufacturing overhead expenses.  The Company’s policy concerning inventory impairment charges is to establish a new, reduced cost basis for the affected inventory that remains until the inventory is sold or disposed.  Only additional impairment charges could affect the cost basis.  If subsequent to the date of impairment it is determined that the impairment charges are recoverable, the Company does not increase the carrying costs of the affected inventory and corresponding income.

The Company evaluates the ability to adjust pricing ascollect its accounts receivable based on a combination of factors.  The Company records an allowance for doubtful accounts for all specific receivables that are judged to outstanding orders.

A shortagebe unlikely for collection.  In addition, reserves for bad debts are recorded based on the size and age of computer memory chips inall receivable balances against which specific reserves have not been established.  These estimated allowances are periodically reviewed and adjusted based on the fourth fiscal quarter of fiscal 1999customer’s payment history and a rapid increase in memory chip prices duringinformation regarding the same period severely disrupted the Company’s business, resulting in major shortfalls of revenue.  After dropping by approximately 95% from 1996customer’s credit worthiness known to mid-1999, memory chip prices escalated rapidly in August and September 1999, quadrupling between July and September 1999, before leveling off in October 1999.  During this time period of 1999, the Company had great difficulties in obtaining DRAM inventory and lost several key orders.  Additionally, one of the Company’s largest customers (comprising approximately 20% of Company sales in fiscal 1999) was acquired, in April 1999, by another semiconductor manufacturer and ceased doing business with the Company.

In July 1999, the Company’s stock was delisted from the Nasdaq SmallCap Market for failure to meet Nasdaq’s $2,000,000 net tangible assets requirement.  Delisting of the Company’s stock placed the Company in default under the Convertible Stock Purchase Agreement entered into with KA Investments LLC  (“KA”) dated June 30, 1998, pursuant to which KA purchased 400 shares of 5% Series A Convertible Preferred Stock (“Series A Convertible Stock”) of the Company for $4,000,000.  Under the terms of the Convertible Stock Purchase Agreement, the Series A Convertible Stock was convertible into Common Stock based on a formula set forth in the Agreement and quarterly dividends were payable in Common Stock or cash.  The shares of Common Stock issuable under the Convertible Stock Purchase Agreement were registered under a Registr ation Statement on Form S-3.  Upon delisting of the Company’s stock from the Nasdaq SmallCap Market on July 27, 1999, the Company’s S-3 was no longer effective.  Delisting also constituted a triggering event for redemption of the Series A Convertible Stock.  As of September 30, 2000, the holder of the Series A Convertible Stock had converted all of its Series A Convertible Stock for 5,440,140 shares of Common Stock.

On October 15, 1999, the Company hired an investment bank to assist in addressing alternatives to improve the overall posture of the Company and bolster stockholder value. The Company’s memory module manufacturing business was experiencing excessive losses, prohibiting the Company’s ability to attract needed financing.  In consultation with the investment bank, the Company evaluated selling the memory module manufacturing business and retaining its other operations.

Although a number of alternatives, including Chapter 7 liquidation, were considered by the Board of Directors, the best alternative was considered to be the sale of the memory module manufacturing business.  On December 9, 1999, the Company entered into a definitive asset purchase agreement (the “Asset Purchase Agreement”) with All Components, Inc. (“ACI”). The Asset Purchase Agreement related to the sale of certain assets and business ccomproising the Company’s memory module manufacturing business to an affiliate of ACI, Tanisys Operations, LP, as well as the sale of the stock of the Company’s wholly owned subsidiary, Tanisys (Europe) Ltd. (the “Sale Transaction”).  In addition, the Company entered into a covenant not to compete for ten years after the closing of the Sale Transaction, as further described below.

In connection with the disposal of the memory module manufacturing business, the Company incurred a loss of $3,319,147 during the year ended September 30, 1999.  The components of the loss include the following: total consideration from the buyer was $2,264,907, which included $360,000 in cash proceeds and $1,904,907 in assumed liabilities; the Company sold assets with a book value of $2,786,344, which included fixed assets of $666,164, accounts receivable of $1,077,104 and inventory of $1,043,076; and, in connection with and as a condition to closing the Sale Transaction, the Company was able to negotiate a reduction in the aggregate amount payable to the Company’s creditors by $1,677,678.  The loss on the Sale Transaction was effectively reduced by this debt forgiveness.  The stock of the Company’s wholly owned subsidiary, Tanisys (Europe) Ltd., which carried a book value of $1,214,187, was sold to the buyer.

The Company incurred additional expenses, which have been paid, in connection with the Sale Transaction including the following: fixed assets of the memory module manufacturing business totaling $1,136,869 were written off, stock and warrants valued at $98,091 were issued to creditors in satisfaction of amounts owed, expenses to terminate various lease obligations in the amount of $109,000 were incurred, $327,364 in inventory and $64,710 in deferred financing costs were written off, $128,604 was paid to the Company’s principal lender to terminate its line of credit,  professional fees were paid in the amount of $85,572, and a variety of additional miscellaneous costs totaling $71,091 were paid.

During the years ended September 30, 2001 and 2000, the Company paid $565,821 and $1,654,694 for costs that were accrued as of September 30, 1999, and that related to the discontinued operations, including lease termination costs for capital equipment, professional fees, proxy costs, warranty costs and other related costs.  At September 30, 2001, remaining accrued expenses of $320,909 have been classified as net current liabilities of discontinued operations and $57,251 has been classified as net noncurrent  liabilities of discontinued operations on the Consolidated Balance Sheet.

The results of the memory module manufacturing business have been classified as discontinued operations, and prior periods have been restated to reflect the sale.  The loss on the sale, as well as the costs associated with the disposition of the memory module manufacturing business, have been recorded in the consolidated financial statements as of September 30, 1999.

Since consummating the Sale Transaction in December 1999, the Company has refocused all of its efforts on the memory test systems business.

Results of Operations

The following table sets forth certain consolidated financial data of the Company expressed as a percentage of net sales for the years ended September 30, 2002, 2001 2000 and 1999:2000:

Net Sales

Net sales consist of production-level automated test equipment along with related hardware and software, less returns and discounts. The worldwide semiconductor slowdown that occurred during the Company’s fiscal year ended September 30, 20012002 impacted net sales resulting in a decrease of 44%50% to $5,206,153$2,618,903 for fiscal 20012002 from $9,300,530$5,206,153 in fiscal 2000.2001.  The Company’s customers depend upon current and anticipated market demand for semiconductors and products that utilize semiconductors.  The industry slowdown has resulted in significantly lower levels of capital expenditures for semiconductor equipment, such as the Company’s automated test equipment.  We doThe Company does not believe that orders for the Company’sits test systems were lost to competition, but instead have been delayed.  In the meantime, the Company continues to enhance and broaden its product line to supportsu pport all memory technologies in order to deliver high quality, cost effective, high-speed test systems to its customers as the economy recovers.

Net sales for fiscal 20002001 of $9,300,530$5,206,153 decreased 8%44% from $10,145,108$9,300,530 in fiscal 1999.  There were two primary reasons for2000.  The slowdown in the decline in net sales.  First,general economy and, more specifically, the worldwide semiconductor industry began affecting the Company’s SIGMA·3 test system, launchednet sales in fiscal 1999, was widely accepted in2001.  Thus, the market place.  Second, the industry struggled over which memory technologyCompany’s net sales fell significantly from fiscal 2000 to embrace for the future: SDRAM PC 133, Rambus® memory or DDR.  While the Company has developed test systems for all three technologies, demand was somewhat slowed in 2000 as customers struggled in their decisions to commit to one or more of the technologies.fiscal 2001.

Cost of SalesGoods Sold and Gross Profit

Cost of salesgoods sold includes the costs of all components and materials purchased for the manufacture of products, direct labor and related overhead costs.  In addition, the Company recorded a special charge to cost of goods sold of $520,367 in fiscal 2002 for the write-down of excess and obsolete inventories.  Gross profit for fiscal 20012002 was $2,530,408 as$619,992 compared to $6,122,056$2,530,408 from the prior year.  As a percent of sales, gross profit was 24% in fiscal 2002, down from 49% in fiscal 2001, down from 66% in fiscal 2000.2001.  The decreases in both dollars and percent of sales were due to the mix of products sold, lower sales volume in fiscal 2002 resulting in reduced absorption of fixed manufacturing costs, and the special charge for the write-down of excess and obsolete inventories.

In fiscal 2001, gross profit was $2,530,408 down from $6,122,056 in fiscal 2000.  Gross profit margin decreased in fiscal 2001 to 49% from 66% in fiscal 2000 as a result of the mix in products sold and lower sales volume in fiscal 2001 resulting in reduced absorption of fixed manufacturing costs.

In fiscal 2000, gross profit was $6,122,056 up from $5,632,506 in fiscal 1999.  Gross profit margin increased in fiscal 2000The Company’s policy concerning inventory impairment charges is to 66% from 56% in fiscal 1999 asestablish a resultnew, reduced cost basis for the affected inventory that remains until the inventory is sold or disposed.  If subsequent to the date of improved purchasing practices which brought about more favorable raw material prices, andimpairment it is determined that the impairment charges are recoverable, the Company managed to lower manufacturing costs.does not increase the carrying amounts of the affected inventory.

Research and Development

Research and development expenses, which include all costs associated with the engineering design and testing of new technologies and products, weretotaled $1,506,138 in fiscal 2002, down 38% from the prior year’s $2,425,061.  The decline in development costs results from a decrease in new product development initiatives as well as a reduction in workforce due to reduced customer demands and the slowdown in the economy.  Costs are expected to decrease slightly in absolute dollars and decrease as a percent of sales as net sales increase.

Research and development expenses increased 21% to $2,425,061 in fiscal 2001 up 21% from the prior year’s $2,005,052.$2,005,052 in fiscal 2000. The higher costs reflect the ongoing development of test systems for both DDR and Flash memory technologies, enhancement of a distributed-networking architecture that can be applied to all memory technologies and continuing efforts to broaden product lines and capabilities.  Costs are expected to decrease slightly in absolute dollars and decrease as a percent of sales as revenue grows.

Research and development expenses increased 25% to $2,005,052 in fiscal 2000 from $1,602,131 in fiscal 1999.  A combination of the development of test systems for Rambus memory, DDR sync DRAM and Flash memory, plus the development of the multi-site feature for the SIGMA·3 system are the main reasons for the increased cost.

Sales and Marketing

Sales and marketing expenses include compensation of sales and marketing employees and independent sales personnel, as well as the costs of advertising, promotions, trade shows, travel, direct support and related overhead.  Expenses of  $1,013,495 in fiscal 2002 were down 23% from $1,324,401 in fiscal 20012001.  Expenses were down nearly 4%reduced because of actual and anticipated lower sales volume resulting from $1,374,386the slowdown in fiscal 2000.the worldwide semiconductor industry.  The Company continues to market its test systems to the world’s largest semiconductor and memory module manufacturers.  Sales and marketing expenses are expected to increase modestly in terms of dollars, but decrease as a percent of sales in future periods as revenue grows.net sales increase.

In fiscal year 2000,2001, sales and marketing expenses decreased 11%4% to $1,374,386$1,324,401 from fiscal 1999 $1,537,717.  Higher costs2000 $1,374,386.  Sales and marketing expenses were lower due to the decrease in 1999 reflect aggressive marketing efforts promoting the SIGMA·3 test system.sales volume.  

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.  In fiscal years 2001 and 2000,year 2002, general and administrative expenses decreased to $706,7167$497,391 from $776,684. General and administrative expenses expressed as$706,716, a percentage of revenues were 13.5% and 8.4% in fiscal years 2001 and 2000, respectively.30% decrease.  The decrease in absolute dollars is the result of cost saving measures taken including personnel reductions in 2001.  The increase when expressed as a percentage of sales was a result of the lower sales volume in fiscal 2001.reductions.  Expenses are expected to decrease in both absolute dollars and as a percent of sales as revenue grows.net sales increase.

In fiscal year 2000,2001, general and administrative expenses increaseddecreased to $776,684$706,716 from $703,900$776,684 in fiscal 1999,2000, a 10.3% increase.  General and administrative expenses expressed as a percentage of revenues were 8.4% and 6.9% in fiscal years 2000 and 1999, respectively.9% decrease.  The increase in actual funds expended in fiscal 1999decrease was due primarily to normalvarious cost increases associated withsaving efforts including personnel and other administrative costs.reductions.

Depreciation and Amortization

Depreciation and amortization includes the depreciation for all fixed assets, exclusive of those used in the manufacturing process and included as part of “Cost of Goods Sold,” and the amortization of intangibles, including patents related to memory module test systems technology.  Depreciation and amortization decreased to $128,646 in fiscal 2002 from $145,259 in fiscal 2001, due to the decline of the remaining asset balances. Depreciation and amortization is expected to remain relatively flat in terms of absolute dollars and decrease as a percentage of sales as net sales increase.

Depreciation and amortization increased to $145,259 in fiscal 2001 from $62,099 in fiscal 2000. The increase reflects investment in new software and hardware tools designed to maximize the efficiency of engineering and research.  Depreciation and amortization is expected to remain relatively flat in terms of absolute dollars and decrease as a percentage of sales as revenue  grows.

Depreciation and amortization decreased to $62,099 in fiscal 2000 from $155,466 in fiscal 1999, due to the decline of the remaining asset balances.  

Bad Debt Expense

Bad debt expense consists of amounts charged to expense because of trade accounts receivable becoming uncollectible.  The Company’s method of accounting for bad debts is to use historical actual expenses to estimate the amount of current sales that may be uncollectible and to provide for them by creating an allowance that is netted against the trade accounts receivable. The Company writes off amounts related to specific accounts as the collection of these accounts becomes questionable. For fiscal 2001, the amount charged toThe Company recorded no bad debt expense wasin fiscal 2002  compared to $18,930 compared tofor fiscal 2001 and $14,292 for fiscal 2000 and $233,196 for fiscal year 1999.

2000.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income less interest expense, plus other miscellaneous income and expenses.expenses including interest expense resulting from the amortization of debt discount related to the note payable to the Series A Preferred stockholders.  Interest expense of $47,187, $86,336, and $248,355 was attributable to borrowings from a revolving credit note made to fund short-term inventory requirements and accounts receivable and interest resulting from capital leases.leases for fiscal years 2002, 2001, and 2000, respectively.  Interest expense of $1,283,592, $168,801 and $0 resulted from the amortization of the discount related to the note payable to the Series A Preferred stockholders.stockholders for fiscal years 2002, 2001, and 2000, respectively.  Interest income relates to the investment of available cash in short-term interest bearing accounts and cash equivalent securities.  Othersecurities and totaled $4,911, $25,373 and $27,698 for fiscal years 2002, 2001, and 2000, respectively.  Total other income (expense) decreasedincreased to $1,243,291 of expense in fiscal 2002 from $271,036 of expense in fiscal 2001 from $260,943 of income in fiscal 2000.2001.  For fiscal 2001,2002, other income (expense) also included $255,137 of interest expense, $25,373 of interest income, $35,646$22,992 of property and state tax expense, and $5,626$15,586 of gain from the sale of assets, $92,497 of miscellaneous income, and $2,514 of miscellaneous expenses.

The non-recurring miscellaneous income for the year ended September 30, 2000 included $166,582 of income from the forgiveness of debt by some of the Company’s vendors.  In addition, the Company also had $280,000 of non-recurring miscellaneous income which included $100,000 from reserves for accounts receivable and $180,000 from reserves for inventory that were deemed excessive after analytical and reasonableness reviews.  These reserves were initially established due to the uncertainty in the collection of receivables and the inventory mix in anticipation of customer response to the sale of the memory module manufacturing business disclosed in the financial statements as discontinued operations.

At the date of the sale of the memory module manufacturing business in December 1999, the Company had accounts receivable from certain customers related to both the continuing and discontinued operations.  The Company had some concerns as to whether or not some of these customers would pay for the continuing operations accounts receivable due to the Company’s concern about the realization of assets and the “going concern” opinion issued by the independent auditor.  In addition, some of the receivables were aging beyond reasonable terms.  The result was that an accounting estimate was made to reflect these potential collection issues.  

By the end of the Company’s fiscal year ended September 30, 2000, the potential collection issues had all been resolved resulting in excess reserves for accounts receivable based on historical bad debt analysis and information available at the time relating to the collectability ofability to collect the receivables. The Company first applied the reversal of these reserves to bad debt expense.  However, the reserve exceeded bad debt expense and, therefore, the excess was recorded as non-recurring miscellaneous income.  The Company estimates bad debt onexpense as a percentage-of-sales, adjusted accordingly based on historical analysisanalyses of actual bad debts incurred.

The Company’s policy concerning inventory impairment charges is to establish a new, reduced cost basis for the affected inventory that remains until the inventory is sold or disposed.  If subsequent to the date of impairment it is determined that the impairment charges  In addition, current economic conditions are recoverable, the Company does not increase the carrying amountscosts  of the affected inventory and corresponding income.considered.

After the sale of the memory module manufacturing business, inventory remained that had been utilized in both the continuing and discontinued operations.  While the inventory items had not been impaired as of the date of the sale of the discontinued operations, the Company did not know if it could utilize all of the inventory before it became obsolete.  Therefore, the Company made an estimate based on the best information available at the time as to the potential exposure due to excess inventory.  Accordingly, an inventory reserve was established to account for this estimate.  By the end of the fiscal year ended September 30, 2000, the Company was able to successfully utilize almost all of the inventory in products that were sold and reduced the cost basis of impaired inventory items by charging the impairment costs to the inventory reserve.  The remaining exces sexc ess inventory reserve was then recorded as non-recurring miscellaneous income.

Other income (expense) for fiscal year 2000 increased to $260,943 of income, as discussed above, compared to $356,774 of expense in fiscal 1999.  The $356,774 of expense in fiscal 1999 included $371,514 of interest expense, $13,675 of interest income, and $1,065 of miscellaneous  incomeexpenses.  

Provision for Income Taxes

For the years ended September 30, 2001, 20002002 and 1999,2001, the Company incurred consolidated net operating losses for U.S. income tax purposes of approximately $2,321,000X,XXX,XXX,, $2,5751,351,000$2,076,000 and $2,570,000$2,302,000 and for non-U.S. income tax purposes of approximately $0XXX,XXX, and $426,000, and $817,000, respectively.  The tax loss carry-forwards of approximately $262,092548,000 at September 30, 20010, begin to expire in 2011.  At September 30, 20012002 and 2000,2001, the Company had temporary differences resulting in future taxtaxable (income) deductions of approximately $(40X,XXX,XXX,000)$369,000 and $1,430,000,($40,000), respectively, principally representing differences in accounting and tax basis in accrued liabilities, reserves, depreciation and anticipated loss from discontinued operations.

At September 30, 2002, the Company had net operating loss carry-forwards totaling approximately $6,000,000.  Due to the limitations provided for in Section 382 of the Internal Revenue Code of 1986, as amended (Code), and as a result of the sale of the Series A Preferred Stock on August 13, 2001, utilization of the net operating loss carry-forwards existing at that date (approximately $25,750,000) is limited to approximately $200,000 per year through 2021.  The balance of the net operating loss carry-forward (approximately $2,200,000) may be used to reduce taxable income in any future year through 2022.  Deferred income tax assets from the net operating loss carry-forwards and asset basis differences aggregatetotaled approximately $ 8,871,000X,XXX,XXX$2,100,000 and $8,343,000,$1,400,000 at September 30, 2002 and 2001, respectively, and 2000, respectively.a valuation allowance has been established in those amounts.

For financial reporting purposes,Management believes that a valuation allowancesallowance is appropriate because of $X8,871,XXX,000XXX  and $8,343,000 at September 30, 2001 and 2000, respectively, have been recorded to offset the deferred tax assets due to the uncertainty as to whether the benefitsthat sufficient taxable income will be realized.generated by the Company in future taxable years to absorb the entire amount of such net operating losses.

The Company was unable to useAs mentioned above, the tax losses generated during the current and prior years.  TheThe availability of the net operating tax loss carry-forwards and future tax deductions to reduce taxable income is subject to various limitations under the Internal Revenue Code, of 1986, as amended (the “Code”), in the event of ana further ownership change as defined in Section 382 of the Code.  The Company may lose the benefit of such net operating loss carry-forwards due to Internal Revenue Service (“IRS”) Code Section 382 limitations.change.  This section states that after reorganization or other change in corporate ownership, the use of certain carry-forwards may be limited or prohibited.

Contractual Obligations and Commercial Commitments

The Company believes thatfollowing is a summary of the limitations under IRS Code Section 382 limitation did not existCompany’s estimated minimum contractual obligations and commercial commitments as of September 30, 20010, butand  if triggered, the consequence is expec ted to have no material impact on the Company’s consolidated financial position or results of operations.2002:

Liquidity and Capital Resources

Since inception the Company has utilized the funds acquired in equity financings of its Common Stock, preferred stock, exercise of warrants, exercise of stock options, 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 and pay its general and administrative expenses. For fiscal 2001,2002, the Company generated net cash from financing activities of $1,82092,885399$111,236 versus usinggenerating net cash from financing activities of $41,287$1,820,885 in fiscal 2000.2001. The increasedecrease of $1,862933,172686$1,709,649 resulted because no significant equity or credit financing occurred in fiscal 2001 consisted primarily of2002 while the Company received proceeds $2,575,000 from Series A Preferred Stock sales of $2,353,000 in fiscal 2001.  At September 30, 2002, the Company had $146,698 of cash and negative working capital of $2,068,794.

Operating activities used $1,106,496 of cash in fiscal 2002 primarily due to the Company’s net loss, partially offset by cash provided by a decline in accounts receivable of $146,593, a decline in inventory of $586,062, a decline in prepaid expenses of $50,293, and an increase in accounts payable and accrued liabilities of $314,864.  The Company’s net loss for fiscal 2002 includes $1,283,592 of non-cash interest expense resulting from the amortization of the debt discount related debt less , offering costs paid onto the note payable to the stockholders of the Company’s Series A Preferred Stock transactionStock.  For fiscal 2001, operating activities used $1,298,412 in cash while operating activities in fiscal 2000 generated $2,780,393 in cash.

Net cash provided by investing activities in fiscal 2002 was $24,215 resulting from the sale of $17086,877059, repaymentsexcess equipment.  Net cash used in fiscal 2001 and 2000 was $188,441 and $167,584, respectively, primarily due to the acquisition of $2, 740,757 on revolving credit, borrowings on revolving creditcapital equipment.  These capital expenditures were primarily for the purchase of $2,229,213,test equipment, expansion of engineering facilities and an increase of  $22,642payments on capital lease obligations of $19,054..  At September 30, 2001, theupgrades to enterprise information systems.

The Company had $1,369,988used $252,245, $565,821, and $1,654,694 of cash in fiscal years 2002, 2001, and working capital of $1,9691,948766.2000, respectively, to reduce the liabilities from discontinued operations created by the Company’s exit from its memory module manufacturing business in December 1999.

As of September 30, 2001,2002, the Company had a bank line of credit of $2,000,000$2,500,000 which expires on May 29, 2002,March 22, 2003, at which time the Company believes the credit facility will be renewed.  At September 30, 2001,2002, there was $1,911,544$2,348,373 of unused credit with this bank credit facility.  Certain financial covenants exists under this bank credit line which were not met as of September 30, 2001.  The Company has requested a waiver of bank has waived the financial covenants defaults  and the Company believes the credit facility will remain in effect until the expiration date of May 29, 2002.  However, there is no guarantee that the bank will waive any future failure by the Company to meet the financial covenants.

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.$171,000.  As part of the issuance of the Series A Preferred Stock, the Company additionally issued a note payable of $2,642,200 to the Series A Preferred stockholders.  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 bewere utilized to continue product development and marketing efforts and to provide working capital for the Co mpany’s operations.Company’s oper ations.

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

On November 2, 1998, the Company completed a private placement of $2,000,000 of debt with warrants.  During the fiscal year ended September 30, 2000, the holders of the debt elected to convert all of the debt into 4,000,000 shares of the Company’s Common Stock pursuant to an offer made by the Company.  Interest was accrued on the notes through January 31, 2000, and the Company issued 168,950 shares of the Company’s Common Stock during the fiscal year ended September 30, 2000, for interest totaling $119,444.

Capital expenditures totaled $190232,633329 and $170,876 in fiscal 2001 and 2000, respectively. These capital expenditures were primarily forIt is uncertain as to whether or not the purchase of test equipment, expansion of engineering facilities and upgrades to enterprise information systems.

The Company believes that itsCompany’s existing funds, anticipated cash flows from operations, amounts available from future vendor credits, bank borrowings, capital and operating leases and equity financingswill be sufficient to meet its working capital and capital expenditure needs for the next twelve months at the projected level of operations.  However, should there be a significant increase in sales above projected levels requiring additional investments in equipment, inventory and accounts receivable, the Company may be required to obtain additional funding through debt or rely upon a future equity offering or offerings for such funding.  There is no assurance that the Company would be able to locateobtain debt funding or that it would be successful in its attempts to raise a sufficient amount of funds in an equity offering or offerings. The Company’s pot entialpotential inability to raise needed funds to meet its projected level of operations or increase above current projections could have a material adverse effect on the Company.

In addition, the Company believes that its working capital, capital expendituresCompany’s business, financial condition and research and development requirements for the long term will be funded through cash generated from operations and linesresults of credit.  However, the Company may require or choose to obtain additional debt or equity financing in the future.  The Company cannot assure that additional financing, if needed, will be available on favorable terms.operations.

International Sales

International sales accounted for 44.0%27.0%, 44.6%44.0% and 31.9%44.6% of net sales in fiscal 2002, 2001, 2000, and 19992000 respectively. The Company is subject to the risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. The Company cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of the Company's products will be implemented by the U.S. or other countries. Because sales of the Company's products have been denominated to date in U.S. dollars, increases in the value of the U.S. dollar could increase the price of the Company's products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country. Some of the Company's customer purchase orders and agreements are g overnedgoverned by foreign laws, which may differ significantly from U.S. laws. Therefore, the Company may be limited in its ability to enforce its rights under such agreements and to collect damages, if awarded. There can be no assurance that any of these factors will not have a material adverse effect on the Company's business, financial condition and results of operations.

Significant Customer Concentration          

In North America and Europe a majority of the Company’s memory module 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 20012002 and 2000,2001, the Company’s ten largest customers accounted for 90.7%83.0% and 81.5%90.7% of net memory module test system sales, respectively.  The top customerssingle largest customer in each of 2002, 2001, 2000, and 19992000 accounted for 26.2%21.5%, 23.9%26.2%, and 43.8%23.9% of total test system sales, respectively.

The Company, in general, has no firm long-term volume commitments from its customers and generally enters into individual purchase orders and agreements with non-binding forecasts. Customer purchase orders and forecasts are subject to change, cancellation or delay with little or no consequence to the customer. The replacement of canceled, 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.

No Assurance of Product Quality, Performance and Reliability

The Company expects that its customers will continue to establish demanding specifications for quality, performance, reliability and delivery.  To date, the Company has not experienced any significant quality problems that have affected its results of operations, and any known quality problems have been or are in the process of being remedied. There can be no assurance that the problems will not occur in the future with respect to quality, performance, reliability and delivery of the Company's products. If such problems occur, the Company could experience increased costs, delays in or cancellations or rescheduling of orders or shipments, delays in collecting accounts receivable and increases in product returns and discounts, any of which could have a material adverse effect on the Company's business, financial condition and results of operations.

Product Concentration; Dependence on Memory Market

The market for semiconductor memory has been cyclical. TheAs evidenced during the Company’s fiscal years 2002 and 2001, the industry has experienced significant economic downturns at various times, characterized by diminished product demand, accelerated erosion of average selling prices and production overcapacity.  During fiscal 2000, there were significant declines as well as increases in DRAM and SRAM semiconductor prices and demand. Since the Company’s test systems are sold into the semiconductor and memory module market, future price changes in memory products could have a material adverse effect on the Company's business, financial condition and results of operations.

Fluctuations in Operating Results

The Company's results of operations and gross margin have fluctuated significantly from period to period in the past and may in the future continue to fluctuate significantly from period to period. The primary factors that have affected and may in the future affect the Company's results of operations include the loss of a principal customer or customers or the reduction in orders from a customer. Other factors that may affect the Company's results of operations in the future include fluctuating market demand for and changes in the selling prices of the Company's products, market acceptance of new products and enhanced versions of the Company's products, delays in the introduction of new products and enhancements to existing products, and manufacturing inefficiencies associated with the startup of new product introductions. In addition, the Company's operating results may be affected byb y the timing of new product announcements and releases by the Company or its competitors; the timing of significant orders; the ability to produce products in volume; delays, cancellations or rescheduling of orders due to customer financial difficulties or other events; inventory obsolescence, including the reduction in value of the Company's inventories due to unexpected price declines and unexpected product returns; the timing of expenditures in anticipation of increased sales; cyclicality in the Company's targeted markets; and expenses associated with acquisitions.

Sales of the Company's individual products and product lines toward the end of a product's life cycle typically are characterized by steep declines in sales, pricing and gross margin, the precise timing of which may be difficult to predict. The Company could experience unexpected reductions in sales of products as customers anticipate new product purchases. In addition, to the extent that the Company manufactures products in anticipation of future demand that does not materialize, or in the event a customer cancels outstanding orders during a period of either declining product selling prices or decreasing demand, the Company could experience an unanticipated decrease in sales of products. These factors could give rise to charges for obsolete or excess inventory, return of products or discounts.  In the past, the Company has had to write-down and write-off excess or obsolete invento ry.inven tory. To the extent that the Company is unsuccessful in managing product transitions, its business, financial condition and results of operations could be materially and adversely affected.

The need for continued significant expenditures for research and development and ongoing customer service and support, among other factors, will make it difficult for the Company to reduce its operating expenses in any particular period even if the Company's expectations for net sales for that period are not met. The Company believes that period-to-period comparisons of the Company's financial results are not necessarily meaningful and should not be relied upon as indications of future performance.

Dependence on Semiconductor, Computer, Telecommunications and Networking Industries

Demand for the Company’s line of memory module test systems is driven by the increased demand for higher level memory module technology in semiconductor, computer, telecommunications and networking industries. The Company may experience substantial period-to-period fluctuations in future operating results due to factors affecting the semiconductor, computer, telecommunications and networking industries. From time to time, each of these industries has experienced downturns, often in connection with, or in anticipation of, declines in general economic conditions. A decline or significant shortfall in growth in any one of these industries could have a material adverse impact on the demand for the Company's products and therefore a material adverse effect on the Company's business, financial condition and results of operations. There can be no assurance that the Compa ny'sCom pany's net sales and results of operations will not be materially and adversely affected in the future due to changes in demand from individual customers or cyclical changes in the semiconductor, computer, telecommunications, networking or other industries utilizing the Company's products.

HistoryRealization of Losses; Uncertain ProfitabilityAssets

The Company historically experiencedhas continued to generate operating losses untilthroughout fiscal 2001 and 2002, as well as having a history of losses prior to fiscal 2000.  At September 30, 2002, the Company had a negative working capital of $2,068,794 and negative equity of $1,842,418.  The Company is also in default with the payment terms of many of its suppliers.  In addition, the Company has no access to additional working capital, all of its assets are pledged, and it has received a “going concern” opinion from its independent auditors for both fiscal yearyears ended September 30, 2000 in which it had an operating profit of $2,150,486. However, due to the economic slowdown in the worldwide semiconductor industry,2002 and 2001.  Therefore, there can be no assurances that the Company recorded an operating loss for the year ended September 30, 2001 of $2,360,995.  At September 30, 2001,  the Company had an accumulated deficit of approximately $42,1312,976046.

The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles, which contemplates continuation of the Company as a going concern.  Numerous factors could affect the Company’s operating results, including, but not limited to, general economic conditions, competition, and changing technologies.  A change in any of these factors could have an adverse effect on the Company’s consolidated financial position or results of operations. The Company had to raise additional capital in order tocan continue its operations in fiscal 2001, resulting in the issuance of Series A Preferred Stock and related debt (See Notes 7 and 9).  The current economic slowdown continues in the worldwide semiconductor industry resulting in concern over the sustainability of the Company’s revenues and its abi lity to attract additional capital if needed.

In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which in turn may be dependent upon the success of its future operations.  Management believes that the Company’s reputation in the marketplace and its well respected product line will help generate revenues during the remainder of the economic downturn.  These revenues will result in a certain level of cash flow which, when coupled with the Company’s current cash position, will provide the opportunity for the Company to continue as a going concern.   

There can be no assurance that the Company will not incur losses in the future or that the Company will be able to raise cash as necessary to fund operations.future.

Future Additional Capital Requirements; No Assurance Future Capital will be Available

The Company's capital requirements will depend on numerous factors, including market acceptance and demand for its products; the resources the Company devotes to the development, manufacture and marketing of its products; the progress of the Company's product development programs; the resources required to protect the Company's intellectual property; the resources expended, if any, to acquire complementary businesses, products and technologies; and other factors.  The timing and amount of such capital requirements cannot be accurately predicted.  Funds also may be used for the acquisition of businesses, products and technologies that are complementary to those marketed by the Company.  Consequently, although the Company believes that its revenues and other sources of liquidity will provide adequate funding for its capital requirements through at least 2001, the Company ma ymay be required to raise additional funds through public or private financings,financing, collaborative relationships or other arrangements.  There can be no assurance that the Company will not require additional funding or that such additional funding, if needed, will be available on terms attractive to the CompanyComp any or at all.  Any additional equity financingsfinancing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants. Such adjustments may be dilutive to stockholders and may inhibit the Company’s ability to consummate additional equity financings.financing.

Management of Growth; Expansion of Operations

In order to continue to provide quality products and customer service and to meet anticipated demands of its customers, the Company will be required to continue to increase staffing and other expenses, including expenditures on research and development, sales and marketing. Should the Company increase its expenditures in anticipation of a future level of sales that does not materialize, the Company's business, financial condition and results of operations would be materially and adversely affected. In order to achieve anticipated sales levels and profitability, the Company will continue to be requiredstrive to manage its assets and operations efficiently.

Rapid Technological Change

The semiconductor, computer, telecommunications and networking industries are subject to rapid technological change, short product life cycles, frequent new product introductions and enhancements, changes in end-user requirements and evolving industry standards. The Company's ability to be competitive in these markets will depend in significant part upon its ability to invest significant amounts of resources for research and development efforts, to successfully develop, introduce and sell new products and enhancements on a timely and cost-effective basis and to respond to changing customer requirements that meet evolving industry standards. For example, the semiconductor memory market transitioned from Fast Page mode and EDO memory to SDRAM over a two to three-year period.  Other transitions from SDRAM to Rambusâ and DDR SDRAM continued to occur in 20012002 and will continue into 2002.int o 2003. The success of the Company in developing new and enhanced products will depend upon a variety of factors, including integration of the various elements of its complex technology; timely and efficient completion of product design; timely and efficient implementation of manufacturing, assembly and test processes; and product performance, quality and reliability. The Company has experienced, and may in the future experience, delays from time to time in the development and introduction of new products. Moreover, there can be no assurance that the Company will be successful in selecting, developing, manufacturing and marketing new products or enhancements. There can be no assurance that defects or errors will not be found in the Company's products after commencement of commercial shipments, which could result in delayed market acceptance of such products. The inability of the Company to introduce new products or enhancements that contribute to sales could have a material adverse effect on the Company's busi ness,bu siness, financial condition and results of operations.

Dependence on Sole or Limited Sources of Supply

The Company’s operations utilize a wide variety of semiconductors, electromechanical components and assemblies, and other raw materials such as sheet metal.  The Company isbelieves 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.  For a number of its products, the Company has existing alternate sources of supply, or such sources are readily available.  Portions of the Company’s manufacturing and assembly operations are dependent on certain limited or sole sourceupon the ability of suppliers to provide key,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 adversely affect the Compan y’s operating results until alternative sources are developed.  In addition, the Company periodically experiences constrained supply of certain component parts in some cases, custom components usedproduct 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 memory module test systems. Theresults of operations.  However, the Company has experienced and may continue to experience delays in component deliveries and quality problems with respect to certain component deliveries, which have caused andbelieves that alternate suppliers could in the future cause delays in product shipments and have required and could in the future require the redesign of certain products.be arranged within a reasonable time so that material long-term adverse impacts would be minimized.  The Company generally has no written agreements with its suppliers. ThereTherefore, there can be no assurance that the Company will receive adequate component supplies on a timely basis in the future. The inability to continue to obtain sufficient supplies of components as required, or to develop alternative sources if required, could cause delays, disruptions or reductions in product shipments or require product rede signsredesigns which could damage relationships with current or prospectivep rospective customers, could increase costs and/or prices and could have a material adverse effect on the Company's business, financial condition and results of operations.

Dependence on Key Personnel

The Company's future operating results depend in a significant part upon the continued contributions of its key technical and senior management personnel, many of whom wouldmay be difficult to replace. The Company's future operating results also depend in significant part upon its ability to attract, train and retain qualified management, manufacturing and quality assurance, engineering, marketing, sales and support personnel. However, competition for such personnel is intense, and there can be no assurance that the Company will be successful in attracting, training or retaining such personnel now or in the future. There may be only a limited number of persons with the requisite skills to serve in these positions, and it may be increasingly difficult for the Company to hire such persons over time. The loss of any key employee, the failure of any key employee to perform in his or her curren t position, the Company's inability to attract, train and retain skilled employees as needed or the inability of the officers and key employees of the Company to expand, train and manage the Company's employee base could materially and adversely affect the Company's business, financial condition and results of operations.

Dependence on Availability, Recruitment and Retention of Technical Personnel

The Company depends upon its ability to attract, hire and retain technical personnel who possess the skills and experience necessary to meet the Company’s own personnel needs and the technical requirements of its clients.  Competition for individuals with proven technical skills remains strong, although it has become less intense over the last year.  The computer industry has historically experienced a high rate of attrition of such personnel.  The Company competes for such individuals with competitors, providers of outsourcing services, temporary personnel agencies, computer systems consultants, customers and potential customers. Failure to attract and retain sufficient technical personnel would have a material adverse effect on the Company’s business, operating results and financial condition.

Limited Operating History

Although the Company has been in existence since 1984, its current operations have been in place only since its acquisition of DarkHorse in 1996.  Accordingly, the Company is still in many respects subject to certain risks and uncertainties inherent in a new enterprise, including limited capital and other resources, reliance on key personnel, operating in a highly competitive environment, inability to develop long-term relationships with its customers, suppliers and lenders, lack of name recognition, higher overhead costs, and difficulty in addressing unanticipated problems, delays and expenses.

Uncertainty Regarding Protection of Proprietary Rights

In the semiconductor, computer, telecommunications and networking industries, it is typical for companies to receive notices from time to time alleging infringement of patents, copyrights or other intellectual property rights of others. While there is currently no pending intellectual property litigation involving the Company, the Company may from time to time be notified of claims that it may be infringing patents, copyrights or other intellectual property rights owned by third parties. There can be no assurance that third parties will not in the future pursue claims against the Company with respect to the alleged infringement of patents, copyrights or other intellectual property rights. In addition, litigation may be necessary to protect the Company's intellectual property rights and trade secrets, to determine the validity and scope of the proprietary rights of others or to defend ag ainstagainst third party claims of invalidity. Any litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, financial condition and results of operations.

There can be no assurance that infringement, invalidity, right to use or ownership claims by third parties or claims for indemnification resulting from infringement claims will not be asserted in the future. The failure to obtain a license under a patent or intellectual property right from a third party for technology used by the Company could cause the Company to incur substantial liabilities and to suspend the manufacture of the products utilizing the intellectual property. In addition, should the Company decide to litigate such claims, such litigation could be extremely expensive and time consuming and could materially and adversely affect the Company's business, financial condition and results of operations, regardless of the outcome of the litigation.

The Company attempts to protect its intellectual property rights through a variety of measures, including non-disclosure agreements, trademarks, trade secrets, patents and copyrights. 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 the Company can otherwise meaningfully protect its intellectual property rights.

Effects of Delisting from Nasdaq SmallCap Market; Lack of Liquidity of Low Priced Stocks

In July 1999, the Company’s stock was delisted from trading on the Nasdaq SmallCap Market, and on July 28, 1999, the Company’s stock began trading on the Nasdaq OTC Bulletin Board, which was established for securities that do not meet the Nasdaq SmallCap Market’s listing requirements.  Consequently, buying or 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.

In addition to delisting, trading in the Common Stock also is subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended, which require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a penny stock.  Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith, and impose various sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors (which are generally institutions).  For these types of transactions, the broker-dealer must make a special suitability determination for the purchase and have received the purchaser's written consent to the transaction prior to the sale.  The additional burd ensbu rdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in the Common Stock, which could severely limit the market liquidity of the Common Stock and the ability of stockholders to sell their shares of Common Stock in the secondary market.

Environmental Regulation

The Company's operations and manufacturing processes are subject to certain federal, state, local and foreign environmental protection laws and regulations. Public attention has increasingly been focused on the environmental impact of manufacturing operations that use hazardous materials or generate hazardous wastes, and environmental laws and regulations may become more stringent over time. There can be no assurance that failure to comply with either present or future regulations, or to obtain all necessary permits required under such regulations, would not subject the Company to significant compliance expenses, production suspensions or delay, restrictions on expansion at its present or future locations, the acquisition of costly equipment or other liabilities.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

The Company does not believe that there is any material market risk exposure with respect to derivative or other financial instruments., which would require disclosure under this item.

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ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

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TANISYS TECHNOLOGY, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements

Report of the Company and the related report of the Company’s independent public accountants thereon are included in this report at the pages indicated.

Consolidated Financial Statements at September 30, 2001 and 2000

and for the Fiscal Years Ended September 30, 2001, 2000 and 1999:

        Reports ofBurton, McCumber & Cortez, L.L.P., Independent Public Accountants.............Auditors………………………………..

 32      

Report of Brown, Graham and Company, P.C., Independent Auditors……………………...…….……..

 312633

Consolidated Balance Sheets at September 30, 20012002 and 2000.....................2001.....................…………………………..

 322834

Consolidated Statements of Operations for the Years Ended September 30, 2001,2002,

20002001 and 1999…2000………………………………………………………………..…...….........…….

 332935

Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended

September 30, 2002, 2001 2000 and 1999…2000…………………………………………………….…….....

 34036

Consolidated Statements of Cash Flows for the Years Ended September 30,

2002, 2001 2000 and 1999…2000………………………………………………………………..…......…….

 35137

Notes to the Consolidated Financial Statements.………………………………………………….……..

 362

38

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors

Tanisys Technology, Inc.:

We have audited the accompanying consolidated balance sheetssheet of Tanisys Technology, Inc. (a Wyoming corporation), and subsidiariesSubsidiaries as of September 30, 2001 and 2000,2002, and the related consolidated statements of operations, stockholders’Stockholders' equity, and cash flows for the yearsyear then ended.  The consolidatedThese financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.audit.

We conducted our auditsaudit in accordance with auditing standards generally accepted auditing standards.in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provideaudit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tanisys Technology, Inc., and subsidiariesSubsidiaries as of September 30, 20012002, and 2000, and the consolidated results of their operations and their consolidated cash flows for the yearsyear then ended in conformity with accounting principles generally accepted accounting principles.in the United States of America.

We have also audited Schedule II of the Company for the year ended September 30, 2002.  In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in note 1 to the consolidated financial statements, conditions exist which raise substantial doubt about the Company's ability to continue as a going concern including 1) the Company has incurred substantial losses in 2002 and 2001, has a history of losses, and has a deficit in stockholders’ equity and in working capital, 2) significantly all of the Company’s assets are pledged as collateral on existing debt and preferred stock.  Management's plans in regard to these matters are also described in note 1.  The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary shoul d the Company be unable to continue in existence.

/s/ Brown, Graham and Company P.C.BURTON McCUMBER & CORTEZ, L.L.P.

Austin,Brownsville, Texas

November 16, 200122, 2002

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Tanisys Technology, Inc.:

We have audited the accompanying consolidated balance sheets of Tanisys Technology, Inc. (a Wyoming corporation), and subsidiaries as of September 30, 2001, and 2000, and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended September 30, 2001 2000 and 1999.2000.  The consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Tanisys Technology, Inc., and subsidiaries as of September 30, 2001, and 2000, and the results of their operations and their cash flows for the years ended September 30, 2001 2000 and 1999,2000, in conformity with accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole.  Schedule II is presented for the purpose of additional analysis and is not a required part of the basic financial statements.  Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As shown in the financial statements, the Company has incurred net losses of $2,360,995 and $8,966,728 for the yearsyear ended September 30, 2001 and 1999, respectively. These factors,2001. This factor, and others discussed in Note 1, raise substantial doubt about Tanisys Technology, Inc.’s ability to continue as a going concern.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence

/s/ Brown, Graham and Company P.C.

Austin, Texas

October 30, 2001

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The accompanying notes are an integral part of these consolidated financial statements.

#

#

The accompanying notes are an integral part of these consolidated financial statementsstatement

s

tANISYS

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TANISYS TECHNOLOGY, INC.  AND SUBSIDIARIES           CONSOLIDATED STATEMENTS OF CASH FLOWS             For the Years Ended September 30, 2001          2000     1999 2002          2001     2000 Cash flows from operating activities:                     Net income (loss) Deduct: Net loss from discontinued operations $  (2,360,995)     $ 2,150,486   $   (8,966,728) -                      -       (10,010,050) Cash flows from operating activities of continuing operations:           Income (loss) from continuing operations (2,360,995)        2,150,486   1,043,322 Net income (loss) $(3,768,969)   $ (2,360,995)     $ 2,150,486 Adjustments to reconcile net income (loss) to cash used in operating activities:                     Depreciation and amortization 228,121           273,737               455,923 213,413   228,121           273,737 Amortization of warrant cost issued for debt -            78,056               184,287 -   -            78,056 Amortization of debt discount interest expense 168,801                     -   - 1,283,592   168,801                     - LossGain on sale of equipmentfixed assets 435,577769              5,233   - (Gain) loss on sale of fixed assets (15,584)   43,577              5,233 Stock issued for preferred dividends payable -             28,125   - -   -             28,125 Stock issued for interest -           119,444               133,333 -   -           119,444 Stock and stock options issued for services 39,700           437,338                 30,000 83,240   39,700           437,338 Stock warrants issued for financing costs -               8,105   - -   -               8,105 (Increase) decrease in restricted cash -            290,511   (136,240) -   -            290,511 (Increase) decrease in accounts receivable, net 1,112,649            263,973   (757,968) 146,593         1,112,649            263,973 (Increase) decrease in inventory (347,651)            (154,071)              383,484 586,062     (347,651)            (154,071) (Increase) decrease in prepaid expenses and other (247,390)             68,320   (81,182) 50,293   (2,390)             68,320 (Increase) decrease in other noncurrent assets (8,679)                      -   - -   (8,679)                      - Increase (decrease) in accounts payable and accrued liabilities (17156,545363)            (788,864)            (565,289) 314,864   (171,545)           (788,864) Net cash provided by (used in) operating activities of continuing operations (1,298326,412038)                  2,780,393              689,670 (1,106,496)      (1,298,412)           2,780,393 Cash flows from investing activities:                     Proceeds from the sale of equipmentfixed assets                2,192-                 4,000      - Purchases of equipmentfixed assets (190232,633329)            (170,876)   (192,156) Proceeds from the sale of equipment 24,215                  2,192                 4,000    Purchases of equipment -   (190,633)            (170,876) Other assets -                   (708)                   12,834 -   -                   (708) Net cash used in investing activities of continuing operations (188232,441329)            (167,584)   (179,322) Net cash provided by (used in) investing activities of continuing operations 24,215   (188,441)            (167,584) Cash flows from financing activities:                     Proceeds (repurchase) from issuance of common stock (8,000)          1,223,000                            - -   (8,000)          1,223,000 Proceeds from issuance of preferred stock          2,353575,000                        -                          - 17,500            2,353,000                        - Proceeds from issuance of debt            177,000                        -           2,000,000              Additional offering costs frorm preferred stock issue (170186,877059)                           -                         -   Proceeds from issuance of debt to stockholders 20,000              177,000                        - Additional offering costs for preferred stock issue (18,782)   (170,877)                           - Borrowings on revolving credit note          2,229,213          4,766,537           5,527,943 585,545            2,229,213          4,766,537 Repayments on revolving credit note (2,740,757)   (6,144,940)            (4,493,037) (522,373)   (2,740,757)   (6,144,940) PProceeds (payments) on capital lease obligations               (1922,054)642   (30,217)                (51,187) Borrowings on note to stockholder 43,138   -   - Payments on capital lease obligations (13,792)              (19,054)   (30,217) Proceeds from exercise of stock options or warrants                      360  -             144,333             558,750 -                   360             144,333 Net cash provided by (used in) financing activities of continuing operations          1,82092,885399   (41,287)           3,542,469 111,236            1,820,885   (41,287) Net cash provided by (used in) continuing operations             334,032             (2,571,522)          4,052,8176   (971,045)               334,032             2,571,522 Net cash from discontinued operations (565,821)   (1,654,694)         (3,607,314) Net cash used for discontinued operations (252,245)   (565,821)   (1,654,694) Increase (decrease) in cash and cash equivalents (231,789)             916,828             445,503 (1,223,290)   (231,789)             916,828 Cash and cash equivalents, beginning of year         1,601,777             684,949             239,446 1,369,988           1,601,777             684,949 Cash and cash equivalents, end of year   $    1,369,988      $   1,601,777       $      684,949   $        146,698     $    1,369,988      $   1,601,777    Supplemental disclosure of cash flow information:                      Interest paid     $      255,137    $      248,355       $       941,408 $          44,845       $      86,336    $      248,355   Non-cash investing and financing activities:                     Stock and stock options issued for services                     -            437,338                           30,000 Preferred stock dividend paid in preferred stock            53,2299                      -                 28,125 408,646              53,229                      - Preferred stock dividend paid in common stock                     -             57,611               114,331 -                       -             57,611 Amortization of beneficial conversion feature on preferred stock       2,465,200                                     -               865,493 -         2,465,200                                     - Equipment purchased with cCapital lease additions            41,696                                 -            1,094,039 Issuance of stock warrants in connection with issuance of debt to stockholders                       -                          -               461,538 Equipment purchased with capital lease -              41,696                                 - Repurchase of Series A Preferred Stock with accrued liabilities 127,611                         -                          - Cancellation of common stock              8,000                       -                      - -                8,000                       - Conversion of preferred stock to common stock                     -         1,846,017             1,424,485 -                       -         1,846,017 Conversion of debt to preferred stock             60,000                       -                          - -               60,000                       - CPreferred stock issued for offering costsonversion of debt to preferred stock              7 90,2000                       -                       - Preferred stock issued for offering costs -                7,200                       - Inventory transferred to fixed assets 39,588     -   - The accompanying notes are an integral part of these consolidated financial statements.                     TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended September 30, 2002, 2001 2000 and 1999 2000 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Company was incorporated under the laws of the State of Wyoming in 1993.  The principal business activity of the Company is to design, manufacture and market 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 memo ry test systems under the DarkHorse® Systems brand name.  The Company's customer base covers a number of worldwide markets including semiconductor manufacturers, memory module manufacturers, computing systems OEMs and contract manufacturing companies. Basis of Presentation The 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”), Rosetta Marketing and Sales Inc., and Tanisys (Europe) Ltd., which was located in Scotland (collectively, the “Company”). The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America accounting principles.America. All significant intercompany balances and transactions have been eliminated in consolidation.   The Company designs, manufactures and markets production level automated test equipment for a wide variety of 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 and liabilities and the loss from the sale of the memory module manufacturing business have been included in the accompanying consolidated financial statements as discontinued operations. (See Note 2 for discussion of discontinued operations) Going ConcernRealization of Assets The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted accounting principlesin the United StatesCompany has continued to generate operating losses throughout fiscal 2001 and 2002, as well as having a history of America, which contemplates continuation oflosses prior to fiscal 2000.  At September 30, 2002, the Company ashad a going concern.  Numerous factors could affect the Company’s operating results, including, but not limited to, general economic conditions, competition,negative working capital of $2,068,794 and changing technologies.  A change in anynegative equity of these factors could have an adverse effect on the Company’s consolidated financial position or results of operations.$1,842,418.  The Company experienced an operating losssis also in default with the payment terms of many of its suppliers.  In addition, the Company has no access to additional working capital, all of its assets are pledged, and it has received a “going concern” opinion from its independent auditors for both fiscal years ended September 30, 2002 and 2001.  Therefore, there can be no assurances that the Company can continue its operations in the future. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 19992000 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) of  $2,360,995 for the year ended September 30, 2001, even though it had net operating income of $2,150,486 for the year ended September 30, 2000. The Company had to raise additional capital in order to continue its operations in fiscal 2001 resulting in the issuance of Series A Preferred Stock and related debt (See Notes 7 and 9).  The current economic slowdown continues in the worldwide semiconductor industry resulting in concern over the sustainability of the Company’s revenues and its ability to attract additional capital if needed. In view of these matters, realization of a major portion of the assets in the accompanying consolidated balance sheet is dependent upon continued operations of the Company, which in turn may be dependent upon the success of its future operations.  Management believes that the Company’s reputation in the marketplace and its well respected product line will help generate revenues during the remainder of the economic downturn.  These revenues will result in a certain level of cash flow which, when coupled with the Company’s current cash position, will provide the opportunity for the Company to continue as a going concern.    Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be classified as cash equivalents.  Cash equivalents are carried at cost, which approximates market value.  The Company places its cash investments in high credit quality instruments.   TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Inventory Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of market value.  Inventory costs include direct materials and certain indirect manufacturing overhead expenses.  (See Note 3)   The Company’s policy concerning inventory impairmentwrite-down charges is to establish a new, reduced cost basis for the affected inventory that remains until the inventory is sold or disposed.  Only additional impairment charges could affect the cost basis.  If subsequent to the date of impairment it is determined that the impairment charges are recoverable, the Company does not increase the carrying costs of the affected inventory and corresponding income. Due to the dramatic decline in the semiconductor business cycle and impact on revenue since early 2001, and continued uncertainty of future sales volumes, the Company continues to monitor its inventory levels in light of product development changes and future sales forecasts.  As a result, the Company recorded a special charge to cost of goods sold of $520,367 in fiscal 2002 for the write-down of excess and obsolete inventories. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation is calculated using the straight-line method over the estimated useful lives, which range from three to seven years.  Leasehold improvements and assets subject to capital leases are amortized using the straight-line method over the shorter of the term of the lease or life of the asset.  Maintenance and repairs are expensed as incurred. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2000, 1999 and 1998 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Impairment of Long-Lived Assets The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets, including intangible assets, may not be recoverable.  When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted future cash flows.  If the total of future cash flows is less than the carrying amount of these assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Foreign Currency Translation The Company uses the U.S. dollar as its functional currency.  All revenue is invoiced and received in U.S. dollars.  On infrequent occasions, the Company may choose to pay immaterial amounts to suppliers in a foreign currency.  In fiscal 2001, the effect of foreign currency exchange rate fluctuations on the Company’s cash and cash equivalents was not material. The former Scotland subsidiary, Tanisys (Europe) Ltd., used the Pound Sterling as its functional currency. Income and expense items were translated into U.S. dollars at the average exchange rate prevailing during the period.  The aggregate translationaction  gains and losses included in the determination of net loss are not material for any period presented.  The stock of Tanisys (Europe) Ltd. was sold in December 1999. (See Note 2) Revenue Recognition Revenue from sales is recognized when persuasive evidence of an arrangement exists, such as a purchase order; the related products are shipped to the purchaser, typically freight on board shipping point or at the time the services are rendered; the price is fixed or determinable; and collectibility is reasonably assured.  The Company warrants products against defects, and accrues the cost of warranting these products as the items are shipped. The Company generally warrants its products against defects for a period of one year to all of its customers, including its distribution partners.  In the past, product warranty costs have not been material. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 1999 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Revenue Recognition Revenue from sales is recognized when persuasive evidence of an arrangement exists, such as a purchase order, the related products are shipped, typically freight on board shipping point or at the time the services are rendered; the price is fixed and determinable, and collectibility is reasonably assured.  The Company warrants products against defects, has a policy concerning the return of products and accrues the cost of warranting these products as the items are shipped.  2000 The Company sells its test systems directly to customers through its internal sales organization and through distribution partners in Asia.  The Company has entered into agreements with these distribution partners whereby they may purchase the Company’s test systems at a discount and resellaleresell the test systems to their customers. As part of the agreement, the distribution partners provide technical support to their customers. The Company generally warrants its products against defectsrecognizes revenue from engineering services and maintenance and support agreements as the services are performed.  Revenue from engineering services is recognized as the services are performed.  Maintenance and support agreements are typically for a set period of one year to alltime and revenue is recognized ratably over the duration of its customers, including its distribution partners.  In the past, product warranty costs have been insignificant.contracts.  Unearned revenue for engineering services and maintenance and support agreements are classified as accrued liabilities in the accompanying consolidated balance sheets. 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 obligatedresponsibleobligated for payment to the Company. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2000, 1999 and 1998 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Sales contracts with the Company’s customers do not typically include formal acceptance provisions or installation obligations.  At a customer’s request, the Company will provide an evaluation unit for the customer to qualify the test system as to the customer’s performance standards.  The Company does not recognize revenue on these evaluation units.  Once a customer completes its evaluation of the Company’s test system, the customer may return or purchase the test system.  If the customer purchases the test system, the Company recognizes the revenue upon receipt of the customer’s purchase order. The only volume discounts given by the Company are those that are negotiated prior to future sales and for a predetermined fixed period of time.  Therefore, no estimated volume discounts are required to be accounted for in the Company’s financial statements. Research and Development Research and development expenses relate primarily to the technological development and enhancement of the Company’s products.  Research and development costs are charged to expense as incurred. Advertising Advertising costs are expensed as incurred and amounted to $35,677 in fiscal 2002, $19,177 in fiscal 2001, and $21,037 in fiscal 2000, and $69,338 in fiscal 1999.2000. Stock Options, Warrants and Stock Issues From timeSFAS 123, “Accounting for Stock-Based Compensation,” establishes financial accounting and reporting standards for stock-based employee compensation plans and for transactions in which an entity issues its equity instruments to time,acquire goods and services from non-employees.  Under the guidance provided by SFAS 123, the Company may grant stock optionshas elected to its employees, directors,continue to account for employee stock-based compensation using the intrinsic value method prescribed in APB 25, “Accounting for Stock Issued to Employees,” and consultants as long-term incentives.  Stock options generally are granted at option prices not less than fair market value of the Common Stock on the date of grant.  Accordingly, stock options have value only if the price of the Common Stock appreciates after the date the options are granted.related Interpretations. Warrants are issued on occasion to lenders, consultants, and others as part of negotiations to obtain the best terms possible for the Company. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Stock Options, Warrants and Stock Issues From time to time, the Company may grant stock options to its employees, directors, and consultants as long-term incentives.  Stock options generally are granted at option prices not less than fair market value of the Common Stock on the date of grant.  Accordingly, stock options have value only if the price of the Common Stock appreciates after the date the options are granted. Warrants are issued on occasion to lenders, consultants, and others as part of negotiations to obtain the best terms possible for the Company. Common Stock has been issued in the past in lieu of cash payments for services provided to the Company in an effort to conserve cash.  When issued as payment for services, the Common Stock is generally issued at the equivalent of fair market value. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 Earnings (Loss) Per Common Share Earnings (loss) per common share is computed on the weighted average number of shares outstanding in accordance with SFAS 128, “Earnings Per Share.”  During periods in which the Company incurs losses, giving effect to common stock equivalents is not presented as it would be anti-dilutive. Amortization of Discount Amortization of beneficial conversion feature (“discount”) of convertible preferred stock (“stock”) is recognized and measured at the purchase date of the preferred stock.  The amount is calculated as the difference between the conversion price and the fair value of the common stock into which the preferred stock is convertible, multiplied by the number of shares into which the preferred stock is convertible (“intrinsic value”).  The intrinsic value of the beneficial conversion feature is limited to the proceeds received from the sale of the stock.  The discount assigned to the convertible preferred stock is amortized over the period to the securitiessecurities’ earliest conversion date and charged to retained earnings as a dividend. Amortization of Advisory Services Contract The discountcost associated with the contract with an individual to provide advisory services for a period of a note payable due to the effective rate differing from the stated ratethree years is being amortized as interest expense over the life of the note.contract. Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (“FASB”) issues SFAS No. 133, “Accounting for the Derivative Investments and Hedging Activities.” The statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or a liability measured at its fair value. The statement also requires that changes in the derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In July, 1999, FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date for FASB No. 133.” SFAS No. 137 deferred the effective date of SFAS No. 133 until the first fiscal year beginning after June 15, 2000. In June, 2000, the FASB issued SFAS No. 138 “Accounting for Derivative Instrum entsInstr uments and Hedging Activities- An Amendment of SFAS No. 133.” SFAS No. 138 amends the accounting and  reporting  standards for certain derivatives and  hedging activities such  as  net settlement  contracts, foreign currency translations and intercompany derivatives. The Company does not currently hold derivative instruments or engage in hedging activities. The adoption of the SFAS No. 133, as amended by SFAS No. 137 and 138, on October 1, 2000 did not have a material effect on the Company’s financial position, results of operationoperations or cash flows. In June 2001, the FASB issued two statements. SFAS No. 141, “Business Combinations,” and SFAS No. 142, Goodwill and Other Intangible Assets.” SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB No. 16 “Business Combinations.” All business combinations in the scope of this statement are to be accounted for using one method, the purchase method. SFAS No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB No. 17, “Intangible Assets.” It changes the accounting for goodwill from an amortization method to an impairment only approach. The provisionprovisions of SFAS No. 142 will beare effective for fiscal years beginning after December 15, 2000. The Company is still evaluating the impact of adopting these pronouncements on its results of operation. 2001. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 1999 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)2000 In August 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations. SFAS No.”  SFAS No. 143 requires, among other things, retirement obligations to be recognized when they are incurred and displayed as liabilities, with a corresponding amount capitalized as part of the related long-lived asset. The capitalized element must be expensed using a systematic and rational method over its useful life. The adoption of SFAS No. 143 is not expected to have a significant impact on the Company’s financial position, results of operationoperations or cash flow. In October 2001, the FASB issued SFAS 144 “ Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets,” which is required to be applied starting with fiscal years beginning after December 12,15, 2001. SFAS 144 requires, among other things, the application of one accounting model for long-lived assets that are impaired or to be disposed of by sale. The adoption of SFAS 144 is not expected to have a significant impact on the Company’s financial statements. In June 1997, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 130, “Reporting Comprehensive Income,” which establishes standards for reporting and displaying comprehensive income and its components in a full set of general purpose financial statements.  This statement became effective for the Company in fiscal 1999.  Comprehensive income generally represents all changes in stockholders’ equity except those resulting from contributions by stockholders.  There was no impact to the Company as a result of the adoption of SFAS No. 130, as there were no differences between net loss and comprehensive loss available to common stockholders for the years ended September 30, 2000 and 1999. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2000, 1999 and 1998 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In June 1997,November 2001, the FASBEmerging Issues Task Force (“EITF”) issued SFASEITF Issue No. 131, “Disclosures about Segments of an Enterprise and Related Information.01-09 (“EITF 01-09”), “Accounting for Consideration Given by a Vendor to a Customer/Reseller,” SFAS No. 131 requires publicly held companieswhich addresses the accounting for consideration given by a vendor to report financial and other information about key revenue-producing segmentsa customer including both a reseller of the vendor’s products and an entity for which such information is availablethat purchases the vendor’s products from a reseller.  EITF 01-09 also codifies and is utilizedreconciles related guidance issued by the chief operating decision maker.  Specific informationEITF including EITF No. 00-25 “Vendor Income Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products”(“EITF 00-25”).  EITF 01-09 outlines the presumption that consideration given by a vendor to a customer, a reseller or a customer of a reseller is to be reported for individual segments includes profit or loss, certain revenue andtreated as a deduction from revenue.  Treatment of such payments as an expense items and total assets.  A reconciliation of segment financial information to amounts reportedwould only be appropriate if two conditions are met: a) the vendor receives an identifiable benefit in the consolidated financial statements is also to be provided.  SFAS No. 131 became effectivereturn for the Companyconsideration paid that is sufficiently separable from the sale such that the vendor could have entered into an exchange transaction with a party other than the purchaser or its products in fiscal year 1999.order to receive that benefit; and b) the vendor can reasonably estimate the fair value of that benefit.  The Company has adopted this statement, but due to the sale of the memory module manufacturing business, the Company does not have operating segments. In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (FAS 133).  This statement, as amended, establishes accounting and reporting standards for derivative instruments and requires recognition of all derivatives as assets or liabilities in the balance sheet and measurement of those instruments at fair value.EITF 01-09 effective January 1, 2002.  The statement is effective for fiscal years beginning after June 15, 2000.  The company currently does not believe the adoption of FAS 133 willEITF 01-09 did not have a material impact on its consolidatedthe Company’s results of operations and financial statements. In December 1999,position in 2002 and is not expected to have a material impact in the Staff of the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”).  This SAB summarizes certain of the Staff’s views in applying generally accepted accounting principles to revenue recognition in financial statements.  The Company’s revenue recognition policy is in compliance with SAB 101.future. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period.  Actual results could differ from those estimates and such differences may be material to the financial statements. 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 operations have been classified as discontinued operations in all fiscal periods presented. Revenue of the discontinued operations was $0, $0, and $42,364,464 in fiscal 2001, 2000 and 1999, respectively.   TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 1999 1. DISCONTINUED OPERATIONS (Continued) 2000 The loss on the sale, as well as the costs associated with the disposition of the memory module manufacturing business, has beenwas recorded in the consolidated financial statements as of September 30, 1999. As of September 30, 2001,2002, the remaining future costs associated with the disposition of the discontinued operations was $378,160,totaled $275,914, including actual and estimated remaining balances of terminated equipment and real estate leases, legal and professional fees, related vendor liabilities, and other miscellaneous accrued expenses.    TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 2. DISCONTINUED OPERATIONS (Continued) Assets and liabilities of the memory module manufacturing business consisted of the following:     September 30,   2001   2000 Accrued liabilities   $         246,086    $     940,374 Accounts payable                   74,823              53,636 Current liabilities                 320,909            994,010 Non current liabilities                      57,251                  9,971 Net noncurrent liabilities   $$        378,160          $ 1,003,981   2002   2001 Accrued liabilities $   214,756    $    246,086 Accounts payable          61,158             74,823 Current liabilities          275,914   320,909 Non-current liabilities            -   57,251 Net non-current liabilities  $   275,914   $     378,160 3. INVENTORY Inventory consists of the following:   September 30, 2001   2000 2002   2001 Raw materials $     721,298      $   453,573 $   284,142   $     721,298    Work- in -process 35,887   93,941 Work in process 48,301   35,887 Finished goods 284,995   147,015 84,085   284,995 $  1,042,180   $   694,529 $   416,528   $  1,042,180 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following :following:   September 30, 2001   2000 2002   2001 Equipment $  1,214,572   $  1,059,188 $   1,145,666   $  1,214,572 Furniture and fixtures         68,579   202,976 68,579           68,579 Leasehold improvements         87,249   87,249 87,249           87,249    1,370,400   1,349,413 1,301,494      1,370,400 Less accumulated             depreciation and amortization (1,007,018)         (954,945) (1,109,669)   (1,007,018) $     363,382   $     394,468 $      191,825   $    363,382 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 Included in the amounts above is approximately $53,364 and $11,668 of property and equipment acquired under capital leases at September 30, 2001 and 2000, respectively.  The accumulated amortization related to these assets totaled approximately $18,442 and $8,190 at September 30, 2001 and 2000, respectively. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 19992000 4. PROPERTY AND EQUIPMENT (Continued)Included in the amounts above is approximately $41,696 and $53,364 of property and equipment acquired under capital leases at September 30, 2002 and 2001, respectively.  The accumulated amortization related to these assets totaled approximately $15,491 and $18,442 at September 30, 2002 and 2001, respectively. Depreciation and amortization expense includes depreciation and amortization of property and equipment. Depreciation and amortization expense iasis reflected in the accompanying consolidated statements of operations is as follows:                 Year Ended September 30,      2001      2000      1999 Cost of goods sold $        82,862    $         211,638   $    300,457 Operating expenses 145,259                 62,099   155,466   $      228,121    $         273,737       $    455,923      2002      2001   2000 Cost of goods sold    $       84,767   $        82,862    $       211,638 Operating expenses 128,646   145,259               62,099   $     213,413   $      228,121    $       273,737 5. ACCRUED LIABILITIES Accrued liabilities consist of the following:                 September 30,   2001   2000 Unearned revenue  $              -   $     39,167 Warranty 20,000   53,210 Salaries, wages, and commissions 95,945   331,855 Franchise, sales and property taxes 34,502   67,540 Interest payable 3,841   3,103 Professional fees 63,178   91,550 Offering Costs 3348,259441   - Engineering fees 5,918   - Other liabilities 8,955   12,073   $   26580,598780   $   598,498   2002   2001 Unearned revenue $   229,719    $              - Warranty 20,500   20,000 Salaries, wages, and commissions 110,671   95,945 Franchise, sales and property taxes 32,966   34,502 Interest payable 6,183   3,841 Professional fees 45,000   63,178 Offering Costs -   33,259 Engineering fees -   5,918 Other liabilities 26,017   8,955   $   471,056   $   265,598 6.         REVOLVING CREDIT NOTE On December 17, 1999, the Company entered into an agreement with Silicon Valley Bank (“the Bank”) under an Accounts Receivable Purchase Agreement to sell its receivables for a percentage of the face amount, not to exceed $2,000,000.  The Company was required to repurchase a receivable if it became more than 90 days old or if the debtor filed for bankruptcy.  This agreement was modified and extended for one year on April 3, 2000, to provide more favorable financing costs.  As part of the agreement, the Company issued stock purchase warrants that allows the Bank to purchase 50,000 shares of Common Stock at a price of $3.40 per share, which was market value on the date of the agreement. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 6.         REVOLVING CREDIT NOTE (Continued) TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 6.         REVOLVING CREDIT NOTE (Continued)  The warrants expire April 3, 2005. The Company and Silicon Valley Bank entered into a new Revolving Line of Credit agreement on September 19, 2000, to replace the former Accounts Receivable Purchase Agreement dated April 3, 2000.  The Revolving Line of Credit facility provided for financing of up to a maximum of $2,000,000 secured by the assets of the Company and had a maturity date of September 18, 2001.  The Revolving Line of Credit bore an interest rate of prime plus 1.5%, decreasing to a per annum rate of prime plus 1.0% effective on the first day of the month following three consecutive months wherein the Company maintained at least a 1.50 to 1.00 Quick Ratio.  The Revolving Line of Credit agreement also provided for a non-usage fee of 0.50% per annum.  In addition, the Company had certain covenants it had to meet throughout the term of the agreement.  As of TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 the amount owed on the Revolving Line of Credit was $88,456 and $$600,000, respectively.  However, the Company did not meet specified financial covenants for the quarter ended March 31, 2001, and therefore, had to convert to an Accounts Receivable Financing Agreement. On May 30, 2001, the Company entered into a newan Accounts Receivable Financing Agreement with Silicon Valley Bank (the “Bank”) to replace the former Revolving Line of Credit Agreement dated September 19, 2000.  As of September 30, 2001, the amount owed under this agreement was $88,456.  The loan facility providesprovided for the financing of up to $2,500,000 of the face amount of the Company’s accounts receivable of which the Bank willwould loan 80% on domestic accounts and 70% on eligible foreign accounts as determined solely by the Bank.  The applicable interest rate is prime plus 1.5%, decreasing to prime plus 1.0% if the Company is able to meet 90% of its planned revenue.  The Company does not believe it will meet the required planned revenue amounts before the maturity date of the loan facility.  The Accounts Receivable Financing Agreement also provides fo r a collateral handling fee equal to 0.50% per month of the average daily financed balance. The Accounts Receivable Financing Agreement has a maturity date of May 29, 2002 and contains certain quarterly financial covenants the Company must meet.  The Company failed to meet both the June 30, 2001 and September 30, 2001 financial covenants but received waivers of the covenants from the Bank.  In addition, the Company does not believe it will be able to meet the financial covenants for the quarter ended December 31, 2001 and March 31, 2002 due to the current economic situation.  However, the Company believes that the Bank will continue to provide financing of the Company’s accounts receivable, but the terms of the financing may be less favorable.  As part of the loan agreement, the Company issued stock purchase warrants that allows the Bank to purchase 25,000 shares of Common Stock at a price of $1.00 per share, which was market value on the date of the loan agreement. (see Note 10).The warrants expire on May 30, 2006. On March 22, 2002, the Company entered into an Accounts Receivable Purchase Agreement with Silicon Valley Bank to replace the former Accounts Receivable Financing Agreement dated May 30, 2001.  As of September 30, 2002, the amount owed under this agreement was $151,627.  This loan facility provides for the financing of accounts receivable up to an aggregate face amount not to exceed $2,500,000 of which the Bank will loan 80% on domestic accounts and 70% on eligible foreign accounts as determined solely by the Bank.  The finance charges for this loan facility are 1.5% per month of the average daily balance of the face amount of outstanding receivables financed by Silicon Valley Bank plus an administrative fee of 0.5% of the face amount of outstanding financed receivables as of the last business day of each month.  The Company is required to repurchase a receivable i f it becomes more than 90 days old or if the debtor files for bankruptcy.  This agreement will expire on March 21, 2003. 7. LONG-TERM DEBT In November 1998, the Company receivedissuedreceived $2,000,000 in debtandand issued notes with attached stock warrants to certain stockholders of the Company.  The debt was due in two years and carried an interest rate of 10 percent per annum, due quarterly and payable in either unregistered shares of Common Stock or cash, at the option of the Company.  One stock warrant was issued for every two dollars of debt, resulting in the issuance of 1,000,000 stock warrants.  Each warrant iswas exercisable into one share of Common Stock beginning on December 1, 1998, at an exercise price of $0.50 per share and increased to $1.00 per share after August 1, 1999. The exercise price increased to $2.00 per share on October 1, 2000.  The warrants expired on November 1, 2001. The noteholders were issued 0, 0, and 75,000 shares of Common Stock upon the exercise of certain warrants for the fisca lfiscal years endedende d September 30, 2002, 2001 and 2000, respectively. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 7. LONG-TERM DEBT (Continued) TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 7. LONG-TERM DEBT (Continued) The Company determined the fair value of the warrants to be approximately $461,538, and has reflected this value as a discount on the debt.  The debt discount was being amortized as interest expense over the life of the related debt. An additional 7,200 shares of Series A Preferred Stock were issued in September 2001, in lieu of cash, for costs related to the offering, as well as the issuance of a $7,200 note payable. In connection with the placement and issuance of this debt, the Company incurred costs of $21,350 and issued 50,000 stock warrants to the Company’s chairman of the board and 12,500 stock warrants to its legal counsel.  Each warrant was exercisable into one share of Common Stock at $0.02 per share beginning on December 1, 1998., and would expire on November 1, 2001.  As of September 30, 1999, all of these warrants had been exercised for 62,500 shares of Common Stock.  The Company valued the warrants at $1.20 per share, or $75,000.  For years prior to conversion, the total debt issuance costs of $96,350 have been reflected in other noncurrent assets in the accompanying consolidated balance sheet and are being amortized on the straight line method over the life of the related debt. During the second fiscal quarter of the year ended September 30, 2000, all of the $2,000,000 in debt to certain stockholders was converted to 4,000,000 shares of Common Stock.  Along with the notes payable to these stockholders, all related discounts and debt issuance costs were charged to Common Stock on the Consolidated TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 Balance Sheet for the fiscal year ended September 30, 2000.  For years prior to conversion, the total debt issuance costs of $96,350 have beenwas reflected in other noncurrent assets in the accompanying consolidated balance sheet and are beingwas amortized on the straight line method over the life of the related debt. On August 13, 2001, the Company entered into a Series A Preferred Stock Purchase Agreement in conjunction with a private placement financing with an investment group led by New Century Equity Holdings Corp. (“New Century”). (Nasdaq: NCEH), a Delaware corporation.  The financing consisted of the issuance of 2,642,2002,635,000 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$2,635,000.  An additional 7,200 shares of Series A Preferred Stock were issued in September 2001, in lieu of cash, for costs related to the offering as well as the issuance of a $7,200 note payable to the same  individual.  Thus, the private placement issuance totaled 2,642,200 shares of Series A Preferred Stock and notes payable of $2,642,200.  The note hasnotes have no interest, cannot be prepaid, and maturesmature on July 13, 2003.  Repayment ofnof the notenotes can only be made with payments calculated by multiplying the excess of the quarterly EBITDAearnings before interest, taxes, depreciation and amortization (EBITDA) over specified financial targets less quarterly capital expenditures over $300,000 by 50%.  These calculated payments are to be paid until the debt has been repaid in full.  As of September 30, 2002, no payments have been made on these notes due to the Company’s failure to meet the specified financial targets used in calculating the payments as provided for in the August 13, 2001 Series A Preferred Stock Purchase Agreement and related documents.  However, if the debt 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.  ba sis.  The Company does not expect to meet these financial targets through the July 13, 2003 maturity date and, therefore, anticipates the additional issuance of Series A Preferred Stock as stated effective July 13, 2003.  The Company has granted a security interest in all of its assets to secure the obligation to make the payments subject to the security interest of the Company’s bank loan facility. The Company, atAt August 13, 2001, the Company valued the notenotes payable to the Series A Preferred stockholders at $177,000, consisting of the face value of $2,642,200 and a discount on the debt of $2,465,200 to be amortized over the term of the note.note (see Note 9). For the fiscal yearyears ended September 30, 2002 and 2001, the Company charged $1,283,592 and $168,801 of the discount on the debt to interest expense, leaving arespectively.  At September 30, 20012002, the note balance totaled $1,607,006, net of discount, of $345,801, and is due during the year ended September 30,on July 13, 2003. 8. LEASE COMMITMENTS The Company leases certain equipment and office space under non-cancelable leases with expiration dates ranging from 2003 through 2005. Future minimum lease payments under all leases from continuing operations at September 30, 2002 were as follows:   Capital Leases   Operating Leases 2003 $ 17,141   $  103,922 2004  4,055   139,552 2005 -   93,530 Total minimum lease payments    21,196     (1,703)                                                          $  337,004 Amounts representing interest       Present value of minimum capital lease payments 19,493     Less: current portion (15,520)             Long-term capital lease obligation  $  3,973     TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 19992000 8. LEASE COMMITMENTS The Company leases certain equipment and office space under noncancellable leases with expiration dates ranging from 2001 through 2004. Future minimum lease payments under all leases from continuing operations at September 30, 2001 were as follows: TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 8. LEASE COMMITMENTS (Continued)   Capital Leases   Operating Leases 2002 $   17,296   $  157,954 2003    17,141   90,247 2004      4,054          - 2005              -   - 2006           -   - Total minimum lease payments         38,491                           ((5,206)   $  248,201 Amounts representing interest       Present value of minimum capital lease payments         33,285     Less: current portion    (13,791)             Long-term capital lease obligation $   19,494     Rent expense recorded under all operating leases was $128,435, $200,755 $197,600 and $405,228,$197,600, for the years ended September 30, 2002, 2001 2000 and 1999,2000, respectively.  Interest rates on the capital leases range from 12.5% to 15.8%.   9. PREFERRED STOCK The Company is authorized to issue 10,000,00050,000,000 shares of $1 par value Preferred Stock.  The Board of Directors may from time to time issue series of Preferred Stock with terms specified at their discretion. Pursuant to a Convertible Stock Purchase Agreement (the “Stock Purchase Agreement”), on 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.   The Series A Stock was convertible into the Company’s no par value common stock (“Common Stock”) at the option of the holder. The conversion price was the lesser of the fixed conversion price of $4.62 per share or a variable conversion price.  The Company has valued this beneficial conversion feature at $1,403,509 and has reflected this amount in additional paid-in capital and as a charge to the accumulated deficit as a dividend in the amount of $0, $0, and $865,493 for the years ended September 30, 2001, 2000 and 1999, respectively. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 9. PREFERRED STOCK  (Continued) prior to fiscal 2000. Dividends were payable quarterly in either cash or shares of Common Stock.  All dividends were paid in shares of Common Stock. For the years ended September 30, 2002, 2001 2000 and 1999,2000, the Company paid dividends of $0, $57,611$0, and $114,331$57,611 by issuing 0, 111,8290, and 54,867111,829 shares of Common Stock, respectively, based on the market value. Attached to the Series A Stock were warrants to purchase 100,000 shares of Common Stock.  During the year ended September 30, 2000, a portion of these warrants were exercised for 66,667 shares of Common Stock.  The remaining warrants are currently exercisable at $6.00 per share and expireexpired on June 30, 2002.  The Company has valued the warrants at $283,803 and has reflected this amount in additional paid-in capital during the year ended September 30, 1998. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 9. PREFERRED STOCK  (Continued) Attached to the Series A Stock were warrants to purchase 100,000 shares of Common Stock.  During the year ended September 30, 2000, a portion of these warrants were exercised for 66,667 shares of Common Stock.  The remaining warrants are currently exercisable at $6.00 per share and expire on June 30, 2002.  The Company has valued the warrants at $283,803 and has reflected this amount in additional paid-in capital during the year ended September 30, 1998. During the year ended September 30, 1999, the preferred stockholders converted 175 shares of Series A Stock for 767,599 shares of Common Stock. During the fiscal year ended September 30, 2000, the Company converted all of the remaining 225 shares of Series A Stock for 4,672,541 shares of Common Stock in the amount of $1,846,017. At September 30, 2001 and 2000, the carrying value of the Series A Stock consisted of the following:   2001 2000 Balance, October 1 $                  - $ 1,831,483    Amortization of  beneficial conversion feature -                  -    Conversion of preferred stock for Common Stock -   (1,831,483) Balance, September 30 $                  - $                -       The economic downturn that began 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.  As a result, the Company’s revenues decreased sharply resulting in a loss from operations for the fiscal year ended September 30, 2001.  Accordingly, the Company’s cash position deteriorated to a point where it was necessary to raise additional capital to meet ongoing needs. The Company’s Board of Directors has approved the issuance of 2,635,000 shares of Series A Preferred Stock (“Series A Preferred”) for $1.00 per share pursuant to a Series A Preferred Stock Purchase Agreement (the ”Agreement”) datedOn August 13, 2001.  The issuance of2001, the Series A Preferred Stock resulted from a private placement financing with an investment group led by New Century Equity Holdings Corp. (“New Century”) (Nasdaq: NCEH), a Delaware corporation.  New Century participated in the financing through the purchase of 1,060,000 shares of the Company’s Series A Preferred Stock.  The proceeds, net of offering costs of approximately $186,000, will be utilized to continue product development and marketing efforts and to provide working capital for the Company’s operations. The Company has issued 2,635,000 shares of Series A Preferred Stock (“Series A Preferred”) for $1.00 per share pursuant to a Series A Preferred Stock Purchase Agreement (the “Purchase Agreement”) dated August 13, 2001.  The issuance of the Series A Preferred Stock resulted from a private placement financing with an investment group led by New Century Equity Holdings Corp. (“New Century”) (Nasdaq: NCEH), a Delaware corporation.Century.  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 which represented approximately 40% of the original issuance of the Series A Preferred.  On August 13, 2001, the date the Purchase Agreement was signed, Mr. Parris H. Holmes, Jr., served as Chairman of the Board of Directors for both New Century and the Company.  The proceed sproceeds of $2,635,000, net of offering costs of approximatelyapproxim ately $171,000, will bewere utilized to continue product development and marketing efforts and to provide working capital for the Company’s operations. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 On September 28, 2001, the Company issued 7,200 shares of Series A Preferred in lieu of cash for costs relating to the offering. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIESIn February 2002, the Company issued 293,772 shares of its Series A Preferred to Mr. Holmes for advisory services to the Tanisys Board of Directors for a three-year period beginning December 12, 2001 and ending December 12, 2004.  The Series A Preferred issued to Mr. Holmes has the same rights as those shares issued on August 13, 2001.  These shares will be earned by Mr. Holmes over the three-year period with one-third being earned on each annual anniversary date beginning on December 12, 2002.  The Company has estimated the cost of the services based on the fair value of the stock. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years endedIn March 2002, the Company repurchased 121,856 shares of its Series A Preferred for $150,000 in accordance with a repurchase agreement with a certain investor.  The purchase amount is to be paid monthly through June 2003.  The amount owed totaled $115,000 and is included in net current liabilities of discontinued operations in the accompanying balance sheet at September 30, 2001, 2000 and 1999 9. PREFERRED STOCK  (Continued)2002. Each share of Series A Preferred is immediately convertible into 33.334 shares of Common Stock.  The holders of the Series A Preferred will beare entitled to a cumulative annual dividend of 15%, payable quarterly, which, at the option of New Century may be paid in cash or in additional shares of Series A Preferred.   On October 30, 2001, Aa dividendThe Company recorded dividends of 831,190 shares valued at $408,646 and 53,229 shares valued at $53,229 of Series A Preferred was paidStock to the holders of the Company’s Series A Preferred Stock for the quarterfiscal years ended September 30, 2001.2002 and 2001, respectively.   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 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 quarters 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.   It appears that the Company will not meet the specified financial targets for the quarter e nded December 31, 2001. 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 issued a note payable to the Series A Preferred stockholders in the amount of $2,642,200 with repayments only to be made to the extent the Company’s cash flow meets certain levels. (see Note 7)  In conjunction with the debt, the Company 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 repay the notes,note, plus the mandatory dividends, by July 15, 2003.  &nb sp;The Company hasha s 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 quartersquarter 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.  New Century received 400,794 of these shares of Series A Preferred.  On January 30, 2002, the Company issued 1,340,510 shares of Series A Preferred due to its failure to meet the December 31, 2001 financial targets, including 537,780 shares of Series A Preferred issued to New Century.  On July 31, 2002, the Company issued 1,693,696 shares of Serie s A Preferred due to its failure to meet the June 30, 2002 financial targets, including 657,091 shares of Series A Preferred issued to New Century.  The Company does not expect to meet the specified financial targets for the quarter endedsix months ending December 31, 2001. 2002. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 1999 9. PREFERRED STOCK  (Continued)2000 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 $2,465,200. Due to the Series A Preferred being immediately convertible, the $2,465,200 has beenwas recorded as a dividend in the consolidated financial statements. The Company, at August 13, 2001, valuedstatements for the Series A Preferred at $2,465,200 less offering costs of $186,059.  The Series A Preferred stock has a 15% per annum cumulative dividend which was declared and accrued in the amount of $53,299 onyear ended September 30, 2001. 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 havehas 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.  AtUpon the Company’s Annual Stockholders Meeting, the shareholders will vote on a proposal to authorize additional Common Stock necessary to facilitate the conversionclosing of the Series A Preferred.  The holders ofPurchase Agreement, the Series A Preferred will be entitled to vote with the holdersstockholders had 78% of the combined eligible voting power of the outstanding Common Stock atand Series A Preferred.  As of September 30, 2002, the meeting,Series A Preferred stockholders controlled 91% of the voting power of all stockholders of the Company.  If none of the financial targets included in the Purchase Agreement are met and willthe Company fails to pay the note payable to the Series A Preferred stockholders’ by July 13, 2003, then, by December 31, 2003, the Series A Preferred stockhol ders could potentially control sufficient votes to approveapproximately 94% of the proposal.  voting power of the Company, inclusive of all potentially dilutive options and warrants. In connection with the transaction described above, two members of the Board of Directors of the Company resigned, and New Century, appointed two directors toby authority designated in the Board.  Subject to certain requirements, New Century will havePurchase Agreement, has the right to appoint a third member tomaintain the majority of Board members.  As of September 30, 2002, New Century holds three of the Company’s five-memberfive Board positions including the Chairman of Directors. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999the Board.  Currently, only four Board positions are filled, with three being held by New Century.  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 members. 10.  STOCKHOLDERS’ EQUITY 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, 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. 10.  STOCKHOLDERS’ EQUITY (DEFICIT) 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, preferred stock or Series A Preferred Stock.  Any stockholder otherwise entitled to any fractional share interest due to the Reverse Split received, in lieu thereof, one additional share of Common Stock for the fractional share such stockholder would have been entitled to as a result of the Reverse Split. The number of shares and per share amounts of the Company’s Common Stock, warrants and stock options set forth herein have been retroactively adjusted for all periods presented to reflect the Reverse Split. Private Placement of Common Stock 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 arewere restricted securities.  The TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 transaction was exempt from registration pursuant to Section 4(1) of the Securities Act of 1933, as amended.  Proceeds of the private placement are beingwere used for working capital. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 10.  STOCKHOLDERS’ EQUITY (continued) Warrants During the years ended September 30, 2001 2000 and 1999,2000, the Company issued warrants to various individuals or companies for services in connection with debt.  No stock warrants were issued in fiscal 2002.  Each stock warrant entitles the holder to purchase one share of Common Stock at a particular price, in accordance with the vesting period and expiration date specified within each individual warrant agreement.  The shares issued upon exercise of these stock warrants are subject to resale restrictions.  The following summarizes the warrants issued by the Company:   For the Year Ended September 30,   2002 2001   2000 1999   Shares Stock Warrant Exercise Price   Shares Stock Warrant Exercise Price   Shares Stock Warrant Exercise Price Outstanding beginning of year 368,334 $0.72 to $10.75   380,001 $0.50 to $10.75   145,000 $6.00 to $10.75 Granted 25,000 $1.00   205,000 $  .48 to $  3.40   1,100,000  $  .02 to $   .50 Exercised - -   (216,667) $  .48 to $  6.00   (862,500)  $  .02 to $   .50 Expired (10,000) $10.12   -                        -   (2,499)                $ 6.82 Outstanding end of year 383,334 $0.72 to $10.75        368,334 $  .72 to $10.75         380,001  $ .50 to $10.75 Exercisable end of year 383,334 $0.72 to $10.75   368,334 $  .72 to $10.75   376,666 $  .02 to $10.75   Shares Stock Warrant Exercise Price   Shares Stock Warrant Exercise Price   Shares Stock Warrant Exercise Price Outstanding beginning of year      383,334 $0.72 to $10.75         368,334 $0.72 to $10.75         380,001 $0.50 to $10.75 Granted - -           25,000 $1.00         205,000 $  .48 to $  3.40 Exercised - -   - -   (216,667) $  .48 to $  6.00 Expired (270,834) $0.72 to $10.75   (10,000) $10.12   -                        - Outstanding end of year     112,500  $1.00 to $ 3.40        383,334 $0.72 to $10.75         368,334 $  .72 to $10.75 Exercisable end of year      112,500 $1.00 to $ 3.40         383,334 $0.72 to $10.75        368,334 $  .72 to $10.75 Stock Options The Company has two stock option plans.  .  All options granted under the plans are exercisable for Common Stock as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation.” TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 10.  STOCKHOLDERS’ EQUITY (continued) The 1993 Stock Option Plan permits grants to the Company's directors, key employees and consultants. The 1997 Non-Employee Director Plan permits grants to the Company's non-employee directors.  The stock options granted under each of these plans are granted with an exercise price at fair market value on the date of grant, vest ratably over a predefined period and expire no more than ten years from the date of grant.  At September 30, 2001,2002, the Company had reserved a total of 7,000,00057,000,000 shares of Common Stock for the plans. The following table summarizes information about stock options outstanding at September 30, 2001:2002:     Options Outstanding   Options Exercisable     Range of Exercise Prices   Shares Weighted Average Remaining Contractual Life (Years) Weighted-Average Exercise Price   Shares Weighted Average Exercise Price     $0.03 - $0.49   17,567,725.000000 6.9 $0.04   267,463.000000 $0.48     $0.50 - $0.99   1,789,025.000000 5.3 $0.52   572,605.000000 $0.52     $1.01 - $3.99   392,250.000000 3.9 $1.88   263,063.000000 $2.10     $4.00 and over   602,100.000000 2.3 $4.00   515,325.000000 $4.00         20,351,100.000000       1,618,456.000000       Options Outstanding Options Exercisable Range of Exercise Prices   Shares Weighted Average Remaining Contractual Life (Years) Weighted Average Exercise Price   Shares Weighted Average Exercise Price $0.03-$0.49   14,535,225 5.3 0.04   3,121,300           $0.07 $0.50-$0.99     1,085,375 4.5 0.52      629,862 0.52 $1.01-$3.99        251,300 3.5 1.68      213,413 1.77 $4.00 and over        474,600 2.3 4.00      469,600 4.00     16,346,500       4,434,175                   TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 1999 10.  STOCKHOLDERS’ EQUITY (continued)2000 A summary of the activity of the Company's stock option plans is presented below:     September 30,     2001   2000   1999     Shares Weighted Average Exercise Price   Shares Weighted Average Exercise Price   Shares Weighted Average Exercise Price Outstanding, beginning of year   4,829,750 $1.32   2,618,309 $3.22   2,198,459 $3.82 Granted   18,313,700 0.03   3,460,525 0.530000   705,350 1.680000 Cancelled or expired   (2,791,600.000000) 0.76   (1,249,084.000000) 3.020000   (240,500.000000) 4.000000 Exercised   (750.000000) 0.48   0.000000                    -   (45,000.000000) 3.500000 Outstanding, end of year   20,351,100.000000 0.24   4,829,750.000000 1.320000   2,618,309.000000 3.220000                     Options exercisable, end of year   1,618,456.000000 $1.86   627,225.000000 $3.19   921,392.000000 $3.70                     Weighted average fair value of                   options granted during                   the year     $1.03     $0.08     $0.92 September 30, 2002 2001 2000   Shares Weighted Average Exercise Price   Shares Weighted Average Exercise Price   Shares Weighted Average Exercise Price Outstanding, beginning of year  20,531,100    $0.24     4,829,750    $1.32     2,618,309    $3.22      Granted  10,846,250 0.03   18,313,700 0.03     3,460,525 0.53      Cancelled or expired (14,850,850) 0.12   (2,791,600) 0.76   (1,249,084) 3.02      Exercised           - 0.00             (750) 0.48            - - Outstanding, end of year  16,346,500 0.22   20,351,100 0.24     4,829,750 1.32                   Options exercisable, end of year    4,434,175     $0.63     1,618,456    $1.86        627,225    $3.19                   Weighted average fair value of      options granted during      the year       $0.01        $0.03        $0.08                   The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2002, 2001 2000 and 1999:2000: The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in fiscal 2001, 2000 and 1999:   For the Year Ended September 30,   2001   2000   1999 Dividend yield -   -   - Expected volatility 196.3%   52.3%   50.3% Risk-free interest rate    4.1%     5.8%     4.5% Expected life (years) 7             7             7 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 10.  STOCKHOLDERS’ EQUITY (continued)   2002   2001   2000 Dividend yield -   -   - Expected volatility 76.7%   196.3%   52.3% Risk-free interest rate  3.4%      4.1%     5.8% Expected life (years) 7   7             7 The Company applies Accounting Principles Board (“APB”) Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its plans.  Accordingly, no compensation cost has been recognized for grants under the stock option plans since the exercise price of the options equals the fair market value of the Common Stock on the date of grant. Had compensation cost for all stock option grants been determined based on fair market value at the grant dates consistent with the fair value method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income (loss) and net income ( loss)(loss) per share would have been increased (decreased) to the pro forma amounts indicated below: TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 19992000 10.  STOCKHOLDERS’ EQUITY (continued) For the Years Ended September 30,     2002   2001   2000 Net income (loss): As reported ($3,768,969)      ($2,360,995)        $2,150,486   Pro forma   (3,825,260)        (2,914,861)          1,883,663               Net income (loss) applicable    to common stock: As reported   (4,177,615)        (4,879,424)          2,107,358   Pro forma   (4,233,906)        (5,433,290)          1,840,535               Net income (loss) applicable    to common stock                per share: As reported (0.17)   (0.20)   0.11   Pro forma (0.18)   (0.23)   0.09     For the Year Ended September 30,     2001   2000   1999 Net income (loss) As reported ($2,360,995.000000)   $2,150,486.000000   ($8,966,728.000000)   Pro forma (2,914,861.000000)   1,883,663.000000   (9,622,699.000000)               Net income (loss) applicable             to common stock As reported (4,879,424.000000)   2,107,358.000000   (9,974,677.000000)   Pro forma (5,433,290.000000)   1,840,535.000000   (10,630,648.000000) Net income (loss) applicable             to common stock             per share As reported (0.20)   0.11   (0.87)   Pro forma (0.23)   0.09   (0.92) In 2000, diluted earnings per share was $0.10 as reported and pro forma diluted earnings per share was $0.09. 11. INCOME TAXES     For the years ended September 30, 2001, 20002002 and 1999,2001, the Company incurred consolidated net operating losses for U.S. income tax purposes of approximately $2X,321XXX,000, $12,575351,000000$2,076,000 and $2,570,000$2,302,000 and for non-U.S. income tax purposes of approximately $0XXX,XXX, $426,453$0 and $817,000,$426,000, respectively.  The tax loss carry-forwards of approximately $26XX,092XXX,000 at September 30, 2001 begin to expire in 2011.  At September 30, 20012002 and 2000,2001, the Company had temporary differences resulting in future taxable (income) and deductions of approximately ($40X, XXX,000000)$369,000 and $1,430,000,($40,000), respectively, principally representing differences in accounting and tax basis in accrued liabilities, reserves, depreciation and anticipated loss from discontinued operations. At September 30, 2002, the Company had net operating loss carry-forwards totaling approximately $6,000,000.  Due to the limitations provided for in Section 382 of the Internal Revenue Code of 1986, as amended (Code), and as a result of the sale of the Series A Preferred Stock on August 13, 2001, utilization of the net operating loss carry-forwards existing at that date (approximately $25,750,000) is limited to approximately $200,000 per year through 2021.  The balance of the net operating loss carry-forward (approximately $2,200,000) may be used to reduce taxable income in any future year through 2022.  Deferred income tax assets from the net operating loss carry-forwards and asset basis differences aggregatetotaled approximately $8X,,871XXX,000$2,100,000 and $8,343343,000$1,400,000 at September 30, 2002 and 2001, respectively, and 2000, respectively.a valuation allowance has been established in those amounts. For financial reporting purposes,Management believes that a valuation allowancesallowance is appropriate because of $8X,871 XXX, 000 and $8,343,000 at September 30, 2001 and 2000, respectively, have been recorded to offset the deferred tax assets due to the uncertainty as to whether the benefitsthat sufficient taxable income will be realized.generated by the Company in future taxable years to absorb the entire amount of such net operating losses. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 11. INCOME TAXES (Continued) The Company was unable to useAs mentioned above, the tax losses generated during the current year and prior years. TThe availability of the net operating loss carry-forwards and future tax deductions to reduce taxable income is subject to various limitations under the Internal Revenue Code, of 1986, as amended (the “Code”), in the event of ana further ownership change as defined in Section 382 of the Code.  The Company may lose the benefit of such net operating loss carry-forwards due to Internal Revenue Service (“IRS”) Code Section 382 limitations.change.  This section states that after reorganization or other change in corporate ownership, the use of certain carry-forwards may be limited or prohibited.  The Company believes that the limitation under the IRS Code Section 382 limitation did not exist as of September 30, 20010, and if triggered, the consequence is expected to have no mate rial impact on the Company’s consolidated financial position or results of operations. 12. 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 yearyears ended September 30, 2002 and 2001, diluted income or loss 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 and the conversion of 2,642,200 shares of Series A Stock and the impact of assumed conversions.  For the years ended September 30, 2000 and 1999, potentially dilutive securities have not been included in the diluted loss per common share calculation asTANISYS TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 19992000 12. EARNINGS PER SHARE Basic income or loss per common share is computed based on the weighted average numberconversion of common shares outstanding during each period. For the year ended September 30, 2001, diluted income or loss 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 options7,724,292 and warrants and the conversion of 2,642,200 shares of Series A Preferred Stock and the impact of assumed conversions.conversions, respectively.  For the yearyears ended September 30, 2002 and 2001, potentially dilutive securities have not been included in the diluted loss per common share calculation as they would have been antidilutive. The following table provides a reconciliation between basic and diluted shares outstanding:   2002   2001   2000 Weighted average number of   common shares used in basic   earnings per share 24,147,534   24,137,785   19,585,778              Effect of dilutive securities:              Stock options -   -   626,225    Warrants -   -   368,334    Preferred stock -   -   -             Weighted average number of   common shares and dilutive   potential common stock used   in diluted earnings per share                         24,147,534   24,137,785   20,580,337   2001   2000   1999 Weighted average number of   cCommon shares used in basic   earnings per share 24,137,785   19,585,778   11,522,077              Effect of dilutive securities:              Stock oOptions 1,618,456-   626,225   921,392    Warrants 383,334-   368,334   376,666    Preferred sStock 88,075,095-   -   2,345,786             Weighted average number of             common shares and dilutive             potential common stock used   in diluted earnings per share 24,137,785114,214,670   20,580,337   15,165,921 If potentially dilutive securities had been included in the loss per common share calculations, the reconciliation between basic and dilutive shares outstanding would be as follows: 2001 Weighted average number of   common shares used in basic   earnings per share 24,137,785 Effect of dilutive securities    Stock options 1,618,456    Warrants 383,334    Preferred stock 88,075,095 Weighted average number of   common shares and dilutive   potential common stock used   in diluted earnings per share 114,214,670   2002   2001 Weighted average number of   common shares used in basic   earnings per share 24,147,534   24,137,785          Effect of dilutive securities          Stock options 4,434,175   1,618,456    Warrants 112,500   383,334    Preferred stock 257,481,550   88,075,095         Weighted average number of         common shares and dilutive         potential common stock used   in diluted earnings per share 286,175,759   114,214,670 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 2000 and 1999 12. EARNINGS PER SHARE (Continued) The following data shows the amount used in computing diluted earnings per share and the effect on income: TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 12. EARNINGS PER SHARE (Continued) The following data shows the calculation of the income available to common stockholders used in computing diluted earnings per share;share:   2001   2000   1999    Income (loss) from continuing            Operations operations applicable to           common stockholders $ (4,879,424)   $  2,107,358   $    35,373    Income impact of assumed          conversions:                 preferred stock dividends -          43,128                  142,456              Income (loss) from continuing         operations after assumed      conversions of diluted            securities  (4,879,424)   2,150,486        177,829    Loss from discontinued      operations -                       -                        (10,010,050)    Net income (loss) applicable to         common stockholders      after assumed conversion of          dilutive securities $ (4,879,424)   $  2,150,486   $ 9,832,221   2002   2001   2000    Income (loss) from continuing            operations applicable to           common stockholders $(4,177,615)   $(4,879,424)   $ 2,107,358    Income impact of assumed          conversions:                 Preferred stock dividends -   -              43,128              Net income (loss) applicable to         common stockholders      after assumed conversion of          dilutive securities $(4,177,615)   $(4,879,424)   $  2,150,486 13. RELATED PARTY TRANSACTIONS On August 13, 2001, the Company issued 2,635,000 shares of Series A Preferred Stock for $1.00 per share pursuant to a Series A Preferred Stock Purchase Agreement to a group of investors (see Note 9).  New Century Equity Holdings Corp. (“New Century”) was the lead investor and participated by purchasing 1,060,000 shares of the Company’s Series A Preferred Stock.  The Company’s former Chairman of the Board of Directors, Mr. Parris H. Holmes, Jr., is also the Chairman of the Board of Directors for New Century.  Each Series A Preferred share is convertible into 33.334 shares of the Company’s Common Stock with voting rights on an as-if-converted basis.  As a result, the Series A Preferred stockholders have the majority of the voting stock. In connection with the transaction described above, two members of the Board of Directors of the Company resigned, and New Century, appointed two directors toby authority designated in the Board.  Subject to certain requirements, New Century will havePurchase Agreement, has the right to appoint a third member tomaintain the majority of Bo ard members.  As of September 30, 2002, New Century holds three of the Company’s five-memberfive Board positions including the Chairman of Directors.the Board.  Currently, there are only four Board positions filled with three being held by New Century.  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 members.  Therefore, New Century has the controlling interest in the Company. For the fiscal year ended September 30, 2001, the Company paid $41,819 to its Chairman of the Board for expenses related to the August 27,13, 2001 Series A Preferred Stock transactiontransaction.  These expenses were recorded as offering costs. General and administrative expense includes consulting fees and expenses in the amount of $968, $542, and $72,736 and $103,693 paid to the Company’s chairman with Common Stock, stock options, warrants or cash to the Company’s chairman for the fiscal years ended September 30, 2002, 2001 and 2000, and 1999, respectively. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 1. RELATED PARTY TRANSACTIONS (Continued) TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 13. RELATED PARTY TRANSACTIONS (Continued) General and administrative expense includes professional fees in the amount of $52,050 $53,711 and $45,000$53,711 paid to one of the Company’s outside legal counsel, who also served as corporate secretary of the Company until August 13, 2001, for legal services provided for the years ended September 30, 2001 2000 and 1999,2000, respectively.  All of these fees were paid with cash or Common Stock. In December 1999, the Company borrowed $200,000 from an officer of the Company for a short-term working capital bridge loan while the Company was finalizing its banking relationship with Silicon Valley Bank.  The loan was repaid in full in January 2000, including interest of $540. On January 12, 2000, the Company issued 575,000 shares of Common Stock to its chairman, president, secretary and legal consultants in connection with the sale of the memory module manufacturing business.  The TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 common Stock was valued at $223,300 based on the market value at the date of issue and has been included in the estimated loss on disposal of the memory module manufacturing business in the accompanying consolidated financial statements for the fiscal year ended September 30, 1999. On March 8, 2000, the Company issued 250,000 shares of Common Stock to its chairman, president, and secretary in connection with a private placement of Common Stock.  The Common Stock was valued at $200,000 based on the market value at the date of issue.  The amount was recorded as offering costs. In February 2002, the Company issued 293,772 shares of its Series A Preferred valued at $83,240 to Parris H. Holmes, Jr., Chairman of the Board of New Century, for advisory services to the Tanisys Board of Directors for a three-year period beginning December 12, 2001 and ending December 12, 2004.  The Series A Preferred issued to Mr. Holmes has the same rights as those shares issued on August 13, 2001.  These shares will be earned by Mr. Holmes over the three-year period with one-third being earned on each annual anniversary date beginning on December 12, 2002.  The expense recorded for fiscal 2002 is $40,172 with the balance being amortized over the remaining life of the agreement. On March 7, 2002, the Company’s Board of Directors appointed C. Lee Cooke, Jr. as Chief Executive Officer of the Company.  Mr. Cooke also currently serves as the Company’s Chairman of the Board of Directors.  As compensation for such Chief Executive Officer services, Habitek International, an entity owned by Mr. Cooke is entitled to receive $15,469 per month.  As of September 30, 2002, the Company has incurred $105,869 in costs relating to Mr. Cooke’s services of which $42,231 has been paid to Habitek International as of September 30, 2002. In June 2002, New Century provided a short-term working capital loan of $75,000 that was repaid by the Company in July 2002.  In August 2002, New Century provided a short-term working capital loan of $14,000.  In September 2002, New Century provided two short-term working capital loans of $7,000 and $21,995.  The Company renewed these notes plus the accrued interest.  Therefore, as of September 30, 2002, the Company owed New Century $43,138 for these working capital loans plus $245 of accrued interest at 12% per annum. The Company recorded dividends of 322,608 shares valued at $159,000 and 21,346 shares valued at $21,346 of the Company’s Series A Preferred Stock to New Century for the fiscal years ended September 30, 2002 and 2001, respectively. As provided for in the Series A Preferred Stock Purchase Agreement (“Purchase Agreement”) dated August 13, 2001 (see Note 9), New Century has the right to appoint three of the Company’s five-member Board of Directors.  New Century has exercised that right and has appointed three members to the Board of Directors, including C. Lee Cooke, Jr., the Company’s Chief Executive Officer and Chairman of the Board of Directors.  Mr. Cooke also serves on New Century’s Board of Directors.  Currently, there are only four board positions filled with three being held by New Century.  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 members.  Through ownership of the Company’s Series A Preferred Stock and its right to appoint the majority of the Board of Directors, New Century has the controlling interest in the Company. 14. SIGNIFICANT CUSTOMERS The following matrix provides a summary of the Company's customers with more than 10% of total net sales during the years ended September 30, 2002, 2001 and 2000, and customers from which the Company had accounts receivable that exceeded 10% of total accounts receivable at September 30, 2002, 2001 and 2000.  Amounts less than 10% are reflected as a dash. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 Customers A B C D E F G H I J Year Ended September 30, 2002                     Net Sales - 21.5% - - - - - - - 18.1% Accounts Receivable - 24.7% - - 21.4% - - - - 27.3%                       Year Ended September 30, 2001                     Net Sales - - - 26.2% - - - 10.6% 12.5%   Accounts Receivable 14.8% - - - - - - 34.7% - -                       Year Ended September 30, 2000                     Net Sales 18.7% - - 23.9% - - - - - - Accounts Receivable - - 18.0% 18.7% 12.5% 10.5% 23.2% - - -                       15. EMPLOYEE BENEFITS The Company sponsors The Tanisys Technology, Inc. 401(k) Plan (the “Plan”), which qualifies under Section 401(k) of the IRS Code for eligible employees.  Eligible employees may defer a portion of their annual compensation under the Plan subject to maximum limitations.  Generally, all employees of the Company who are 18 years of age are eligible for participation in the Plan on the first day of the month following their dates of hire.   Under provisions of the Plan, the Company may elect to make discretionary matching contributions to the Plan for the benefit of the participants.  No such discretionary contributions were made in fiscal 2002, 2001 or 2000. 1. COMMITMENTS AND CONTINGENCIES On April 1, 2002, the Company entered into a one-year agreement with its Vice President of Sales and Marketing, Mr. John R. Bennett, and continues thereafter on an annual basis unless terminated with 120 days’ notice.  Mr. Bennett’s salary was $60,000 per annum through June 30, 2002, at which time it increased to $127,000 per annum.  Mr. Bennett also receives commissions on the Company’s net sales.  Should the Company undergo a change of control of more than 40% of the voting power of all voting securities, Mr. Bennett will receive a bonus based on the gross value of the transaction. On September 1, 2002, the Company entered into a one-year employment agreement with its Vice President of Finance and Chief Financial Officer, Mr. Terry W. Reynolds, and may be extended at the sole discretion of the Company. Mr. Reynolds’ salary is $140,000 per annum.  Should the Company undergo a change of control of more than 40% of the voting power of all voting securities, Mr. Reynolds will receive a bonus based on the gross value of the transaction. From time to time, the Company could become involved in litigation in the normal course of business.  Such litigation could require significant resources.  At September 30, 2002, the Company was not engaged in any litigation. The Company relies on a combination of patents, trademarks, copyrights and trade secret laws, confidentiality procedures and licensing arrangements to protect its intellectual property rights.  There can be no TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2002, 2001 and 2000 assurance that there will not be any disputes regarding the Company’s intellectual property rights.  Additionally, competitors of the Company may be able to design around the Company’s patents.  To preserve its intellectual property rights in the event of a patent infringement, the Company could initiate litigation which would likely result in significant expense and divert the efforts of technical and management personnel. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On November 1, 2002, the Audit Committee of the Board of Directors of the Company engaged Burton McCumber & Cortez, L.L.P. (“BMC”) to replace Brown, Graham & Company, P.C. (“Brown”) as its independent public accountants for the fiscal year ended September 30, 2002.  Brown did not resign but was replaced by the Company with BMC.  Brown performed the independent audit of the Company’s consolidated financial statements for the fiscal years ended September 30, 1999 through 2001.  No disagreements concerning accounting and financial disclosure exist between the Company and either BMC or Brown. PART III. ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. The Company’s directors, executive officers and key employees and their respective ages and positions as of December 30, 2002 are as follows: Name Age Position(s) Carlton Lee Cooke, Jr.                             58 President, Chief Executive Officer and Chairman of the Board of Directors (2) John R. Bennett 42 Vice President of Sales and Marketing Paul R. Hunter 47 Vice President of Engineering Terry W. Reynolds 46 Vice President of Finance and Chief Financial Officer Justin L. Ferrero 28 Director (1) David P. Tusa 41 Director (1) Theodore W. Van Duyn 52 Director (2) ______________________ (1) Member of the Audit Committee. (2) Member of the Compensation/Stock Option Committee. The following are biographies of the Company’s executive officers and directors, including all positions currently held with the Company and positions held during the last five years.  C. Lee Cooke has served as Chairman of the Board since February 2002 and as Chief Executive Officer since March 2002.  He was Special Advisor to the Board from August 2001 to February 2002.  Mr. Cooke serves as a Director with New Century, a holding company focused on high growth, technology-based companies and investments.  Since September 1991, he has been Chairman of the Board and Chief Executive Officer of Habitek International, Inc., d/b/a U.S. Medical Systems, Inc.  Mr. Cooke is also a director of Sharps Compliance Corp., a provider of mail-back medical disposal, and serves as an advisory director to M2K, an interactive marketing firm, and the Staubach Group, CTLLC.  He was President and Chief Executive Officer of Cuville, Inc., d/b/a Good2CU.com, from 1999 until 2000.  Mr. Cooke served as Chief Executive Office r of The Greater Austin Chamber of Commerce from 1983 to 1987.  From 1988 to 1991 he served in the elected position as Mayor of Austin, Texas. John R. Bennett,Vice President of Sales and Marketing, joined the Company in November 1996 with many years of sales and marketing experience in the electronics, computer and peripherals businesses.  Prior to being appointed Vice President in October 1997, Mr. Bennett served as Director of Sales at Tanisys, with prior responsibilities for the sales management of Tanisys' DarkHorse line of memory test equipment.  Other positions held by Mr. Bennett include Senior Consultant, IBM, from October 1995 to November 1996, Vice President, Marketing, CACTUS Inc., from August 1994 to October 1995 and National Marketing Manager and National Sales Manager, CalComp (Division of Lockheed), from July 1988 to August 1994. Paul R. Hunter,Vice President of Engineering, joined the Company in February 1997 with over 20 years experience in the electronics and computer industry.  Prior to being appointed Vice President in March 2002, Mr. Hunter was the Director of Engineering at Tanisys.  From 1988 to 1997, he was the Technical Director of a high-reliability electronics packaging research program and a principal investigator and lead engineer on several DARPA-sponsored computer architecture projects, all at the Microelectronics and Computer Technology Corporation.  Prior to 1988, Mr. Hunter designed test equipment and application-specific high-performance computers while employed at Texas Instruments and several other large and small companies.  Mr. Hunter has been awarded five patents on test equipment design. Terry W. Reynolds,CPA, joined the Company as Vice President of Finance in January 2000.   He currently serves the Company as Vice President of Finance and Administration as well as the Company’s Chief Financial Officer.  Prior to joining the Company, Mr. Reynolds served from October 1998 to December 1999 as Chief Financial Officer of Doyle Wilson Homebuilder.  From September 1996 to October 1998, he was the Chief Financial Officer for Windsport, and prior to that he worked for the public accounting firms of Charles Douthitt & Co. and Arthur Andersen LLP.  He has over 20 years experience in financial management and has also held positions with Chrysler Technologies Corporation and First Financial Corporation. Justin L. Ferrero has served as a Director since August 2001.  Mr. Ferrero is also a Director with New Century Equity Holdings Corp., a holding company focused on high growth, technology-based companies and investments.  He has also served as a Director with Clique Capital, LLC, a company of experienced venture investors providing initial and secondary funding for high-growth companies in a wide range of industries, including technology, new economy and healthcare.  Mr. Ferrero currently is a Partner with the Convex Group, a media production company focused on integrated brand marketing.  His primary focus with the Convex Group is raising capital, strategic alliances, and merger and acquisitions. David P. Tusa,CPA, has served as a Director and as Corporate Secretary since August 2001.  Mr. Tusa has served as Senior Vice President and Chief Financial Officer of New Century Equity Holdings Corporation, a holding company focused on high-growth, technology-based companies and investments, since August 1999 and was appointed Corporate Secretary in January 2001.  Mr. Tusa was Executive Vice President and Chief Financial Officer of U. S. Legal Support, Inc., a provider of litigation support services with over 36 offices in seven states, from September 1997 to August 1999.  Prior to this, Mr. Tusa served as Senior Vice President and Chief Financial Officer of Serv-Tech, Inc., a $300 million, publicly held provider of specialty services to industrial customers in multiple industries, from April 1994 through August 1997.  Additionally , Mr. Tusa was with CRSS, Inc., a $600 million, publicly held diversified services company, from May 1990 through April 1994, most recently as Corporate Controller. Theodore W. Van Duynhas served as a Director since March 1994.  Mr. Van Duyn was Chief Technology Officer of BMC Software, Inc. from February 1993 to August 2000.  Mr. Van Duyn joined BMC Software, Inc. in 1985 as Director of Research and served as Senior Vice President, Research and Development, from 1986 until assuming the position of Chief Technology Officer in 1993.  He retired from BMC Software, Inc. in August 2000. All directors hold office for their elected terms or until their successors are duly elected and qualified.  If a director should be disqualified or unable to serve as a director, the Board of Directors may fill the vacancy so arising for the unexpired portion of his term.  All officers serve at the discretion of the Board of Directors.  There are no family relationships between members of the Board of Directors and any executive officers of the Company.   ITEM 11. EXECUTIVE COMPENSATION. The following Summary Compensation Table sets forth information concerning compensation of the Company’s Chief Executive Officer and each of the four other most highly compensated executive officers of the Company whose base salary and bonus exceeded $100,000 for fiscal year 2001. Summary Compensation Table Long-Term Compensation Awards            All Fiscal Annual Compensation Restricted          Stock Securities Underlying Other Compensation Name and Principal Position Year   Salary ($)   Bonus ($)   Award(s) ($) Options (#)   ($) Richard M. Brook(1) 2002   $    120,212    $     -    $        - 6,600,000       $        - Former President, Chief 2001   -           -   - -   -  Executive Officer and 2000   -           -   - -   -         Director                                                Carlton Lee Cooke, Jr. 2002   102,231   -   - 125,000   -       President, Chief Executive 2001   -   -   - -   -       Officer and Chairman of the 2000   -   -   - -   -       Board                                           John R. Bennett 2002          182,062   -   - 261,250   -        Vice President of Sales 2001   168,332   -   -     1,045,000   -        and Marketing 2000   163,083   -   -        220,000   -                       Paul R. Hunter (2) 2002   130,559   7,500   - 231,250   -       Vice President of 2001   -   -   - -   -       Engineering 2000   -   -   - -   -                       Terry W. Reynolds 2002   132,238   7,500   - 250,000   - Vice President of Finance   2001   131,983   -   - 1,000,000   -        and Administration 2000   70,839 (3) 40,540   - 200,000                 -        and Chief Financial Officer                     (1) Mr. Brook resigned as Director, Chief Executive Officer, and President effective March 7, 2002. (2) Mr. Hunter was promoted to Vice President of Engineering in March 2002. (3) The amount shown reflects the salary of Mr. Reynolds from January 16, 2000, the beginning date of his employment with the Company, through the end of fiscal 2000. Stock Option Grants in Fiscal 2002 The following table provides information related to stock options granted to the named executive officers during fiscal 2002: Individual Grants % of Total Potential Realizable Number of Options Value at Assumed Securities Granted to Exercise Annual Rates of Stock Underlying Employees or Base Price Appreciation for Options In Fiscal Price Expiration Option Term (2) Name   Granted (#)(1)   2002   ($/Sh)   Date   5%($)   10%($) Richard M. Brook   6,600,000   65.4%   $.03   04/11/02   -   -                           Carlton Lee Cooke, Jr.   125,000   1.2%   $.03   10/26/08   5,277   7,308                           John R. Bennett   261,250   2.6%   $.03   10/26/08   11,028   15,273                           Paul R. Hunter   231,250   2.3%   $.03   10/26/08   9,762   13,519                           Terry W. Reynolds   250,000   2.5%   $.03   10/26/08   10,553   14,615 (1) For each named executive officer, the options listed represent grants under the Company’s 1993 Stock Option Plan. The options granted in fiscal 2002 are exercisable one-fourth on each of the four anniversaries following the date of grant except for Mr. Brook’s options which expired on April 11, 2002, due to his termination of employment. (2) Calculations based on stock option exercise price over period of option assuming annual compounding.  The columns present estimates of potential values based on certain mathematical assumptions.  The actual value, if any, that an executive officer may realize is dependent upon the market price on the date of option exercise. Aggregated Stock Option Exercises in Fiscal 2002 and Fiscal Year End Option Values The following table provides information related to stock options exercised by the named executive officers during the fiscal year and the number and value of options held at fiscal year end.  The Company does not have any outstanding stock appreciation rights. Individual Grants Shares Number of Securities Value(1) of Unexercised Acquired Underlying Unexercised In-the-Money Upon Option Value Options at FY End(#) Options at FY End($) Name Exercise (#)   Realized (1)   Exercisable   Unexercisable   Exercisable   Unexercisable Richard M. Brook 0   N/A   -   -   -   - Carlton Lee Cooke, Jr. 0   N/A   125,000   500,000   -   - John R. Bennett 0   N/A   423,125   1,158,125   -   - Paul R. Hunter 0   N/A   322,575   990,475   -   - Terry W. Reynolds 0   N/A   350,000   1,100,000   -   - (1) Market value of the underlying securities at September 30, 2002 ($0.01), minus the exercise price. Report of Compensation and Stock Option Committee The Compensation and Stock Option Committee of the Board of Directors of the Company has furnished the following report regarding the repricing of options during fiscal 1998.  All options repriced during fiscal 1998 resulted from an exchange of options under the 1993 Option Plan for new options with a lower exercise price under the same plan. The Committee believes that the value of the Company to its stockholders is necessarily dependent upon the Company’s ability to attract and retain qualified and competent employees.  The 1993 Option Plan was expressly established to provide an additional incentive to such individuals to continue in the service of the Company.  In September of 1998, the Committee believed that the value of certain options previously granted to key employees under the 1993 Option Plan had eroded to such an extent that the intended incentive to such employees had failed, and that as a result, it was in the best interests of the Company and its stockholders to reprice such options.  The Committee believes that by repricing the options previously granted under the 1993 Stock Option P lan, the Company restored the incentive for such employees.  The options granted in replacement of previously granted options were made with an exercise price equal to the fair market price of the underlying Common Stock on the date of the repricing.  The number of shares subject to exercise and the vesting periods remain unchanged. Ten-Year Option Repricings The following table provides information related to each option repricing held by any executive officer of the Company during the last ten completed fiscal years. Name and Principal Position Date Number of Securities Underlying Options Repriced or Amended (#) Market Price of Stock at Time of Repricing Amendments ($) Exercise Price at Time of Repricing Amendments  ($) New Exercise Price  (2) ($) Length of Original Option Term Remaining at Date of Repricing Amendment John R. Bennett 10/10/96 10,000 $3.50 $8.18 $3.50 1 Month    VP – Sales 5/15/97 15,000 $3.50 $6.82 $3.50 20 Months               Employee Benefit Plans 401(k) Plan The Company maintains the Tanisys Technology, Inc. 401(k) Plan (the “401(k) Plan”).  Participation in the 401(k) Plan is offered to eligible employees of the Company or its subsidiaries (collectively, “Participants”).  Generally, all employees of the Company or its subsidiaries who are 18 years of age are eligible for participation in the 401(k) Plan, with no minimum employment period. The 401(k) Plan is a form of defined contribution plan that provides that Participants generally may make voluntary salary deferral contributions, on a pre-tax basis, of between 1% and 15% of their base compensation in the form of voluntary payroll deductions up to a maximum amount as indexed for cost-of-living adjustments (“Voluntary Contributions”). On January 1, 2001, the Company began contributing 50% of the first 2% of a Participant’s compensation contributed as salary deferral.  Due to economic conditions, the Company ceased contributing to the 401(k) Plan effective July 16, 2001.  Morgan Stanley is the trustee of the Company’s 401(k) Plan. 1993 Stock Option Plan The Company’s 1993 Stock Option Plan (as thereafter amended, the “1993 Option Plan”) is administered by a committee (the “Compensation/Stock Option Committee”) which currently consists of two non-employee members of the Board of Directors, Mr. C. Lee Cooke and Mr. Theodore W. Van Duyn.  The 1993 Option Plan grants broad authority to the Compensation/Stock Option Committee to grant options to key employees and consultants selected by such committee; to determine the number of shares subject to options; the exercise or purchase price per share, subject to regulatory requirements; the appropriate periods and methods of exercise and requirements regarding the vesting of options; whether each option granted shall be an incentive stock option (“ISO”) or a non-qualified stock option (“NQSO”) and whether restrictions such as repurchase options are to be imposed on shares subject to options and the nature of such restrictions, if any.  In making such determinations, the Compensation/Stock Option Committee may take into account the nature and period of service of eligible participants, their level of compensation, their past, present and potential contributions to the Company and such other factors as the Compensation/Stock Option Committee in its discretion deems relevant.  The purposes of the 1993 Option Plan are to advance the best interests of the Company by providing its employees and consultants who have substantial responsibility for the Company’s management, success and growth, with additional incentive and to increase their proprietary interest in the success of the Company, thereby encouraging them to remain in the Company’s employ or service. The 1993 Option Plan further directs the Compensation/Stock Option Committee to set forth provisions in option agreements regarding the exercise and expiration of options according to stated criteria.  The Compensation/Stock Option Committee oversees the methods of exercise of options, with attention being given to compliance with appropriate securities laws and regulations. The options have certain anti-dilution provisions and are not assignable or transferable, other than by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order.  During the lifetime of an optionee, the options granted under the 1993 Option Plan are exercisable only by the optionee or his or her guardian or legal representative.  The Company or its subsidiaries may not make or guarantee loans to individuals to finance the exercise of options under the 1993 Option Plan.  The duration of options granted under the 1993 Option Plan cannot exceed ten years (five years with respect to a holder of 10% or more of the Company’s shares in the case of an ISO). The 1993 Option Plan provides for the grant of ISOs under Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), and stock options that do not qualify under Section 422 of the Code (“NQSOs”).  The option price for ISOs may not be less than 100% of the fair market value of the Common Stock on the date of grant, or 110% of fair market value with respect to any ISO issued to a holder of 10% or more of the Company’s shares.  The exercise price of NQSOs also is limited to the fair market value of the Common Stock on the date of grant.  Common Stock issued under the 1993 Option Plan may be newly issued or treasury shares.  The 1993 Option Plan does not permit the use of already owned Common Stock as payment for the exercise price of options.  If any option granted under the 1993 Option Plan terminates, e xpires or is surrendered, new options may thereafter be granted covering such shares.  Fair market value is defined as the closing price of the Common Stock as reported for that day on the Nasdaq OTC Bulletin Board. The stockholders of the Company approved the 1993 Option Plan on March 31, 1994, which was adopted by the Board of Directors on October 25, 1993.  Under the terms of the 1993 Option Plan, as amended in the 2002 Annual Meeting of Stockholders, 45,000,000 shares of Common Stock are reserved for the granting of options.  At September 30, 2002, options to purchase 11,319,625 shares have been granted and are outstanding. The 1993 Option Plan terminates on October 24, 2003.  The Compensation/Stock Option Committee is authorized to amend or terminate the 1993 Option Plan at any time, except that it is not authorized without stockholder approval (except with regard to adjustments resulting from changes in capitalization) to (i) reduce the option price at which an ISO may be granted to an amount less than the fair market value per share at the time such option is granted; (ii) change the class of employees eligible to receive options; (iii) materially modify the requirements as to affiliate eligibility for participation in the 1993 Option Plan; (iv) materially increase the benefits accruing to participants under the 1993 Option Plan; or (v) effect an amendment that would cause ISOs issued pursuant to the 1993 Option Plan to fail to meet the requirements of “incentive stock opti ons” as defined in Section 422 of the Code, provided, however, that the Compensation/Stock Option Committee shall have the power to make such changes in the 1993 Option Plan and in the regulations and administrative provisions thereunder or in any outstanding option as in the opinion of counsel for the Company may be necessary or appropriate from time to time to enable any ISOs granted pursuant to the Plan to continue to qualify as “incentive stock options” under the Code and the regulations which may be issued thereunder as in existence from time to time. On December 6, 2000, the Company filed Registration Statement on Form S-8 with the Commission requesting that 7,000,000 shares of Common Stock be registered and set aside for both of the Company’s stock option plans, including the 5,000,000 shares of Common Stock subject to the 1993 Option Plan. Employment Agreements On April 1, 2002, the Company entered into a one-year agreement with its Vice President of Sales and Marketing, Mr. John R. Bennett, and continues thereafter on an annual basis unless terminated with 120 days’ notice.  Mr. Bennett’s salary was $60,000 per annum through June 30, 2002, at which time it increased to $127,000 per annum.  Mr. Bennett also receives commissions on the Company’s net sales.  Should the Company undergo a change of control of more than 40% of the voting power of all voting securities, Mr. Bennett will receive a bonus based on the gross value of the transaction. On September 1, 2002, the Company entered into a one-year employment agreement with its Vice President of Finance and Chief Financial Officer, Mr. Terry W. Reynolds, and may be extended at the sole discretion of the Company.  Mr. Reynolds’ salary is $140,000 per annum.  Should the Company undergo a change of control of more than 40% of the voting power of all voting securities, Mr. Reynolds will receive a bonus based on the gross value of the transaction. Compensation Committee Interlocks and Insider Participation None. Compensation/Stock Option Committee Report on Executive Compensation General.  The Compensation/Stock Option Committee of the Board of Directors of the Company (the “Committee”) has furnished the following report on the Company’s executive compensation policies.  The report describes the Committee’s compensation policies applicable to the Company’s executive officers and provides specific information regarding the compensation of the Company’s Chief Executive Officer. (The information contained in the report shall not be deemed to be “soliciting material” or to be “filed” with the Commission, nor shall such information be incorporated by reference into any future filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such fili ng.) The Committee is comprised of two directors, Messrs. Cooke and Van Duyn, and oversees all aspects of the Company’s executive compensation policy and reports its determinations to the Board of Directors.  The Committee’s overall goal is to develop executive compensation policies that are consistent with, and linked to, strategic business objectives and Company values.  The Committee approves the design of, assesses the effectiveness of, and administers executive compensation programs in support of, the Company’s compensation policies.  The Committee also reviews and approves all salary arrangements and other remuneration for executives, evaluates executive performance and considers related matters. Compensation Philosophy.  The Company’s executive compensation policies have four primary objectives: to attract and retain highly competent executives to manage the Company’s business, to offer executives appropriate incentives for accomplishment of the Company’s business objectives and strategy, to encourage stock ownership by executives to enhance mutuality of interest with stockholders and to maximize long-term stockholder value.  The Committee believes that the compensation policies should operate in support of these objectives and should emphasize the following:  a long-term and at-risk focus, a pay-for-performance culture, an equity orientation and management development. Elements of Compensation.  Each element of compensation considers median compensation levels paid within the competitive market.  Competitive market data compares the Company’s compensation practices to a group of comparable companies that tend to have similar sales volumes, market capitalizations, employment levels and lines of business.  The Committee reviews and approves the selection of companies used for compensation comparison purposes. The key elements of the Company’s executive compensation are base salary, annual incentive and long-term incentive.  These key elements are addressed separately below.  In determining compensation, the Committee considers all elements of an executive’s total compensation package. Base Salaries.  Base salaries for executives are initially determined by evaluating executives’ levels of responsibility, prior experience, breadth of knowledge, internal equity issues and external pay practices.  Base salaries are below the size-adjusted medians of the competitive market. Increases to base salaries are driven primarily by individual performance.  Individual performance is evaluated based on sustained levels of individual contribution to the Company.  When evaluating individual performance, the Committee considers the executive’s efforts in promoting Company values, continuing educational and management training, improving product quality, developing relationships with customers, suppliers and employees, and demonstrating leadership abilities among co-workers.  As the former President and Chief Executive Officer, Mr. Richard M. Brook received $180,000 annualized base salary.  As President and Chief Executive Officer effective March 8, 2002, Mr. Carlton Lee Cooke, Jr. received $180,000 annual base salary. Annual Incentive.  Each year, the Committee evaluates the performance of the Company as a whole, as well as the performance of each individual executive.  Factors considered include revenue growth, net profitability and cost control.  The Committee does not utilize formalized mathematical formulae, nor does it assign weightings to these factors.  The Committee, in its sole discretion, determines the amount, if any, of incentive payments to each executive.  The Committee believes that the Company’s growth in revenue and profitability requires subjectivity on the part of the Committee when determining incentive payments.  The Committee believes that specific formulae restrict flexibility and are too rigid at this stage of the Company’s development.   Long-Term Incentives.  The Company’s long-term compensation philosophy provides that long-term incentives should relate to improvement in stockholder value, thereby creating a mutuality of interests between executives and stockholders.  Additionally, the Committee believes that the long-term security of executives is critical for theperpetuation of the Company.  Long-term incentives are provided to executives through the Company’s 1993 Stock Option Plan and through restricted stock awards.   In keeping with the Company’s commitment to provide a total compensation package that favors at-risk components of pay, long-term incentives comprise an appreciable portion of an executive’s total compensation package.  When awarding long-term incentives, the Committee considers executives’ respective levels of responsibility, prior experience, historical award data, various performance criteria and compensation practices at comparable companies.  Again, the Committee does not utilize formal mathematical formulae when determining the number of options/shares granted to executives. Stock Options.  Stock options generally are granted at an option price not less than the fair market value of the Common Stock on the date of grant.  Accordingly, stock options have value only if the price of the Common Stock appreciates after the date the options are granted.  This design focuses executives on the creation of stockholder value over the long term and encourages equity ownership in the Company. Section 162(m).  Section 162(m) of the Internal Revenue Code of 1986, as amended, currently imposes a $1.0 million limitation on the deductibility of certain compensation paid to each of the Company’s five highest paid executives.  Excluded from this limitation is compensation that is “performance based.”  For compensation to be performance based it must meet certain criteria, including being based on predetermined objective standards approved by stockholders.  In general, the Company believes that compensation relating to options granted under the Company’s 1993 Stock Option Plan should be excluded from the $1.0 million limitation calculation.  The Compensation/Stock Option Committee intends to take into account the potential application of Section 162(m) with respect to incentive compensation awards and other comp ensation decisions made by it in the future. Restricted Stock Awards.  There were no grants of restricted Common Stock during the year ended September 30, 2002. Conclusion.  The Committee believes these executive compensation policies serve the interests of the stockholders and the Company effectively.  The Committee believes that the various pay vehicles offered are appropriately balanced to provide increased motivation for executives to contribute to the Company’s overall future successes, thereby enhancing the value of the Company for the stockholders’ benefit. Audit Committee Report The Board of Directors has adopted a written Charter of the Audit Committee of the Board of Directors, a copy of which was included as an exhibit to the Company’s 2002 proxy statement.  Mr. David P. Tusa and Mr. Justin L. Ferrero comprise the Audit Committee of the Board of Directors. In connection with the September 30, 2002 financial statements, the Audit Committee: (1) reviewed and discussed the audited financial statements with management; (2) discussed with the auditors the matters required by Statement of Auditing Standards No. 61; and (3) received and discussed with the auditors the matters required by Independence Standards Board Statement No. 1.  Based upon these reviews and discussions, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Annual Report on Form 10-K filed with the Commission. /s/ David P. Tusa. David P. Tusa Director and Audit Committee Member /s/ Justin L. Ferrero Justin L. Ferrero Director and Audit Committee Member ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Paragraph Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than 10% of the Company’s Common Stock, to file with the Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company.  Officers, directors and greater than 10% stockholders are required by regulations of the Commission to furnish the Company with copies of all Section 16(a) reports they file.  To the Company’s knowledge, based solely on review of the copies of such reports furnished to the Company and written representations, during the fiscal year ended September 30, 2002, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with. Security Ownership of Certain Beneficial Owners The following table sets forth certain information known to the Company with respect to beneficial ownership of the Company’s Common Stock at December 30, 2002 by all persons, entities, or “groups” as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") to be the beneficial owner of 5% or more of the Company's Common Stock.  For purposes of this section, beneficial ownership is defined in accordance with the rules of the Commission to mean generally the power to vote or dispose of shares, regardless of any economic interest therein. Amount andNature Percent Of  Beneficial Of Name Address Ownership (1) Class (2) Auto Bond Acceptance Corp. 1512 West 35th Street Cut-Off #310 Austin, Texas 78731 11,319,660  (3) 31.9% Angel, David 701 W. Main 8,856,220  (4) 26.8% La Porte, Texas 77571 Becker, Gary 27 Chancery Place 5,686,158  (5) 19.1% The Woodlands, Texas 77381 Bennett, John 12201 Technology Blvd., Suite 125 4,881,465  (6) 16.8% Austin, Texas 78727 Bozkurt, Tarkan 4207 Ascot Ln. 1,698,068  (7) 6.6% Houston, Texas  77092 Caldwell, Guy 12201 Technology Blvd., Suite 125 7,201,075  (8) 23.0% Austin, Texas 78727 Comiso, Charles 2305 Barton Creek Blvd, Unit # 21 8,939,770  (9) 27.0% Austin, Texas 78735 Elliott, Sean 11 Sanctuary Drive 6,408,783 (10) 21.0% San Antonio, Texas 78248 Clark A. Gunderson, 12615 Enterprise 5,659,914 (11) 19.0% A Medical Corporation Lake Charles, LA 70601 Gunderson, Clark  A. 12615 Enterprise 8,489,770 (12) 26.0% Lake Charles, LA 70601 Holmes, Parris H., Jr. 10101 Reunion Place, Suite 450 San Antonio, Texas 78216 15,675,330 (13) 39.4% Hunter, Paul 12201 Technology Blvd.,  Suite 125 3,529,430 (14) 12.8% Austin, Texas  78727 James, Larry M. 221 Wild Turkey Blvd. 5,792,301 (15) 19.4% Boerne, Texas 78006 Jergins, Cynthia A. 10101 Reunion Place, Suite 450 2,834,307 (16) 10.5% San Antonio, Texas 78216 Miller, Bill F. III 1000 Louisiana, Suite 550 2,830,057 (17) 10.5% Houston, Texas 77002 Mitchell, David 1302 S. Bridge 5,659,914 (18) 19.0% Brady, Texas 76825 New Century Equity Holdings Corp. 10101 Reunion Place, Suite 450 San Antonio, Texas 78216 99,989,300 (19) 80.6% Sowell & Co. L.P. 1601 Elm Street, Suite 300 22,724,706 (20) 48.5% Dallas, Texas 75201 Sterling, Anna M. P.O. Box 220 MS 5,659,914 (21) 19.0% Grand Cayman, Cayman Islands BW1 Sterling, Harris J. 2462 Toftrees 5,659,914 (22) 19.0% San Antonio, Texas 78209 Tuscany Partners 1400 Oakhaven Drive 5,659,914 (23) 19.0% Roswell, GA 30075 U.S. Boston Corp. 55 Old Bedford Rd. 5,718,664 (24) 19.2% Lincoln, MA 01773 Westpark Resources, Inc. 2210 Norfolk, Suite 740 5,659,914 (25) 19.0% Houston, Texas 77098 (1) Unless otherwise noted, each of the persons, entities, or group has the sole voting and investment power with respect to the shares reported. (2) In accordance with Rule 13d-3, the percentages indicated are based on outstanding stock options exercisable within 60 days from December 30, 2002 for each individual, Common Stock outstanding at December 30, 2002 of 24,147,534 shares, and Series A Preferred Stock owned by each as if that one person or entity were the only one of the Series A Preferred Stockholders to convert to Common Stock.   (3) Includes 339,583 shares of Series A Preferred Stock convertible into 11,319,660 shares of Common Stock. (4) Includes 254,688 shares of Series A Preferred Stock convertible into 8,489,770 shares of Common Stock. (5) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (6) Includes 500,938 shares that Mr. Bennett has the right to acquire upon exercise of stock options, exercisable within 60 days, and 127,346 shares of Series A Preferred Stock convertible into 4,244,952 shares of Common Stock.   (7) Includes 50,941 shares of Series A Preferred Stock convertible into 1,698,068 shares of Common Stock. (8) Includes 206,625 shares that Mr. Caldwell has the right to acquire upon exercise of stock options, exercisable within 60 days, and 195,262 shares of Series A Preferred stock convertible into 6,508,864 shares of Common Stock. (9) Includes 254,688 shares of Series A Preferred stock convertible into 8,489,770 shares of Common Stock. (10) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (11) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (12) Includes 254,688 shares of Series A Preferred Stock convertible into 8,489,770 shares of Common Stock. (13) Includes 532,500 shares that Mr. Holmes has the right to acquire upon exercise of stock options, exercisable within 60 days, and 424,481 shares of Series A Preferred stock convertible into 14,149,650 shares of Common Stock. (14) Includes 388,338 shares that Mr. Hunter has the right to acquire upon exercise of stock options, exercisable within 60 days, and 93,389 shares of Series A Preferred stock convertible into 3,113,029 shares of Common Stock. (15) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (16) Includes 4,250 shares that Ms. Jergins has the right to acquire upon exercise of stock options, exercisable within 60 days, and 84,900 shares of Series A Preferred stock convertible into 2,830,057 shares of Common Stock. (17) Includes 84,900 shares of Series A Preferred stock convertible into 2,830,057 shares of Common Stock. (18) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (19) Includes 2,999,619 shares of Series A Preferred Stock convertible into 99,989,300 shares of Common Stock. (20) Includes 679,161 shares of Series A Preferred Stock convertible into 22,639,153 shares of Common Stock. (21) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (22) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (23) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (24) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. (25) Includes 169,794 shares of Series A Preferred Stock convertible into 5,659,914 shares of Common Stock. Security Ownership of Management The following table sets forth certain information known to the Company with respect to beneficial ownership of the Company’s Common Stock at December 30, 2002 by (i) each of the Company’s directors, (ii) each executive officer named in the Summary Compensation Table and (iii) all executive officers and directors as a group. For purposes of this section, beneficial ownership is defined in accordance with the rules of the Commission to mean generally the power to vote or dispose of shares, regardless of any economic interest therein. Amount and Nature Of  Beneficial Percent of Name Ownership (1) Class (2) John R. Bennett          4,881,465 (3) * C. Lee Cooke 100,150,550 (4) 34.9% Justin L. Ferrero      105,883,589 (5) 36.9% Paul R. Hunter 3,529,430 (6) * Terry W. Reynolds         430,000 (7) * David P. Tusa    100,223,675 (8) 35.0% Theodore W. Van Duyn          501,875 (9) * All executive officers and directors as a group      (7 persons, representing the executive officers      and directors listed above)             115,621,984 (10)         40.3% _______________ *Represents less than one percent (1%) of the issued and outstanding shares of Common Stock, fully diluted. (1) Unless otherwise noted, each of the persons named has sole voting and investment power with respect to the shares reported. (2) The percentages indicated are based on outstanding stock options exercisable within 60 days from December 30, 2002 for each individual, Common Stock outstanding at December 30, 2002 of 24,147,534 shares, and Series A Preferred Stock owned by each as if that one person or entity were the only one of the Series A Preferred stockholders to convert to Common Stock.  This calculation is in accordance with Section 13(d)(3) of the Securities Exchange Act. (3) Includes 500,938 shares that Mr. Bennett has the right to acquire upon exercise of stock options, exercisable within 60 days, and 127,346 shares of Series A Preferred Stock convertible into 4,244,952 shares of Common Stock. (4) Includes 156,250 shares that Mr. Cooke has the right to acquire upon exercise of stock options, exercisable within 60 days, and 2,999,619 shares of Series A Preferred Stock convertible into 99,989,300 shares of Common Stock owned by New Century Equity Holdings Corp. of which Mr. Cooke is a Director. (5) Includes 234,375 shares that Mr. Ferrero has the right to acquire upon exercise of stock options, exercisable within 60 days, and 169,794 shares of Series A Preferred stock convertible into 5,659,914 shares of Common Stock owned by Tuscany Partners of which Mr. Ferrero is a 50% owner, plus 2,999,619 shares of Series A Preferred Stock convertible into 99,989,300 shares of Common Stock owned by New Century Equity Holdings Corp. of which Mr. Ferrero is a Director. (1) Includes 388,338 shares that Mr. Hunter has the right to acquire upon exercise of stock options, exercisable within 60 days, and 93,389 shares of Series A Preferred stock convertible into 3,113,029 shares of Common Stock. (2) Includes 430,000 shares that Mr. Reynolds has the right to acquire upon exercise of stock options, exercisable within 60 days. (8) Includes 234,375 shares that Mr. Tusa has the right to acquire upon exercise of stock options, exercisable within 60 days, and 2,999,619 shares of Series A Preferred Stock convertible into 99,989,300 shares of Common Stock owned by New Century Equity Holdings Corp. of which Mr. Tusa is a Director. (9) Includes 319,375 shares that Mr. Van Duyn has the right to acquire upon exercise of stock options, exercisable within 60 days. (10) Includes 2,263,651 shares that 7 directors and executive officers have the right to acquire upon exercise of stock options, exercisable within 60 days, and 3,390,148 shares of Series A Preferred Stock convertible into 113,007,195 shares of Common Stock.  The Series A Preferred Stock owned by New Century Equity Holdings Corp. has been included only once even though it has been included in each of the beneficial ownerships of Messers. Cooke, Ferrero, and Tusa. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. On August 13, 2001, the Company issued 2,635,000 shares of Series A Preferred Stock for $1.00 per share pursuant to a Series A Preferred Stock Purchase Agreement to a group of investors (see Note 9).  New Century was the lead investor and participated by purchasing 1,060,000 shares of the Company’s Series A Preferred Stock.  The Company’s former Chairman of the Board of Directors, Mr. Parris H. Holmes, Jr., is the Chairman of the Board of Directors for New Century.  Each Series A Preferred share is convertible into 33.334 shares of the Company’s Common Stock with voting rights on an as-if-converted basis.  As a result, the Series A Preferred stockholders have the majority of the voting stock. In connection with the transaction described above, New Century, by authority designated in the Purchase Agreement, has the right to maintain the majority of Bo ard members.  As of September 30, 2002, New Century holds three of the Company’s five Board positions including the Chairman of the Board.  Currently, there are only four Board positions filled with three being held by New Century.  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 members.  Therefore, New Century has the controlling interest in the Company. For the fiscal year ended September 30, 2001, the Company paid $41,819 to its Chairman of the Board for expenses related to the August 13, 2001 Series A Preferred transaction.  These expenses were recorded as offering costs. General and administrative expense includes consulting fees and expenses in the amount of $968, $542, and $72,736 paid to the Company’s chairman with Common Stock, stock options, warrants or cash for the fiscal years ended September 30, 2002, 2001 and 2000, respectively. General and administrative expense includes professional fees in the amount of $52,050 and $53,711 paid to one of the Company’s outside legal counsel, who also served as corporate secretary of the Company until August 13, 2001, for legal services provided for the years ended September 30, 2001 and 2000, respectively.  All of these fees were paid with cash or Common Stock. In December 1999, the Company borrowed $200,000 from an officer of the Company for a short-term working capital bridge loan while the Company was finalizing its banking relationship with Silicon Valley Bank.  The loan was repaid in full in January 2000, including interest of $540. On January 12, 2000, the Company issued 575,000 shares of Common Stock to its chairman, president, secretary and legal consultants in connection with the sale of the memory module manufacturing business.  The Common Stock was valued at $223,300 based on the market value at the date of issue and has been included in the estimated loss on disposal of the memory module manufacturing business in the accompanying consolidated financial statements for the fiscal year ended September 30, 1999. TheOn March 8, 2000, the Company issued 250,000 shares of Common Stock on March 8, 2000, to its chairman, president, and secretary in connection with a private placement of Common Stock.  The Common Stock was valued at $200,000 based on the market value at the date of issueissue.  The amount was recorded as offering costs..costs. 14. SIGNIFICANT CUSTOMERSIn February 2002, the Company issued 293,772 shares of its Series A Preferred valued at $83,240 to Parris H. Holmes, Jr., Chairman of the Board of New Century, for advisory services to the Tanisys Board of Directors for a three-year period beginning December 12, 2001 and ending December 12, 2004.  The Series A Preferred issued to Mr. Holmes has the same rights as those shares issued on August 13, 2001.  These shares will be earned by Mr. Holmes over the three-year period with one-third being earned on each annual anniversary date beginning on December 12, 2002.  The expense recorded for fiscal 2002 is $40,172 with the balance being amortized over the life of the agreement. The following matrix provides a summaryOn March 7, 2002, the Company’s Board of Directors appointed C. Lee Cooke, Jr. as Chief Executive Officer of the Company's customers with more than 10%Company.  Mr. Cooke also currently serves as the Company’s Chairman of total net sales during the years endedBoard of Directors.  As compensation for such Chief Executive Officer services, Habitek International, an entity owned by Mr. Cooke is entitled to receive $15,469 per month.  As of September 30, 2001, 2000 and 1999, and customers from which2002, the Company had accounts receivable that exceeded 10%has incurred $105,869 in costs relating to Mr. Cooke’s services of total accounts receivable atwhich $42,231 has been paid to Habitek International as of September 30, 2001, 2000 and 1999.  Amounts less than 10% are reflected as a dash. Customers A B C D E F G H I Year Ended September 30, 2001                   Net Sales    9.5% 5.3% - 26.2% - - - 10.6% 12.5% Accounts Receivable 14.8% - - - - - - 34.7% -                     Year Ended September 30, 2000                   Net Sales 18.7% - - 23.9% - - - - - Accounts Receivable - - 18.0% 18.7% 12.5% 10.5% 23.2% - -                     Year Ended September 30, 1999                   Net Sales 43.8% 13.8% 12.2% - - - - - - Accounts Receivable 36.3% - 46.8% - - - - - -                     2002. TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years endedIn June 2002, New Century provided a short-term working capital loan of $75,000 that was repaid by the Company in July 2002.  In August 2002, New Century provided a short-term working capital loan of $14,000.  In September 2002, New Century provided two short-term working capital loans of $7,000 and $21,995.  The Company renewed these notes plus the accrued interest.  Therefore, as of September 30, 2001, 2000 and 1999 TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Years ended September 30, 2001, 2000 and 1999 15. EMPLOYEE BENEFITS2002, the Company owed New Century $43,138 for these working capital loans plus $245 of accrued interest at 12% per annum. The Company sponsors The Tanisys Technology, Inc. 401(k) Plan (the “Plan”), which qualifies under Section 401(k)recorded dividends of the IRS Code for eligible employees.  Eligible employees may defer a portion of their annual compensation under the Plan subject to maximum limitations.  Generally, all employees of the Company who are 18 years of age are eligible for participation in the 401(k) Plan on the first day of the month following their dates of hire.   Under provisions of the Plan, the Company may elect to make discretionary matching contributions to the Plan for the benefit of the participants.  No such discretionary contributions were made in fiscal 20010, 20001999 or 19998. 16. SUBSEQUENT EVENTS The Company retained certain assets related to its discontinued memory module manufacturing business that was sold in December 1999.  Included in these assets was equipment that was subject to a lease agreement from a certain leasing company.  This equipment was sold in May 2000 with all the proceeds from the sale being used to reduce the lease obligation.  The Company settled the remaining balance of the lease obligation in October 2001. 1. CONTINGENCIES 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, warranties322,608 shares valued at $159,000 and covenants.  The suit asks for $50,000 plus attorneys’ fees and court costs.  The Company has reached a tentative settlement in which it will grant a credit to the purchaser and will also give a specified discount on a limited amount of possible future purchases from the Company.  The credit has been accrued in the net current liabilities of discontinued operations on the Company’s balance sheet.  The Company believes that the settlement will be finalized in its current form.  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 Compan y’s results of operations for the fiscal period in which such resolution occurred.   The Company has settled a lawsuit with a leasing company concerning lease for equipment that was utilized in the Company’s former memory module manufacturing business that was sold in December 1999.  The settlement consisted of a one-time cash payment plus 60,00021,346 shares valued at $21,346 of the Company’s Series A Preferred Stock.  However, a substantial judgement was awardedStock to New Century for the leasing companyfiscal years ended September 30, 2002 and will be terminated upon the Company registering the stock on or before February 1, 2002.  If the underlying common stock is not registered by February 1, 2002, the leasing company at its sole discretion may (1) keep the stock or (2) require the Company to repurchase2001, respectively. As provided for in the Series A Preferred Stock at a price based onPurchase Agreement (“Purchase Agreement”) dated August 13, 2001 (see Note 7), New Century has the closing priceright to appoint three of the Company’s stockfive-member Board of Directors.  New Century has exercised that right and has appointed three members to the Board of Directors, including C. Lee Cooke, Jr., the Company’s Chief Executive Officer and Chairman of the Board of Directors.  Mr. Cooke also serves on February 1, 2002New Century’s Board of Directors.  Currently, there are only four board positions filled with a minimum purchase pricethree being held by New Century.  In accordance with the Purchase Agreement, New Century has the right to maintain the majority of $60,000 and a maximum purchase priceboard positions in the event the Board is expanded beyond its current number of $180,000.  Iffive members.  Through ownership of the Company were to repurchase the stock, the Company may make monthly payments of $15,000 until the amount is repaid in full.  If the Company is required to repurchase theCompany’s Series A Preferred St ock and defaults onits right to appoint the payments,majority of the original judgement will be reinstatedBoard of Directors, New Century has the controlling interest in the amount of approximately $1,000,000.   Company. ITEM 9.14. CHANGES INCONTROLS AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. PROCEDURES NONE. ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY. TheWithin 90 days prior to the filing of this Annual Report on Form 10-K, the chief executive officer and chief financial officer of the Company performed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based on that evaluation, the chief executive officer and the chief financial officer have concluded that the Company’s disclosure controls and procedures were effective and designed to ensure that material information required by this item relating to be disclosed in the Company’s directors and nominees and disclosure relating to compliance with Section 16(a) ofreports that are filed or submitted under the Securities and Exchange Act of 1934, as amended, is included under the captions “Election of Directors”recorded, processed, summarized and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders and is incorporated herein by reference. The Company’s executive officers and key employees and their respective ages and positions as of December 17, 2001 are as follows: Name Age Position(s) Richard M. Brook 42 President, Chief Executive Officer and Director John R. Bennett 41 Vice President of Sales and Marketing Joseph C. Klein 45 Vice President of Operations and Engineering Terry W. Reynolds 45 Vice President of Finance and Chief Financial Officer The following are biographies of the Company’s executive officers, including all positions currently held with the Company and positions held during the last five years. Richard M. Brookjoined the Company as President and Chief Executive Officer in October 2001.  Priorreported to joining the Company, Mr. Brook servedthem in a variety of management positions for technology companies as a consultant for Brook and Associates.  From 1991 to 1998, Mr. Brook was a founder and served as President and Chief Executive Officer of Peak International, a supplier of materialstimely manner.  There have been no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the semiconductor industry.  Prior to working at Peak, he worked for more than nine years at Texas Instruments.  Mr. Brook holds two patents on semiconductor packaging and wafer processing. John R. Bennett,Vice Presidentdate of Sales and Marketing, joined the Company in November 1996 with many years of sales and marketing experience in the electronics, computer and peripherals businesses.  Prior to being appointed Vice President in October 1997, Mr. Bennett served as Director of Sales at Tanisys, with prior responsibilities for the sales management of Tanisys' DarkHorse line of memory test equipment.  Other positions held by Mr. Bennett include Senior Consultant, IBM, from October 1995 to November 1996, Vice President, Marketing, CACTUS Inc., from August 1994 to October 1995 and National Marketing Manager and National Sales Manager, CalComp (Division of Lockheed), from July 1988 to August 1994. Joseph C. Klein,Ph.D., Vice President of Operations and Engineering, joined the Company in November 1997.  Dr. Klein has over 15 years of experience in the electronics and computer industry.  Prior to joining the Company, Dr. Klein was Vice President of Engineering/Research and Development for PNY Technologies, Inc. from November 1994 to November 1997 and was World Wide Manager of Semiconductor Memory Product for IBM from November 1984 to November 1994. Terry W. Reynolds,CPA, joined the Company as Vice President of Finance in January 2000.   He currently serves the Company as Vice President of Finance and Administration as well as the Company’s Chief Financial Officer.  Prior to joining the Company, Mr. Reynolds served from October 1998 to December 1999 as Chief Financial Officer of Doyle Wilson Homebuilder.  From September 1996 to October 1998, he was the Chief Financial Officer for Windsport, and prior to that he worked for the public accounting firms of Charles Douthitt & Co. and Arthur Andersen LLP.  He has over 20 years experience in financial management and has also held positions with Chrysler Technologies Corporation and First Financial Corporation. ITEM 11. EXECUTIVE COMPENSATION. Information about compensation of the Company’s named executive officers appears under “Executive Compensation” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be held February 26, 2002 and is incorporated herein by reference. Information about compensation of the Company’s directors is included in “Compensation of Directors” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be held February 26, 2002 and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MAMANAGEMENT. The information required by this item is included under the caption “Ownership of Common Stock” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be held February 26, 2002 and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item is included under the caption “Certain Relationships and Related Party Transactions” in the Company’s Proxy Statement for the 2002 Annual Meeting of Stockholders to be held February 26, 2002 and is incorporated herein by reference.their eval uation.   PART IV. ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. a) Documents filed with this report: 1) Financial Statements: The consolidated financial statements of the Company and report of the Company’s independent public accountants thereon have been filed under Part II, Item 8 hereof. 2) The following consolidated financial statement schedule of Tanisys Technology, Inc. is included in Part IV, Item 14(d):            Schedule II – Valuation and Qualifying Accounts and Allowances All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission  are not required under the related instructions, are inapplicable or information required is included in the consolidated financial statements and, therefore, have been omitted. (b) Exhibits: The exhibits listed below are filed as part of or incorporated by reference in this report.  Where such filing is made by incorporation by reference to a previously filed document, such document is identified in parentheses. Exhibit Number Description 3.1 Articles of Incorporation of Tanisys Technology, Inc., as amended (Exhibit 4.1 to Registration Statement on Form S-8, filed December 6, 2000) 3.2 Restated Bylaws of the Company (Exhibit 4.2 to Registration Statement on Form S-8, filed December 6, 2000) 4.1 Form of Common Stock Certificate (Exhibit 4.1 to September 30, 2001 Form 10-K) 1.1 Form of Class S Warrant Certificate (Exhibit 4.2 to December 31, 1997 Form 10-Q) 4.3 Registration Rights Agreement dated June 30, 1998 between Tanisys Technology, Inc. and KA Investments LDC (Exhibit 4.1 to Form S-3 Registration Statement filed August 13, 1998) 4.4 Form of Warrant to purchase Common Stock granted by Tanisys Technology, Inc. to each of KA Investments LDC, Midori Capital Corporation, Hoth Incorporated and Randy Stein (Exhibit 10.2 to Form S-3 Registration Statement filed August 13, 1998) 4.5 Form of Warrant Agreement entered into between Tanisys Technology, Inc. and subscribers to the $2 million debt offering closed November 2, 1998, and form of attached Stock Purchase Warrant issued thereunder (Exhibit 10.2 to December 31, 1998 Form 10-Q). 4.6 1993 Stock Option Plan, as amended (Exhibit 4.3 Registration Statement on Form S-8, filed December 6, 2000) 4.7 Form of Stock Option Agreement (Exhibit 10.18 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 4.8 1997 Non-Employee Director Plan of Tanisys Technology, Inc., as amended (Exhibit 4.4 to Registration Statement on Form S-8, filed December 6, 2000) 4.9 Form of Automatic Non-Employee Director Stock Option Grant (Exhibit 4.5 to Registration Statement on Form S-8, filed December 6, 2000) 4.10 Convertible Preferred Stock Purchase Agreement dated June 30, 1998 between Tanisys Technology, Inc. and KA Investments LDC (Exhibit 10.1 to Form S-3 Registration Statement filed August 13, 1998) 10.1 Agreement and Plan of Merger dated as of April 9, 1996, by and between Tanisys Technology, Inc., Tanisys Acquisition Corp., 1st Tech Corporation and Gary W. Pankonien ("1st Tech Merger Agreement") (Exhibit 10.3 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.2 Amendment No. 1 dated May 16, 1996, to 1st Tech Merger Agreement (Exhibit 10.4 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.3 Articles of Merger (Delaware) of 1st Tech with and into Tanisys Acquisition Corp., dated May 31, 1996 (Exhibit 10.5 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.4 Articles of Merger (Texas) of 1st Tech with and into Tanisys Acquisition Corp., dated May 31, 1996 (Exhibit 10.6 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.5 Agreement and Plan of Merger dated as of April 9, 1996, by and between Tanisys Technology, Inc., Tanisys Acquisition Corp. II, DarkHorse Systems, Inc., Jack Little, Archer Lawrence and Gary W. Pankonien ("DarkHorse Merger Agreement") (Exhibit 10.7 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.6 Amendment No. 1 dated May 16, 1996, to DarkHorse Merger Agreement (Exhibit 10.8 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.7 Articles of Merger (Delaware) of DarkHorse with and into Tanisys Acquisition Corp. II, dated May 31, 1996 (Exhibit 10.9 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.8 Articles of Merger (Texas) of DarkHorse with and into Tanisys Acquisition Corp. II, dated May 31, 1996 (Exhibit 10.10 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.12 401(k) Plan (Exhibit 10.19 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.13 Lease Agreement dated May 18, 1993 by and between Tanisys Technology, Inc., assumptor of 1st Tech Corporation, and AEtna Life Insurance Company, as amended, (Exhibit 10.20 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.14 Master Lease Agreement dated November 9, 1994 by and between 1st Tech and Copelco Capital Inc. (Exhibit 10.21 to General Form for Registration of Securities on Form 10, filed November 27, 1996) 10.15 Manufacturing Agreement dated as of November 1, 1996 by and between the Company and Siemens Components, Inc. (Exhibit 10.22 to Amendment No. 2 to General Form for Registration of Securities on Form 10, filed March 11, 1997) 10.16 Inventory Management Service Agreement dated as of November 1, 1996 by and between the Company and Siemens Components, Inc. (Exhibit 10.23 to Amendment No. 2 to General Form for Registration of Securities on Form 10, filed March 11, 1997) 10.19 Master Lease Agreement dated January 30, 1997 by and between the Company and Copelco Capital, Inc. (Exhibit 10.30 to March 31, 1997 Form 10-Q) 10.20 Loan and Security Agreement, dated as of July 24, 1997, by and between Tanisys Technology, Inc., 1st Tech Corporation, DarkHorse Systems, Inc., the Company and NationsCredit Commercial Corporation, through its NationsCredit Commercial Funding Division (Exhibit 10.32 to Form 10-K) 10.21 Memory Module Corporate Purchase Agreement, dated July 22, 1997, by and between Tanisys Technology, Inc. and Compaq Computer Corporation (Exhibit 10.33 to September 30, 1997 Form 10-K) 10.23 Employment Agreement, dated as of October 20, 1997, by and between Tanisys Technology, Inc. and Charles T. Comiso (Exhibit 10.34 to September 30, 1997 Form 10-K) 10.24 Employment Agreement, dated as of November 10, 1997, by and between Tanisys Technology, Inc. and Joseph C. Klein, Ph.D. (Exhibit 10.34 to September 30, 1997 Form 10-K) 10.25 Manufacturing Service Agreement dated February 2, 1998 by and between the Company and LG Semicon American, Inc. (Exhibit 10.37 to March 31, 1998 Form 10-Q) 10.26 Manufacturing Service Agreement dated March 1, 1998 by and between the Company and Toshiba America Electronic Components, Inc. (Exhibit 10.37 to March 31, 1998 Form 10-Q) 10.29 Form of Promissory Note issued by Tanisys Technology, Inc. in connection with $2 million debt closed November 2, 1998 (Exhibit 10.1 to December 21, 1998 Form 10-Q) 10.31 Asset Purchase Agreement entered into between Tanisys Technology, Inc. and Tanisys Operations, LP, on December 9, 1999 (Exhibit 10.31 to September 30, 1999 Form 10-K). 10.32 Term Promissory Note for $911,339 issued by Tanisys Technology, Inc. to Tanisys Operations, LP on December 9, 1999 (Exhibit 10.32 to September 30, 1999 Form 10-K). 10.33 Term Promissory Note for $85,000 issued by Tanisys Technology, Inc. to Tanisys Operations, LP on December 9, 1999 (Exhibit 10.33 to September 30, 1999 Form 10-K).   10.34 Agreement Relating to Noncompetition entered into between Tanisys Technology, Inc. and Tanisys Operations, LP dated December 7, 1999 (Exhibit 10.34 to September 30, 1999 Form 10-K).   10.35 Settlement Agreement entered into between Tanisys Technology, Inc. and Boston Financial & Equity Corporation dated December 9, 1999 (Exhibit 10.35 to September 30, 1999 Form 10-K). 10.36 Contract for Sale of Equipment entered into between Tanisys Operations, LP and Boston Financial & Equity Corporation dated December 9, 1999, to complete release of the Master Equipment Lease between Tanisys Technology, Inc. and Boston Financial & Equity Corporation. (Exhibit 10.36 to September 30, 1999 Form 10-K). 10.37 Bill of Sale conveying equipment covered by the Master Lease Agreement between Tanisys Technology, Inc. and Boston Financial & Equity Corporation to Tanisys Operations, LP dated December 9, 1999. (Exhibit 10.37 to September 30, 1999 Form 10-K). 10.38 Lease Agreement dated April 24, 2000 by and between Tanisys Technology, Inc. and AEtna Life Insurance Company. (Exhibit 10.38 to September 30, 2000 Form 10-K). 0.1 Amended and Restated Loan and Security Agreement between Tanisys Technology, Inc. and  Silicon Valley Bank dated September 19, 2000. (Exhibit 10.39 to September 30, 2000 Form 10-K). 0.2 Silicon Valley Bank Accounts Receivable Financing Agreement dated May 30, 2001. (Exhibit 10.40 to June 30, 2001 Form 10-Q) 0.3 Loan Modification and Forebearance Agreement dated August 3, 2001. (Exhibit 10.41 to June 30, 2001 Form 10-Q) 0.4 Promissory Note to Charles T. Comiso dated July 27, 2001. (Exhibit 10.42 to June 30, 2001 Form 10-Q)   10.430.5 Employment Agreement, dated October 1, 2001, by and between Tanisys Technology, Inc. and Richard M. Brook. (Exhibit 10.43 to September 30, 2001 Form 10-K)) 0.6 Employment Agreement, dated April 1, 2002 by and between Tanisys Technology, Inc. and John R. Bennett. (filed herewith) 0.7 Silicon Valley Bank Accounts Receivable Purchase Agreement dated March 22, 2002. (filed herewith) 0.8 Employment Agreement, dated September 1, 2002, by and between Tanisys Technology, Inc. and Terry W. Reynolds. (filed herewith) 21.1 Subsidiaries of the Company (filed herewith) 23.10.1 ConsentCertification of Brown, Graham and Company P.C.Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) 23.20.2 ConsentCertification of Arthur Andersen LLPChief Financial Officer Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002. (filed herewith) 27.1 Financial Data Schedule (filed herewith) (c) Reports on 8-K. Form 8-K dated January 12, 2000,November 1, 2002, and filed January 20, 2000, reporting a change in the Company’s independent auditors. Form 8-K dated May 23, 2000, and filed May 25, 2000, reporting the one-for-two reverse split of the Company’s Common Stock. Form 8-K dated August 14, 2001, and filed August 14, 2001,November 1, 2002, reporting the change in control of registrant.registrant’s certifying accountant. . (d)(a) Schedules. (a) SCHEDULE II TANISYS TECHNOLOGY, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES Fiscal Years Ended 2002, 2001 2000 and 19992000 Description Balance at Beginningof Year Charge to Cost andExpenses Deductions Balance at Endof Year Description Balance at Beginningof Year Charge to Cost andExpenses Deductions Balance at Endof Year 2001 Allowance for uncollectible                              accounts receivable $    132,743      $      20,822        $     34,796 $        118,769         2000 Allowance for uncollectible                              accounts receivable     333,703        42,39089       243,350(1)      132,743       1999 Allowance for uncollectible                              accounts receivable 406,157  160,742      233,196          333,703       2002 Allowance for uncollectible                                    accounts receivable $118,769 $65,882       $90,047 $94,604             2001 Allowance for excess and 200,000 93,357         43,357 250,000 Allowance for uncollectible                               obsolete inventory       accounts receivable 132,743 20,822       34,796 118,769             2000 Allowance for excess and     Allowance for uncollectible                               obsolete inventory 502,198 233,774     535,972(1)               200,000   accounts receivable 333,703        42,390   243,350(1)      132,743             1999 Allowance for excess and        obsolete inventory 380,333 258,411   136,546 502,198                   2002 Allowance for excess and        obsolete inventory $250,000 $186,282  $201,182 $235,100       2001 Allowance for excess and        obsolete inventory 200,000 93,357      43,357 250,000       2000 Allowance for excess and        obsolete inventory 502,198 233,774   535,972(1)               200,000       (1) During the year ended September 30, 2000, the Company included $100,000 from reserves for accounts receivable and $180,000 from reserves for inventory that were deemed excessive after analytical and reasonableness reviews into non-recurring miscellaneous income. (1) During the year ended September 30, 2000, the Company included $280,000 in miscellaneous income, $100,000 related to reserves for accounts receivable and $180,000 related to reserves for inventory that were deemed excessive after analytical and reasonableness reviews.  These reserves were initially established due to the uncertainty in the collection of receivables and the inventory mix in anticipation of customer response to the sale of the memory module manufacturing business disclosed in the financial statements as discontinued operations. At the date of the sale of the memory module manufacturing business in December 1999, the Company had accounts receivable from certain customers related to both the continuing and discontinued operations.  The Company had some concerns as to whether or not some of these customers would pay for the continuing operations accounts receivable due to the “going concern” opinion issued by the independent auditor.  In addition, some of the receivables were aging beyond reasonable terms.  The result was that an accounting estimate was made to reflect these potential collection issues.   By the end of the Company’s fiscal year ended September 30, 2000, the potential collection issues had all been resolved resulting in excess reserves for accounts receivable based on historical bad debt analysis and information available at the time relating to the collectability of the receivables. The Company first applied the reversal of these reserves to bad debt expense.  However, the reserve exceeded bad debt expense and, therefore, the excess was recorded as non-recurring miscellaneous income.  The Company estimates bad debt on a percentage-of-sales adjusted accordingly based on historical analysis and information available at the time relating to the collectability of the receivables. The Company first applied the reversal of these reserves to bad debt expense.  However, the reserve exceeded bad debt expense and, therefore, the excess was recorded as non-recurring miscellaneous income.  The Company estimates bad debt expense as a percentage-of-sales, adjusted based on historical analyses of actual bad debts incurred.

The Company’s policy concerning inventory impairment charges is to establish a new, reduced cost basis for the affected inventory that remains until the inventory is sold or disposed.  If subsequent to the date of impairment it is determined that the impairment charges are recoverable, the Company does not increase the carrying costs of the affected inventory and corresponding income. After the sale of the memory module manufacturing business, inventory remained that had been utilized in both the continuing and discontinued operations.  While the inventory items had not been impaired as of the date of the sale of the discontinued operations, the Company did not know if it could utilize all of the inventory before it became obsolete.  Therefore, the Company made an estimate based on the best information available at the time as to the potential exposure due to excess inventory.  Accordingly, an inventory reserve was established to account for this estimate.  By the end of the fiscal year ended September 30, 2000, the Company was able to successfully utilize almost all of the inventory in products that were sold and reduced the cost basis of impaired inventory items by charging the impairment costs to the inventory reserve.  The remaining exce ss inventory reserve was then recorded as non-recurring miscellaneous income. After the sale of the memory module manufacturing business, inventory remained that had been utilized in both the continuing and discontinued operations.  While the inventory items had not been impaired as of the date of the sale of the discontinued operations, the Company did not know if it could utilize all of the inventory before it became obsolete.  Therefore, the Company made an estimate based on the best information available at the time as to the potential exposure due to excess inventory.  Accordingly, an inventory reserve was established to account for this estimate.  By the end of the fiscal year ended September 30, 2000, the Company was able to successfully utilize almost all of the inventory in products that were sold and reduced the cost basis of impaired inventory items by charging the impairment costs to the inventory reserve.  The remaining excess inventory reserve was then recorded as n on-recurring miscellaneous income.

The notes to the consolidated financial statements of Tanisys Technology, Inc. and subsidiaries are an intergralintegral part of this schedule.

SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TANISYS TECHNOLOGY, INC. Date:  December 21XX, 2001January 13, 2003 By: /s/RICHARD M. BROOK CARLTON LEE COOKE, JR.       Richard M. BrookCarlton Lee Cooke, Jr.       Chief Executive Officer, President and                                                   President and DirectorChairman of the Board Date: December 21XX, 2001January 13, 2003 By: /s/TERRY W. REYNOLDS       Terry W. Reynolds       Vice President of Finance and Chief Financial Officer                                                  (Duly authorized and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 15th13th day of December 2000.January 2003. Signature Title /s/ RICHARD M. BROOKCARLTON LEE COOKE, JR. Chief Executive Officer Richard M. BrookCarlton Lee Cooke, Jr. President and Director /s/ PARRIS H. HOLMES, JR. Chairman of the Board Parris H. Holmes, Jr. /s/ DAVID P. TUSA Corporate Secretary and Director DAVIDDavid P. TUSATusa /s/JUSTIN  L. FERRERO Director JUSTINJustin L. FERREROFerrero /s/ THEODORE W. VAN DUYN Director Theodore W. Van Duyn EXHIBIT 10.43CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES AND EXCHANGE ACT RULES 13a-14 AND 15d-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Carlton Lee Cooke, Jr., certify that: 1. I have reviewed this annual report on Form 10-K of Tanisys Technology, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 1. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and 1. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DateJanuary 13, 2003 /s/ Carlton Lee Cooke, Jr.__________ President, Chief Executive Officer and Chairman of the Board CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES AND EXCHANGE ACT RULES 13a-14 AND 15d-14 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Terry W. Reynolds, certify that: 1. I have reviewed this annual report on Form 10-K of Tanisys Technology, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 1. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and 1. The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DateJanuary 13, 2003 /s/ Terry W. Reynolds________________ Vice President and Chief Financial Officer Exhibit 99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER IN ACCORDANCE WITH SECTION 906 OF THE SARBANES-OXLEY ACT In connection with the Annual Report of Tanisys Technology, Inc. (the “Company”) on Form 10-K for the year ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof, I, C. Lee Cooke, Jr., President, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that: (1) The Form 10-K report for the fiscal year ended September 30, 2002, filed with the Securities and Exchange Commission on December 30, 2002, fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-K report for the fiscal year ended September 30, 2002 fairly presents, in all material respects, the financial condition and results of operations of Tanisys Technology, Inc. By: /s/ C. Lee Cooke Date: January 13, 2003 C. Lee Cooke Chairman of the Board of Directors Chief Executive Officer and President Exhibit 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER IN ACCORDANCE WITH SECTION 906 OF THE SARBANES-OXLEY ACT In connection with the Annual Report of Tanisys Technology, Inc. (the “Company”) on Form 10-K for the year ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof, I, Terry W. Reynolds, Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge that: (1) The Form 10-K report for the fiscal year ended September 30, 2002, filed with the Securities and Exchange Commission on December 30, 2002, fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Form 10-K report for the fiscal year ended September 30, 2002 fairly presents, in all material respects, the financial condition and results of operations of Tanisys Technology, Inc. By: /s/ Terry W. Reynolds Date: January 13, 2003 Terry W. Reynolds Vice President and Chief Financial Officer Exhibit 10.44 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made effective on the 1st of October, 2001,April 1, 2002, by and between TANISYS, INC., a Wyoming corporation, with principal offices located at 12201 Technology Blvd., Austin, Texas 78727 (hereinafter referred to as the “Company”), and Richard M. Brook,John R. Bennett, a resident of Austin, TravisGeorgetown, Williamson County, Texas (hereinafter referred to as the “Employee”). W I T N E S S E T H: WHEREAS, the Employee and the Company desire to enter into an agreement relating to employment, outlining the duties and obligations of each as follows: NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment.  The Company agrees to continue to employ the Employee, and the Employee agrees to continue to be employed by the Company, subject to the terms and conditions set forth herein. 2. Term.  Subject to the provisions hereof, the term of the Employee’s employment by the Company under this Agreement shall be for a period of one (1) year commencing on the date hereof; provided that such term of employment shall continue thereafter on an annual basis unless and until terminated by either the Company or the Employee upon no less than one hundred twenty (120) days’ prior written notice to the otherEmployee of the desire to terminate such employment.  The term of the Employee’s employment hereunder, including any continuation of the original term, is hereinafter referred to as the “Employment Period.” 3. Position and Duties.   During the Employment Period, the Employee shall serve as President and Chief ExecutiveOperating Officer and memberVice President of the Company’s Board of Directors,Sales and Marketing, with such assignments, powers and duties as are assigned or delegated to him by the Chairman of the Board of DirectorsPresident /Chief Executive Officer of Tanisys, Inc., or his authorized representative.  Such assignments, powers and duties may, from time to time, be modified by the Company, as the Company’s needs may require.  The Employee agrees to devote all of his business time, skill, attention and best efforts to the business of the Company and its Affiliates in the advancement of the best interests of the Company.  During the Employment Period, the Employee agrees to abide by all Company policies that may be in effect from time to time.   4. Compensation. A. Salary.  For all services rendered by the Employee to the Company during the Employment Period, the Company shall pay the Employee a salary at thean annualized rate of One Hundred Eighty Thousandsixty thousand ($60,000) increasing to a salary at an annualized rate of one hundred and No/100 Dollarstwenty-seven thousand ($180,000.00) annually.127,000) annually effective July 1, 2002.  The compensation is to be payable, subject to such withholdings as are required by law, in installments in accordance with the Company’s customary payroll practices. In the event that the Company generates net income (as determined by generally accepted accounting principles and consistent with that reported in the Company’s underlying financial statements) for three consecutive months within a SEC reporting quarter (“Profitable Quarter”), Employee’s salary rate will increase, effective with the first day following such Profitable Quarter, to Two Hundred Forty Thousand and No/100 Doll ars ($240,000) annually. A. Stock Options.  As additional consideration for services rendered by Employeeaddition to the Company, the Company shall grant toabove, the Employee optionsis entitled to purchase 6.6 million shares of the authorized but unissued common stock of the Company, at a cash purchase price of $0.03 per share.  These options shall vest over a four-year period, commencingsales commission as shown on the first anniversary date of this Agreement, at the rate of 25% of such shares upon each anniversary date of this Agreement.  Other terms and conditions of the stock option grant will be consistent with the Company’s Employee Stock Option Plan.  Employee shall be protected from any dilution of his ownership position in Company through the quarter ended December 31, 2001.  Such dilution protection shall be limited to additional shares that may be issued to the current Series A Preferred Stock owners.  attached Exhibit A. B. A. Transaction Bonus.  Additionally, for services rendered by the Employee to the Company, ifBonus If during the Employment Period, should the Company undergo a Change of Control (as defined hereinafter) within four (4)three (3) years of the date of execution of this Agreement which yields to its shareholders consideration in an amount of not less than $20 million in cash or equivalent consideration, (as long as the employee is employed by Company)the Employee shall be paid the sum of 3% of the gross proceeds of such consideration.entitled to consideration as shown on attached Exhibit B.  As used herein, “Change of Control” means a Board of Director approved and completed transaction or series of transactions (including any cash tender or securities exchange offer, merger, sale of assets or other business combination) as a result of which any person (other than the Company, an Affiliate of the Company or any employee benefit plan of the Company) shall becom ebecome the beneficial owner of more than 50%40% of the aggregate combined voting power of all voting securities of the Company then outstanding. &n bsp; Company agrees to pay the equivalent of one (1) year’s salary ($127,000) plus one year’s commissions and benefits, in lump sum, in the event of involuntary termination of the Employee or a “change of control”.  Payment to be made to Employee within 7 days of such involuntary termination.  Such severance payment would be in addition to the above noted Transaction Bonus. The commission component of the severance payment, will be calculated based on the Employee’s actual commissions earned over the prior twelve (12) months.  An illustration is defined in the Exhibit “A”.  (2) Employee will also be paid any earned commission that has yet to be paid.  Earned commission is defined as orders shipped but no commission yet paid to Employee plus purchase orders booked (backlog of booked business) that have not shipped prior to the date of termination.  Should orders booked be cancelled by ordering party after employee resigns, then those commissions will not be paid. (3) continuation of the Employee’s health insurance, at no cost to the employee, for this same period. A Board of Directors approved liquidation of the Company does   not constitute a Change in Control.   5. Office Facilities.  During the Employment Period, the Company will furnish the Employee, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations.  During the Employment Period, the Employee shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions.  The Employee shall be entitled to four (4) weeks vacations with pay in accordance with the policies of the Company that may be in effect from time to time. 7. Expenses.  Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by the Employee, the Employee is authorized to incur reasonable expenses in the performance of his duties hereunder, and the Company will reimburse the Employee for such reasonable out-of-pocket expenses upon the presentation by the Employee of an itemized account and receipts satisfactory to the Company. 8. Termination. A. If the Employee dies or becomes disabled during the Employment Period, the Employee’s salary and commissions and other rights under this Agreement or as an employee of the Company (except for salary and other rights accrued prior thereto) shall terminate at the endconclusion of the month during whichcurrent term employment period.  The Employee’s estate will be paid in lump sum, within 90 days of the death or disability occurs.disabling of the employee, the equivalent of one year’s salary, commissions and benefits.  Any equity position in the Company held by the Employee, will be transferred to the Employee’s estate.  For purposes of this Agreement, the Employee shall be deemed to be “disabled” if, at any time during the Employment Period, the Employee shall have been unable to perform the essential duties of his employment hereunder, with or without accommodation, due to physical or mental incapacity for a period of ninety (90) days or any ninety (90) days in a period of two hundred seventy (270) days. B. An “involuntary termination” for the purposes of this agreement would include (a) termination by the Company of the Employee’s employment other than for Cause, (b) the Employee’s relocation to a facility or location more than sixty (60) miles from the Employee’s present work facility or location, or (c) Company’s material alteration of the Employee’s job responsibilities, in each of these cases, without the Employee’s consent. C. If the Employee fails to perform the essential duties of his employment hereunder in a manner reasonably satisfactory to the Company or to comply with any of the provisions hereof, or commits any act of misconduct, malfeasance, or gross negligence, or disloyalty, the Employment Period and the Employee’s salary, other compensation and other rights under this Agreement as an employee of the Company shall terminate immediately upon written notice from the Company to the Employee, but such termination shall not affect the liability of the Employee by reason of his misconduct, malfeasance, gross negligence or disloyalty. D. In the event of a Board of Director approved liquidation of the Company, Employee is entitled to no severance payment. 9. Covenants Not to Disclose.  The Company agrees to provide the Employee with confidential and proprietary information and trade secrets in exchange for the Employee’s promise not to disclose them (the “Nondisclosure Provision”).  In accordance with this Non-disclosure Provision, the Employee covenants and agrees that he will not, at any time during or after the termination of his employment by the Company, communicate, divulge or disclose to any Person (as hereinafter defined) or use for his own account, or advise, discuss with or in any way assist any other Person or firm in obtaining or learning about, without the prior written consent of the Company, information concerning any of the Company’s services, systems, employees, customers, pricing practices, strategies, plans, general or specific “know-how,” training programs, methods of doing business, proces ses, programs, flow charts or equipment used in its business, or any other secret or confidential information (including, without limitation, any customer lists, trade secrets, future business plans or information concerning any work done by the Company for its customers or done in any effort to solicit or obtain customers) concerning, the business and affairs of the Company or any of its Affiliates acquired or obtained by the Employee during the term of her employment by the Company.  The Employee further covenants and agrees that he shall retain all such knowledge and information concerning the foregoing in trust for the sole benefit of the Company and its Affiliates and their respective successors and assigns.  For purposes of this Agreement, the term “Person” shall mean any individual, corporation, partnership, association, trust, estate or other entity or organization. The Employee agrees to return to the Company, within fifteen (15) days from the date of termination of his employment by the Company, all books, catalogues, customer lists, computer diskettes and files, Company credit cards and any other materials and documents relating to the Company and its services, systems, employees, customers, pricing practices, strategies, plans, general or specific “know-how,” training programs, methods of doing business, processes, programs, flow charts or equipment used in its business, or any other secret or confidential information (including, without limitation, any customer lists, trade secrets, future business plans or information concerning any work done by the Company for its customers or done in any effort to solicit or obtain customers) concerning the business and affairs of the Company or any of its Affiliates acquired or obtained by the Employee during the term of his employment by the Company.  The Employee agrees not to use or retain any copies of any such materials after the date of termination of her employment by the Company. 10. Covenant Not to Compete.  To enforce the Non-disclosure Provision contained in Section 9 above, the Employee covenants and agrees that if he resigns, during the Employment Period and for a period of one (1) year after his resignation or termination of employment by the Company, he will not, directly or indirectly, except upon the written consent of the Company, own any interest in, render services or advice to or be engaged in any segment of a business of a company, partnership or firm (“Business Segment”) that is similar to or in competition with any significant business of the Company or its Affiliates which has been, is then or will in the future be marketed through the Company or any of its Affiliates in the geographic areas where the Company or any of its Affiliates had or solicited customers during the Employment Period, including but not limited to the following Business Segments: (i) Manufacturing, development or marketing of semiconductor memory testing or testing-related equipment or products in the semi-conductor market or any other market that the Company may enter.is in. The Employee agrees that for a periodfrom the date of one (1) year from his resignation or terminationto the conclusion of employment by the Company,current Employment Period the Employee will not, directly or indirectly, solicit or accept business from, orfrom. Or otherwise attempt to do business with, any customers of the Company (the “Non-solicitation“Non solicitation Provision”). This Non-solicitationNon solicitation Provision shall be limited to the same specific geographic area noted above. The Employee represents that his experience and capabilities are such that the restrictions contained herein will not prevent the Employee from obtaining employment, or otherwise earning a living, at the same general economic benefit as reasonably required by his and that he has, prior to the execution of this Agreement, carefully reviewed this Agreement. There will be no Covenant Not to Compete if the Employee is terminated by the Company.  Section 9 and its provisions would be null and void. 1.                                                                                                                         Essential Nature of Covenants.  The covenants of the Employee contained in Sections 9 and 10 shall be construed as independent of any other provision of this Agreement.  The existence of any claim or cause of action of the Employee against the Company or any of its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants.  The Employee understands that the covenants contained in Sections 9 and 10 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of the Employee to Sections 9 and 10, the Company would not have agreed to enter into such transactions.  The Employee has been advised to consult with his counsel in order to be informed in all respects concerning the reasonableness an d propriety of Sections 9 and 10, with specific regard to the nature of the business conducted by the Company, and the Employee acknowledges that Sections 9 and 10 are reasonable and acceptable in all respects. 2.                                                                                                                         Indemnification.  The Employee agrees to indemnify, defend and hold the Company harmless from any and all claims, demands, activities, suits, allegations, actions or causes of action arising from or incident to, whether directly or indirectly, any misconduct, malfeasance, gross negligence, disloyalty, misrepresentation or omission on the part of the Employee in the conduct of his duties or any conduct outside the scope of his employment which may give rise to liability or potential liability on the part of the Company, its directors, officers, agents, representatives or employees. 3.                                                                                                                         Directors and Officers Insurance.  The Company shall maintain an appropriate level of Directors and Officers Liability Insurance. 14.     Remedies.  It is stipulated that the parties to this Agreement recognize that a breach by the Employee of his obligations under Sections 9 and 10 of this Agreement cannot be adequately compensated by money damages.  In the event of a breach or threatened breach by the Employee of Section 9 or 10, the Company shall be fully entitled to seek and obtain a temporary restraining order and an injunction restraining the Employee from the commission of such breach.  Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of money damages. 15. Arbitration.  As part of, and in consideration for this Agreement and the compensation and other benefits paid by the Company to the Employee herein, and in consideration for the Company’s mutual agreement to arbitrate certain claims, the Employee agrees that any dispute he may have against the Company, its Affiliates, directors, officers, agents, representatives, attorneys, employees, successors or assigns, under either state or federal law, arising out of the Employee’s employment by the Company or termination of employment will be submitted to final and binding arbitration in accordance with the Company’s arbitration procedures. By agreeing to arbitrate, the Employee understands that he is not giving up any substantive rights under either state or federal law.  Rather, the Employee and the Company are mutually agreeing only to submit all disputes to an arbitral, rathe r than judicial, forum. Prior to submitting any dispute to arbitration, the parties shall first attempt to resolve the matter by the claimant notifying the other party in writing of the dispute; by giving the other party the opportunity to respond in writing to the dispute within fifteen (15) days of receipt of the written claim; and by giving the other party the opportunity to meet and confer.  If the matter is not resolved in this manner, the dispute then may proceed to arbitration at the request of either party. Pursuant to the Company’s arbitration procedures, the American Arbitration Association shall schedule any arbitration and appoint the arbitrator, if the parties cannot agree on the selection of the arbitrator.  The Employee understands that the cost of the arbitrator will be borne equally by the Employee and the Company (although the Employee will not be required to contribute more than $2,500.00 towards the cost of the arbitrator) and that the decision of the arbitrator shall be final and binding upon the parties.  In the event that a party to this Agreement brings or pursues a dispute in a court of law, which dispute is subject to final and binding arbitration in accordance with this Section 14, and should have been brought or submitted to arbitration pursuant to the foregoing procedures, that party shall pay all reasonable attorneys’ fees and court costs incurred by the other party in f iling any motion to compel arbitration, motion to dismiss or other pleadings with said court to enforce arbitration pursuant to this Section 14. The Employee understands and agrees that the Company is engaged in transactions involving interstate commerce and that this Section 14 evidences a transaction involving commerce. 16. Waiver of Breach.  The waiver by the Company of a breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee. 17. Binding Effect; Assignment.  This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives.  Insofar as the Employee is concerned, this Agreement, being personal, cannot be assigned. 18. Severability; Judicial Reformation.  The invalidity of all or any part of any section or provision of this Agreement shall not render invalid the remainder of this Agreement or the remainder of such section or provision.  If any section or provision of this Agreement is so broad as to be unenforceable, such section or provision shall be reformed and interpreted to be only so broad as is enforceable.  To the extent possible and permitted by applicable law, judicial reformation of this Agreement, or any section or provision hereof, is acknowledged by the parties to be preferred and desired to preserve the intent and purpose of any section or provision herein to the fullest extent allowed by applicable law, should said section or provision be found or deemed to be unlawful and invalid by a court of competent jurisdiction. 19. Counterparts.  This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 20. Governing Law.  This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 21. Notice.  All notices which are required or which may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first-class mail, postage prepaid, return receipt requested, if to the Employee at 5217 Old Spicewood Springs410 Logan Ranch Road, #1705, Austin,Georgetown, Texas 78731,78628, or if to the Company, at the address listed above, or to such other address as either party shall have specified by written notice to the other party. 22. Entire Agreement; Modification.  This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof.  This Agreement may not be changed, modified or altered except by written agreement signed by the Company and the Employee or by judicial reformation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TANISYS TECHNOLOGY, INC. By:/s/Parris H. Holmes, C. Lee Cooke, Jr. By:/s/Richard M. Brook John R. Bennett       PARRIS H. HOLMES, JR.C. Lee Cooke, Jr.      Richard M. Brook        ChairmanJohn R. Bennett       President & CEO Exhibit 10.45 Silicon Valley Bank 3003 Tasman Drive Santa Clara, Ca. 95054 (408) 654-1000 - Fax (408) 980-6410 ACCOUNTS RECEIVABLE PURCHASE AGREEMENT This Accounts Receivable Purchase Agreement (the “Agreement”) is made on this 22ndday of March, 2002, by and between Silicon Valley Bank (“Buyer”) having a place of business at the address specified above andTanisys Technology, Inc., a Wyoming corporation, (“Seller”) having its principal place of business and chief executive office at 12201 Technology Boulevard, Austin, TX 78727. 1.  Definitions.  When used herein, the following terms shall have the following meanings. “Account Balance” shall mean, on any given day, the gross amount of all Purchased Receivables unpaid on that day. “Account Debtor” shall have the meaning set forth in the California Uniform Commercial Code and shall include any person liable on any Purchased Receivable, including without limitation, any guarantor of the Purchased Receivable and any issuer of a letter of credit or banker’s acceptance. “Adjustments” shall mean all discounts, allowances, returns, disputes, counterclaims, offsets, defenses, rights of recoupment, rights of return, warranty claims, or short payments, asserted by or on behalf of any Account Debtor with respect to any Purchased Receivable. “Administrative Fee” shall have the meaning as set forth in Section 3.3 hereof. “Advance” shall have the meaning set forth in Section 2.2 hereof. “Collateral” shall have the meaning set forth in Section 8 hereof. “Collections” shall mean all good funds received by Buyer from or on behalf of an Account Debtor with respect to Purchased Receivables. “Compliance Certificate” shall mean a certificate, in a form provided by Buyer to Seller, which contains the certification of the chief financial officer of Seller that, among other things, the representations and warranties set forth in this Agreement are true and correct as of the date such certificate is delivered.   “Event of Default” shall have the meaning set forth in Section 9 hereof.  “Finance Charges” shall have the meaning set forth in Section 3.2 hereof. “Invoice Transmittal” shall mean a writing signed by an authorized representative of Seller which accurately identifies the receivables which Buyer, at its election, may purchase, and includes for each such receivable the correct amount owed by the Account Debtor, the name and address of the Account Debtor, the invoice number, the invoice date and the account code. “Lockbox” shall have the meaning set forth in Section 6.1(K) hereof. “Obligations” shall mean all advances, financial accommodations, liabilities, obligations, covenants and duties owing, arising, due or payable by Seller to Buyer of any kind or nature, present or future, arising under or in connection with this Agreement or under any other document, instrument or agreement, whether or not evidenced by any note, guarantee or other instrument, whether arising on account or by overdraft, whether direct or indirect (including those acquired by assignment) absolute or contingent, primary or secondary, due or to become due, now owing or hereafter arising, and however acquired; including, without limitation, all Advances, Finance Charges, Administrative Fees, interest, Repurchase Amounts, fees, expenses,  professional fees and  attorneys’ fees and any other sums chargeable to Seller hereunder or otherwise. “Purchased Receivables” shall mean all those accounts, receivables, chattel paper, instruments, contract rights, documents, general intangibles, letters of credit, drafts, bankers acceptances, and rights to payment, and all proceeds thereof (all of the foregoing being referred to as “receivables”), arising out of the invoices and other agreements identified on or delivered with any Invoice Transmittal delivered by Seller to Buyer which Buyer elects to purchase and for which Buyer makes an Advance. “Refund” shall have the meaning set forth in Section 3.5 hereof. “Reserve” shall have the meaning set forth in Section 2.4 hereof. “Repurchase Amount” shall have the meaning set forth in Section 4.2 hereof. “Reconciliation Date” shall mean the last calendar day of each Reconciliation Period. “Reconciliation Period” shall mean each calendar month of every year. 2.  Purchase and Sale of Receivables.      2.1.  Offer to Sell Receivables.  During the term hereof, and provided that there does not then exist any Event of Default or any event that with notice, lapse of time or otherwise would constitute an Event of Default, Seller may request that Buyer purchase receivables and Buyer may, in its sole discretion, elect to purchase receivables.  Seller shall deliver to Buyer an Invoice Transmittal with respect to any receivable for which a request for purchase is made.  An authorized representative of Seller shall sign each Invoice Transmittal delivered to Buyer.  Buyer shall be entitled to rely on all the information provided by Seller to Buyer on or with the Invoice Transmittal and to rely on the signature on any Invoice Transmittal as an authorized signature of Seller.      2.2.  Acceptance of Receivables.  Buyer shall have no obligation to purchase any receivable listed on an Invoice Transmittal.  Buyer may exercise its sole discretion in approving the credit of each Account Debtor before buying any receivable.  Upon acceptance by Buyer of all or any of the receivables described on any Invoice Transmittal, Buyer shall pay to Seller80(%) percent (or70(%) percent for which the Account Debtor does not have its principal place of business in the United States) of the face amount of each receivable Buyer desires to purchase, net of deferred revenue and offsets related to each specific Account Debtor.  Such payment shall be the “Advance” with respect to such receivable.  Buyer may, from time to time, in its sole discretion, change the percentage of the Advance.  Upon Buyer’s acceptance of the receivable and payment to Seller of the Advance, the receivable shall become a “Purchased Receivable.”  It shall be a condition to each Advance that  (i) all of the representations and warranties set forth in Section 6 of this Agreement be true and correct on and as of the date of the related Invoice Transmittal and on and as of the date of such Advance as though made at and as of each such date, and  (ii) no Event of Default or any event or condition that with notice, lapse of time or otherwise would constitute an Event of Default shall have occurred and be continuing, or would result from such Advance.   Notwithstanding the foregoing, in no event shall the aggregate amount of all Purchased Receivables outstanding at any time exceed Two Million Five Hundred Thousand Dollars ($2,500,000).         2.3.  Effectiveness of Sale to Buyer.  Effective upon Buyer’s payment of an Advance, and for and in consideration therefor and in consideration of the covenants of this Agreement, Seller hereby absolutely sells, transfers and assigns to Buyer, all of Seller’s right, title and interest in and to each Purchased Receivable and all monies due or which may become due on or with respect to such Purchased Receivable.  Buyer shall be the absolute owner of each Purchased Receivable.  Buyer shall have, with respect to any goods related to the Purchased Receivable, all the rights and remedies of an unpaid seller under the California Uniform Commercial Code and other applicable law, including the rights of replevin, claim and delivery, reclamation and stoppage in transit.      2.4.  Establishment of a Reserve.  Upon the purchase by Buyer of each Purchased Receivable, Buyer shall establish a reserve.  The reserve shall be the amount by which the face amount of the Purchased Receivable exceeds the Advance on that Purchased Receivable (the “Reserve”); provided, the Reserve with respect to all Purchased Receivables outstanding at any one time shall be an amount not less than20 (%) percent (or30(%) percent for which the Account Debtor does not have its principal place of business in the United States) of the Account Balance at that time and may be set at a higher percentage at Buyer’s sole discretion.  The reserve shall be a book balance maintained on the records of Buyer and shall not be a segregated fund. 2.5 Initial Advance. The initial Advance shall first be applied toward the payoff of the outstanding Obligations owed by Seller to Buyer under that certain Accounts Receivable Financing Agreement, dated May 30, 2001, by and between Buyer and Seller. 3.  Collections, Charges and Remittances.      3.1.  Collections.Upon receipt by Buyer of Collections, Buyer shall promptly credit such Collections to Seller’s Account Balance on a daily basis; provided, that if Seller is in default under this Agreement, Buyer shall apply all Collections to Seller’s Obligations hereunder in such order and manner as Buyer may determine.  If an item of collection is not honored or Buyer does not receive good funds for any reason, the amount shall be included in the Account Balance as if the Collections had not been received and Finance Charges under Section 3.2 shall accrue thereon.      3.2.  Finance Charges.  On each Reconciliation Date Seller shall pay to Buyer a finance charge in an amount equal to1.50 (%) percent per month of the average daily Account Balance outstanding during the applicable Reconciliation Period (the “Finance Charges”). In computing Finance Charges, all Collections received by Buyer shall be deemed applied by Buyer to Seller’s Account Balance 3 business days after receipt of the Collections.  Buyer shall deduct the accrued Finance Charges from the Reserve as set forth in Section 3.5 below.      3.3.  Administrative Fee.  On each Reconciliation Date Seller shall pay to Buyer an Administrative Fee equal to0.50 (%) percent of the face amount of each Purchased Receivable first purchased during that Reconciliation Period (the “Administrative Fee”).  Buyer shall deduct the Administrative Fee from the Reserve as set forth in Section 3.5 below.      3.4.  Accounting.  Buyer shall prepare and send to Seller after the close of business for each Reconciliation Period, an accounting of the transactions for that Reconciliation Period, including the amount of all Purchased Receivables, all Collections, Adjustments, Finance Charges, and the Administrative Fee.  The accounting shall be deemed correct and conclusive unless Seller makes written objection to Buyer within thirty (30) days after the Buyer mails the accounting to Seller.      3.5.  Refund to Seller.  Provided that there does not then exist an Event of Default or any event or condition that with notice, lapse of time or otherwise would constitute an Event of Default, Buyer shall refund to Seller by check after the Reconciliation Date, the amount, if any, which Buyer owes to Seller at the end of the Reconciliation Period according to the accounting prepared by Buyer for that Reconciliation Period (the “Refund”).  The Refund shall be an amount equal to: (A) (1) The Reserve as of the beginning of that Reconciliation Period,plus       (2) the Reserve created for each Purchased Receivable purchased during that Reconciliation Period, minus (B) The total for that Reconciliation Period of:        (1) the Administrative Fee;        (2) Finance Charges;        (3) Adjustments; (1) Repurchase Amounts, to the extent Buyer has agreed to accept payment thereof by deduction from the Refund; (2) the Reserve for the Account Balance as of the first day of the following Reconciliation Period in the minimum percentage set forth in Section 2.4 hereof; and (6) all amounts due, including professional fees and expenses, as set forth in Section 12 for which oral or              written demand has been made by Buyer to Seller during that Reconciliation Period to the extent Buyer has agreed to accept payment thereof by deduction from the Refund. In the event the formula set forth in this Section 3.5 results in an amount due to Buyer from Seller, Seller shall make such payment in the same manner as set forth in Section 4.3 hereof for repurchases.  If the formula set forth in this Section 3.5 results in an amount due to Seller from Buyer, Buyer shall make such payment by check, subject to Buyer’s rights under Section 4.3 and Buyer’s rights of offset and recoupment. 4.  Recourse and Repurchase Obligations.      4.1.  Recourse.  Buyer’s acquisition of Purchased Receivables from Seller shall be with full recourse against Seller.  In the event the Obligations exceed the amount of Purchased Receivables and Collateral, Seller shall be liable for any deficiency.      4.2.  Seller’s Agreement to Repurchase.  If Buyers demands, Seller will repurchase any Purchased Receivable from Buyer for the full face amount or any unpaid portion.  Buyer may require Seller to repurchase a Purchased Receivable if: (A) which remains unpaid ninety (90) calendar days after the invoice date; or (B) which is owed by any Account Debtor who has filed, or has had filed against it, any bankruptcy case, assignment for the benefit of creditors, receivership, or insolvency proceeding or who has become insolvent (as defined in the United States Bankruptcy Code) or who is generally not paying its debts as such debts become due; or (C) with respect to which there has been any breach of warranty or representation set forth in Section 6 hereof or any breach of any covenant contained in this Agreement; or (D) with respect to which the Account Debtor asserts any discount, allowance, return, dispute, counterclaim, offset, defense, right of recoupment, right of return, warranty claim, or short payment; together with all reasonable attorneys’ and professional fees and expenses and all court costs incurred by Buyer in collecting such Purchased Receivable and/or enforcing its rights under, or collecting amounts owed by Seller in connection with, this Agreement (collectively, the “Repurchase Amount”).      4.3.  Seller’s Payment of the Repurchase Amount or Other Amounts Due Buyer.  When any Repurchase Amount or other amount owing to Buyer becomes due, Buyer shall inform Seller of the manner of payment which may be any one or more of the following in Buyer’s sole discretion:  (a) in cash immediately upon demand therefor; (b) by delivery of substitute invoices and an Invoice Transmittal acceptable to Buyer which shall thereupon become Purchased Receivables; (c) by adjustment to the Reserve pursuant to Section 3.5 hereof; (d) by deduction from or offset against the Refund that would otherwise be due and payable to Seller;  (e) by deduction from or offset against  the amount that otherwise would be forwarded to Seller in respect of any further Advances that may be made by Buyer; or (f)  by any combination of the foregoing as Buyer may from time to time choose .        4.4.  Seller’s Agreement to Repurchase All Purchased Receivables.  Upon and after the occurrence of an Event of Default, Seller shall, upon Buyer’s demand (or, in the case of an Event of Default under Section 9(B), immediately without notice or demand from Buyer) repurchase all the Purchased Receivables then outstanding, or such portion thereof as Buyer may demand.  Such demand may, at Buyer’s option, include and Seller shall pay to Buyer immediately upon demand, cash in an amount equal to the Advance with respect to each Purchased Receivable then outstanding together with all accrued Finance Charges, Adjustments, Administrative Fees, attorney’s and professional fees, court costs and expenses as provided for herein, and any other Obligations.  Upon receipt of payment in full of the Obligations, Buyer shall immediately instruct Account Debtors to pay Sel ler directly, and return to Seller any Refund due to Seller.  For the purpose of calculating any Refund due under this Section only, the Reconciliation Date shall be deemed to be the date Buyer receives payment in good funds of all the Obligations as provided in this Section 4.4. 5.  Power of Attorney.  Seller does hereby irrevocably appoint Buyer and its successors and assigns as Seller’s true and lawful attorney in fact, and hereby authorizes Buyer, regardless of whether there has been an Event of Default, (a) to sell, assign, transfer, pledge, compromise, or discharge the whole or any part of the Purchased Receivables; (b) to demand, collect, receive, sue, and give releases to any Account Debtor for the monies due or which may become due upon or with respect to the Purchased Receivables and to compromise, prosecute, or defend any action, claim, case or proceeding relating to the Purchased Receivables, including the filing of a claim or the voting of such claims in any bankruptcy case, all in Buyer’s name or Seller’s name, as Buyer may choose; (c)  to prepare, file and sign Seller’s name on any notice, claim, assignment, demand, draft, or notice of or satisfact ion of lien or mechanics’ lien or similar document with respect to Purchased Receivables; (d)  to notify all Account Debtors with respect to the Purchased Receivables to pay Buyer directly; (e)  to receive, open, and dispose of all mail addressed to Seller for the purpose of collecting the Purchased Receivables; (f)  to endorse Seller’s name on any checks or other forms of payment on the Purchased Receivables;  (g) to execute on behalf of Seller any and all instruments, documents, financing statements and the like to perfect Buyer’s interests in the Purchased Receivables and Collateral; and (h)  to do all acts and things necessary or expedient, in furtherance of any such purposes.  If Buyer receives a check or item which is payment for both a Purchased Receivable and another receivable, the funds shall first be applied to the Purchased Receivable and, so long as there does not exist an Event of Default or an event that with notice, lapse of time or otherwise would constitute an Event of Default, the excess shall be remitted to Seller.  Upon the occurrence and continuation of an Event of Default, all of the power of attorney rights granted by Seller to Buyer hereunder shall be applicable with respect to all Purchased Receivables and all Collateral. 6.  Representations, Warranties and Covenants.      6.1.  Receivables’ Warranties, Representations and Covenants.  To induce Buyer to buy receivables and to render its services to Seller, and with full knowledge that the truth and accuracy of the following are being relied upon by the Buyer in determining whether to accept receivables as Purchased Receivables, Seller represents, warrants, covenants and agrees, with respect to each Invoice Transmittal delivered to Buyer and each receivable described therein, that: (A) Seller is the absolute owner of each receivable set forth in the Invoice Transmittal and has full legal right to sell, transfer and assign such receivables; (B) The correct amount of each receivable is as set forth in the Invoice Transmittal and is not in dispute; (C) The payment of each receivable is not contingent upon the fulfillment of any obligation or contract, past or future and any and all obligations required of the Seller have been fulfilled as of the date of the Invoice Transmittal; (D) Each receivable set forth on the Invoice Transmittal is based on an actual sale and delivery of goods and/or services actually rendered, is presently due and owing to Seller, is not past due or in default, has not been previously sold, assigned, transferred, or pledged, and is free of any and all liens, security interests and encumbrances other than liens, security interests or encumbrances in favor of Buyer or any other division or affiliate of Silicon Valley Bank; (E) There are no defenses, offsets, or counterclaims against any of the receivables, and no agreement has been made under which the Account Debtor may claim any deduction or discount, except as otherwise stated in the Invoice Transmittal; (F) Each Purchased Receivable shall be the property of the Buyer and shall be collected by Buyer, but if for any reason it should be paid to Seller, Seller shall promptly notify Buyer of such payment, shall hold any checks, drafts, or monies so received in trust for the benefit of Buyer, and shall promptly transfer and deliver the same to the Buyer; (G) Buyer shall have the right of endorsement, and also the right to require endorsement by Seller, on all payments received in connection with each Purchased Receivable and any proceeds of Collateral; (H) Seller, and to Seller’s best knowledge, each Account Debtor set forth in the Invoice Transmittal, are and shall remain solvent as that term is defined in the United States Bankruptcy Code and the California Uniform Commercial Code, and no such Account Debtor has filed or had filed against it a voluntary or involuntary petition for relief under the United States Bankruptcy Code; (I) Each Account Debtor named on the Invoice Transmittal will not object to the payment for, or the quality or the quantity of the subject matter of, the receivable and is liable for the amount set forth on the Invoice Transmittal; (J) Each Account Debtor shall promptly be notified, after acceptance by Buyer, that the Purchased Receivable has been transferred to and is payable to Buyer, and Seller shall not take or permit any action to countermand such notification; (K) Seller shall continue to notify and direct all of its Account Debtor’s to make all payment’s to a lockbox account established with the Buyer ("Lockbox") or to wire transfer payments to a cash collateral account that Buyer controls; and (L) All receivables forwarded to and accepted by Buyer after the date hereof, and thereby becoming Purchased Receivables, shall comply with each and every one of the foregoing representations, warranties, covenants and agreements referred to above in this Section 6.1.      6.2.  Additional Warranties, Representations and Covenants.  In addition to the foregoing warranties, representations and covenants, to induce Buyer to buy receivables and to render its services to Seller, Seller hereby represents, warrants, covenants and agrees that: (A) Seller will not assign, transfer, sell, or grant, or permit any lien or security interest in any Purchased Receivables or Collateral to or in favor of any other party, without Buyer’s prior written consent; (B) The Seller’s name, form of organization, chief executive office, and the place where the records concerning all Purchased Receivables and Collateral are kept is set forth at the beginning of this Agreement, Collateral is located only at the location set forth in the beginning of this Agreement, or, if located at any additional location, as set forth on a schedule attached to this Agreement, and Seller will give Buyer at least thirty (30) days prior written notice  if such name, organization,  chief executive office or  other locations of Collateral  or records concerning Purchased Receivables or Collateral is changed or  added and shall execute any  documents necessary to perfect Buyer’s interest in the Purchased Receivables and the Collateral; (C) Seller shall  (i) pay all of its normal gross payroll for employees, and all federal and state taxes, as and when due, including without limitation all payroll and withholding taxes and state sales taxes;  (ii) deliver at any time and from time to time at Buyer’s request, evidence satisfactory to Buyer that all such amounts have been paid to the proper taxing authorities; and (iii) if requested by Buyer, pay its payroll and related taxes through a bank or an independent payroll service acceptable to Buyer. (D) Seller has not, as of the time Seller delivers to Buyer an Invoice Transmittal, or as of the time Seller accepts any Advance from Buyer, filed a voluntary petition for relief under the United States Bankruptcy Code or had filed against it an involuntary petition for relief; (E) If Seller owns, holds or has any interest in, any copyrights (whether registered, or unregistered), patents or trademarks, and licenses of any of the foregoing, such interest has been disclosed to Buyer and is specifically listed and identified on a schedule to this Agreement, and Seller shall immediately notify Buyer if Seller hereafter obtains any interest in any additional copyrights, patents, trademarks or licenses that are significant in value or are material to the conduct of its business; (F) Seller shall provide Buyer with a Compliance Certificate  (i) on a quarterly basis to be received by Buyer no later than the fifth calendar day following each calendar quarter, and; (ii) on a more frequent or other basis if and as requested by Buyer; (G) Seller shall provide Buyer, as soon as available, but no later than 30 days following each Reconciliation Period, a deferred revenue report (only when Advances are outstanding), an aged listing of accounts receivable and accounts payable, a company prepared balance sheet and income statement, prepared under GAAP, consistently applied, covering Seller’s operations during the period; (H) On request by Buyer, Seller will promptly furnish any information Buyer may reasonably request to determine financial condition of Seller, including, but not limited to all of Seller’s Obligations, and the condition of any of Seller’s receivables which may include but are not limited to Purchased Receivables; and (I) Seller will maintain its primary banking relationship with Buyer, which relationship shall include Seller maintaining account balances in any accounts at or through Buyer representing at least 85% of all account balances of Seller at any financial institution. 7.  Adjustments.  In the event of a breach of any of the representations, warranties, or covenants set forth in Section 6.1, or in the event any Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly advise Buyer and shall, subject to the Buyer’s approval, resolve such disputes and advise Buyer of any adjustments.  Unless the disputed Purchased Receivable is repurchased by Seller and the full Repurchase Amount is paid, Buyer shall remain the absolute owner of any Purchased Receivable which is subject to Adjustment or repurchase under Section 4.2 hereof, and any rejected, returned, or recovered personal property, with the right to take possession thereof at any time.  If such possession is not taken by Buyer, Seller is to resell it for Buyer’s account at Seller’s expense with the proceeds made payable to Buyer.  While Seller retains possession of said returned goods, Seller shall segregate said goods and mark them “property of Silicon Valley Bank.” 8.  Security Interest.  To secure the prompt payment and performance to Buyer of all of the Obligations, Seller hereby grants to Buyer a continuing lien upon and security interest in all of Seller’s now existing or hereafter arising rights and interest in the following, whether now owned or existing or hereafter created, acquired, or arising, and wherever located (collectively, the “Collateral”): (A) All accounts, receivables, contract rights, chattel paper, instruments, documents, investment property, letters of credit, bankers acceptances, drafts, checks, cash, securities, and general intangibles (including, without limitation, all claims, causes of action, deposit accounts, guaranties, rights in and claims under insurance policies (including rights to premium refunds), rights to tax refunds, copyrights, patents, trademarks, rights in and under license agreements, and all other intellectual property); (B) All inventory, including Seller’s rights to any returned or rejected goods, with respect to which Buyer shall have all the rights of any unpaid seller, including the rights of replevin, claim and delivery, reclamation, and stoppage in transit; (C) All monies, refunds and other amounts due Seller, including, without limitation, amounts due Seller under this Agreement (including Seller’s right of offset and recoupment); (D) All equipment, machinery, furniture, furnishings, fixtures, tools, supplies and motor vehicles; (E) All farm products, crops, timber, minerals and the like (including oil and gas); (F) All accessions to, substitutions for, and replacements of, all of the foregoing; (G) All books and records pertaining to all of the foregoing; and (H) All proceeds of the foregoing, whether due to voluntary or involuntary disposition, including insurance proceeds. Seller is not authorized to sell, assign, transfer or otherwise convey any Collateral without Buyer’s prior written consent, except for the sale of finished inventory in the Seller’s usual course of business.  Seller agrees to sign UCC financing statements, in a form acceptable to Buyer, and any other instruments and documents requested by Buyer to evidence, perfect, or protect the interests of Buyer in the Collateral.  Seller agrees to deliver to Buyer the originals of all instruments, chattel paper and documents evidencing or related to Purchased Receivables and Collateral. 9.  Default.  The occurrence of any one or more of the following shall constitute an Event of Default hereunder. (A) Seller fails to pay any amount owed to Buyer as and when due; (B) There shall be commenced by or against Seller any voluntary or involuntary case under the United States Bankruptcy Code, or any assignment for the benefit of creditors, or appointment of a receiver or custodian for any of its assets; (C) Seller shall become insolvent in that its debts are greater than the fair value of its assets, or Seller is generally not paying its debts as they become due or is left with unreasonably small capital; (D) Any involuntary lien, garnishment, attachment or the like is issued against or attaches to the Purchased Receivables or any Collateral; (E) Seller shall breach any covenant, agreement, warranty, or representation shall constitute an immediate default hereunder; (F) Seller is not in compliance with, or otherwise is in default under, any term of any document, instrument or agreement evidencing a debt, obligation or liability of any kind or character of Seller, now or hereafter existing, in favor of Buyer or any division or affiliate of Silicon Valley Bank, regardless of whether such debt, obligation or liability is direct or indirect, primary or secondary, joint, several or joint and several, or fixed or contingent, together with any and all renewals and extensions of such debts, obligations and liabilities, or any part thereof; (G) An event of default shall occur under any guaranty executed by any guarantor of the Obligations of Seller to Buyer under this Agreement, or any material provision of any such guaranty shall for any reason cease to be valid or enforceable or any such guaranty shall be repudiated or terminated, including by operation of law; (H) A default or event of default shall occur under any agreement between Seller and any creditor of Seller that has entered into a subordination agreement with Buyer; or (I) Any creditor that has entered into a subordination agreement with Buyer shall breach any of the terms of or not comply with such subordination agreement. (J) (i) There is a material adverse change in the business, operations, or condition (financial or otherwise) of the Seller, or (ii) there is a material impairment of the prospect of repayment of any portion of the Obligations or (iii) there is a material impairment of the value or priority of Buyer's security interests in the Collateral. 10. Remedies Upon Default.  Upon the occurrence of an Event of Default, (1) without implying any obligation to buy receivables, Buyer may cease buying receivables or extending any financial accommodations to Seller;  (2) all or a portion of the Obligations shall be, at the option of and upon demand by Buyer, or with respect to an Event of Default described in Section 9(B), automatically and without notice or demand, due and payable in full; and (3) Buyer shall have and may exercise all the rights and remedies under this Agreement and under applicable law, including the rights and remedies of a secured party under the California Uniform Commercial Code, all the power of attorney rights described in Section 5 with respect to all Collateral, and the right to collect, dispose of, sell, lease, use, and realize upon all Purchased Receivables and all Collateral in any commercial reasonable manner.  S eller and Buyer agree that any notice of sale required to be given to Seller shall be deemed to be reasonable if given five (5) days prior to the date on or after which the sale may be held.  In the event that the Obligations are accelerated hereunder, Seller shall repurchase all of the Purchased Receivables as set forth in Section 4.4. 11. Accrual of Interest.  If any amount owed by Seller hereunder is not paid when due, including, without limitation, amounts due under Section 3.5, Repurchase Amounts, amounts due under Section 12, and any other Obligations, such amounts shall bear interest at a per annum rate equal to the per annum rate of the Finance Charges until the earlier of (i) payment in good funds or (ii) entry of a final judgment thereof, at which time the principal amount of any money judgment remaining unsatisfied shall accrue interest at the highest rate allowed by applicable law. 12. FEES, COSTS AND EXPENSES; INDEMNIFICATION.  THE SELLER WILL PAY TO BUYER IMMEDIATELY ON DEMAND ALL FEES, COSTS AND EXPENSES  (INCLUDING  FEES  OF ATTORNEYS AND PROFESSIONALS AND THEIR COSTS AND EXPENSES )  THAT BUYER INCURS OR  MAY IMPOSE  IN CONNECTION WITH ANY OF THE FOLLOWING:  (a) PREPARING, NEGOTIATING , ADMINISTERING, AND ENFORCING THIS AGREEMENT  OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT,  INCLUDING ANY AMENDMENTS,  WAIVERS OR CONSENTS,  (b) ANY LITIGATION OR DISPUTE (WHETHER INSTITUTED BY BUYER, SELLER OR ANY OTHER PERSON) ABOUT THE PURCHASED RECEIVABLES, THE COLLATERAL, THIS AGREEMENT OR ANY OTHER AGREEMENT EXECUTED IN CONNECTION WITH THIS AGREEMENT, (c) ENFORCING ANY RIGHTS AGAINST SELLER OR ANY GUARANTOR, OR ANY ACCOUNT DEBTOR, (d) PROTECTING OR ENFORCING ITS INTEREST IN THE PURCHASED RECEIVABLES OR THE C OLLATERAL, (e) COLLECTING THE PURCHASED RECEIVABLES AND THE  OBLIGATIONS, AND  (f) THE REPRESENTATION OF BUYER IN CONNECTION WITH ANY BANKRUPTCY CASE OR INSOLVENCY PROCEEDING INVOLVING SELLER, ANY PURCHASED RECEIVABLE, THE COLLATERAL, ANY ACCOUNT DEBTOR, OR ANY GUARANTOR.  SELLER SHALL INDEMNIFY AND HOLD BUYER HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, ACTIONS, DAMAGES, COSTS, EXPENSES, AND LIABILITIES OF ANY NATURE WHATSOEVER ARISING IN CONNECTION WITH ANY OF THE FOREGOING. 1. Jury Trial Waiver.  SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY; (b) RECOGNIZE AND AGREE THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT; AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL. 14. Severability, Waiver, and Choice of Law.  In the event that any provision of this Agreement is deemed invalid by reason of law, this Agreement will be construed as not containing such provision and the remainder of the Agreement shall remain in full force and effect.  Buyer retains all of its rights, even if it makes an Advance after an Event of Default.  If Buyer waives an Event of Default, it may enforce a later default.  Any consent or waiver under, or amendment of, this Agreement must be in writing.   Nothing contained herein, or any action taken or not taken by Buyer at any time, shall be construed at any time to be indicative of any obligation or willingness on the part of Buyer to amend this Agreement or to grant to Seller any waivers or consents.  This Agreement has been transmitted by Seller to Buyer at Buyer’s office in the State of California and has bee n executed and accepted by Buyer in the State of California.   THIS AGREEMENT IS GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA. Notwithstanding the choice of law Buyer and Seller agree that if this Agreement is ever deemed to be subject to Texas law, the transaction governed by this Agreement is an “account purchase transaction” as defined in Article 5069-1.14 of Vernon’s Annotated Texas Statutes and the discount provided in Section 2.2 and all fees and charges under the terms of this Agreement are not and shall not be deemed to be compensation contracted for, charged or received by Buyer for the use, forbearance or detention of money.  Additionally, if this Agreement is ever deemed subject to Texas law, then Section 13 entitled Jury Trial Waiver shall not apply and the following Arbitration provision shall govern. ARBITRATION.  AT THE REQUEST AT ANY TIME OF EITHER PARTY, ANY CONTROVERSIES CONCERNING THIS AGREEMENT WILL BE SETTLED BY ARBITRATION IN ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT, AND UNDER THE COMMERCIAL ARBITRATION RULES AND ADMINISTRATION OF THE AMERICAN ARBITRATION ASSOCIATION.  THE UNITED STATES ARBITRATION ACT WILL SUPPLEMENT CALIFORNIA LAW, AS APPROPRIATE, EVEN THOUGH THIS AGREEMENT PROVIDES THAT IT IS OTHERWISE GOVERNED BY CALIFORNIA LAW. 15. Notices.  All notices shall be given to Buyer and Seller at the addresses or faxes set forth on the first page of this Agreement and shall be deemed to have been delivered and received: (a) if mailed, three (3) calendar days after deposited in the United States mail, first class, postage pre-paid, (b) one (1) calendar day after deposit with an overnight mail or messenger service; or (c) on the same date of confirmed transmission if sent by hand delivery, telecopy, telefax or telex. 16. Term and Termination.  The term of this Agreement shall be for one (1) year from the date hereof, and from year to year thereafter unless terminated in writing by Buyer or Seller.  Seller and Buyer shall each have the right to terminate this Agreement at any time.  Notwithstanding the foregoing, any termination of this Agreement shall not affect Buyer’s security interest in the Collateral and Buyer’s ownership of the Purchased Receivables, and this Agreement shall continue to be effective, and Buyer’s rights and remedies hereunder shall survive such termination, until all transactions entered into and Obligations incurred hereunder or in connection herewith have been completed and satisfied in full. 17. Titles and Section Headings.  The titles and section headings used herein are for convenience only and shall not be used in interpreting this Agreement. 18. Other Agreements.  The terms and provisions of this Agreement shall not adversely affect the rights of Buyer or any other division or affiliate of Silicon Valley Bank under any other document, instrument or agreement.  The terms of such other documents, instruments and agreements shall remain in full force and effect notwithstanding the execution of this Agreement.  In the event of a conflict between any provision of this Agreement and any provision of any other document, instrument or agreement between Seller on the one hand, and Buyer or any other division or affiliate of Silicon Valley Bank on the other hand, Buyer shall determine in its sole discretion which provision shall apply.  Seller acknowledges specifically that any security agreements, liens and/or security interests currently securing payment of any obligations of Seller owing to Buyer or any other division or affiliate o f Silicon Valley Bank also secure Seller’s obligations under this Agreement, and are valid and subsisting and are not adversely affected by execution of this Agreement.  Seller further acknowledges that (a)  any collateral under other outstanding security agreements or other documents between Seller and Buyer or any other division or affiliate of Silicon Valley Bank secures the obligations of Seller under this Agreement and (b)  a default by Seller under this Agreement constitutes a default under other outstanding agreements between Seller and Buyer or any other division or affiliate of Silicon Valley Bank.      IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the day and year above written. SELLER:  Tanisys Technology, Inc. By__/s/ TERRY REYNOLDS_________________ Title _Vice President_______________________ BUYER: SILICON VALLEY BANK By___/s/ William D. Nay, Jr.____________________ Title _Regional Market Manager_________________ Exhibit 10.46 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT is made effective September 1, 2002, by and between TANISYS, INC., a Wyoming corporation, with principal offices located at 12201 Technology Blvd., Austin, Texas 78727 (hereinafter referred to as the “Company”), and Terry W. Reynolds, a resident of Pflugerville, Travis County, Texas, 78660 (hereinafter referred to as the “Employee”). W I T N E S S E T H: WHEREAS, the Employee and the Company desire to enter into an agreement relating to employment, outlining the duties and obligations of each as follows: NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment.  The Company agrees to continue to employ the Employee, and the Employee agrees to continue to be employed by the Company, subject to the terms and conditions set forth herein. 2. Term.  Subject to the provisions hereof, the initial term of the Employee’s employment by the Company under this Agreement shall be for a period of  twelve (12)  months commencing on the date hereof. Beginning with the completion of the initial term of the Agreement (September 1, 2003), the Company will review the performance of the individual as well as the financial condition of the Company and consider, in it’s sole discretion, an extension of this Agreement.  If this Agreement is not extended for an additional twelve (12) months, then the Company will give Employee at least ninety (90) days written notice that the Agreement will not be extended.  Failure to extend the Agreement will not automatically indicate the Company is giving Employee notice of involuntarily termination or the desire of the Company to terminate employment. The term of the Employee’ ;s employment hereunder, including any extension of the original term, is hereinafter referred to as the “Employment Period.”       1. Position and Duties.   During the Employment Period, the Employee shall serve Vice President and Chief Financial Officer, with such assignments, powers and duties as are assigned or delegated to him by the President /Chief Executive Officer of Tanisys, Inc., or his authorized representative.  Such assignments, powers and duties may, from time to time, be modified by the Company, as the Company’s needs may require.  Employee may participate in social, civic, charitable, religious, business, educational or professional associations, so long as such participation would not materially detract from Employee’s ability to fully perform his duties under this Agreement. The Employee agrees to devote all of his business time and best efforts to the business of the Company and its Affiliates in the advancement of the best interests of the Company.  During the Employment Period, the Employee agrees to abide by all Company policies that may be in effect from time to time. 4. Compensation. A. Salary.  For all services rendered by the Employee to the Company during the Employment Period, the Company shall pay the Employee a salary at an annualized rate of one hundred and forty thousand ($140,000).  The compensation is to be payable, subject to such withholdings as are required by law, in installments in accordance with the Company’s customary payroll practices.   B. Transaction Bonus If during the Employment Period, should the Company undergo a Change of Control (as defined hereinafter) within three (3) years of the date of execution of this Agreement (as long as the employee is employed by Company) the Employee shall be entitled to consideration as shown on attached Exhibit A.  As used herein, “Change of Control” means a Board of Director approved and completed transaction or series of transactions (including any cash tender or securities exchange offer, merger, sale of assets or other business combination) as a result of which any person (other than the Company, an Affiliate of the Company or any employee benefit plan of the Company) shall become the beneficial owner of more than 40% of the aggregate combined voting power of all voting securities of the Company then outstanding.  I f during the Employment Period the Employee is Involuntarily Terminated the above defined Transaction Bonus, as defined in Exhibit “A”,  will remain in effect and will be payable in full to Employee upon the Change of Control event. C. Incentive Bonus.   As additional compensation for services rendered under this Agreement, the Compensation Committee of the Board of Directors may, in its sole discretion and without any obligation to do so, declare that Employee shall be entitled to an annual or other incentive bonus plan (whether payable in cash, stock, stock rights or other property) as the Compensation Committee shall determine.  If any such bonus is declared, the bonus shall be payable in accordance with the terms prescribed by the Compensation Committee. D.  Other Benefits.  Company shall pay directly or reimburse to the Employee all fees and other expenses related to maintaining a Certified Public Accountant (CPA) license, including but not limited to annual dues with the State of Texas Board of Public Accountancy, annual dues to state and national CPA professional organizations, and fees plus travel expenses required to obtain the appropriate level of continuing professional education as required by CPA licensing provisions. E.Severance.  If applicable under the terms of this Agreement, the Company agrees to pay the equivalent of twelve (12) months salary ( or $140,000, on a gross basis) as a severance payment in the event of an “involuntary termination” (as defined below) or in conjunction with a “change in control” where the Employee is involuntarily terminated.).  In addition, the Company shall provide continuation of Employee’s health (medical, dental and vision) insurance, at no cost to Employee, for a period of twelve (12) full calendar months following the termination date.  These benefits will be in accord with the standard benefits afforded to all employees at the time of termination. Payment to be made to Employee within 7 days of a qualifying termination. Such severance payment would be in addition to the above noted Transaction Bonus arrangement.   A Board of Directors approved liquidation of the Company does not constitute a Change in Control.   In the event of a “change of control” if the acquiring party and the Employee negotiate a new mutually agreed upon Employment Agreement, the severance payment under this Agreement will be null and void. 5. Office Facilities.  During the Employment Period, the Company will furnish the Employee, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations.  During the Employment Period, the Employee shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions.  The Employee shall be entitled to three (3) weeks vacations with pay annually. 7. Expenses.  Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by the Employee, the Employee is authorized to incur reasonable expenses in the performance of his duties hereunder, and the Company will reimburse the Employee for such reasonable out-of-pocket expenses upon the presentation by the Employee of an itemized account and receipts satisfactory to the Company. 8. Termination. A. If the Employee dies or becomes disabled during the Employment Period, the Employee’s salary  under this Agreement or as an employee of the Company shall terminate at the conclusion of the current term employment period and no severance payment would be due to the Employee.   Any equity position in the Company held by the Employee, will be transferred to the Employee’s estate.  For purposes of this Agreement, the Employee shall be deemed to be “disabled” if, at any time during the Employment Period, the Employee shall have been unable to perform the essential duties of his employment hereunder, with or without accommodation, due to physical or mental incapacity for a period of ninety (90) days or any ninety (90) days in a period of two hundred seventy (270) days. B. An “involuntary termination” for the purposes of this agreement would include (a) termination by the Company of the Employee’s employment, other than for Cause, (b) the Employee’s relocation to a facility or location more than sixty (60) miles from the Employee’s present work facility or location, or (c) Company’s material alteration of the Employee’s job responsibilities, in each of these cases, without the Employee’s consent. C. If the Employee commits any act of malfeasance, or gross negligence, and therefore is terminated for cause, the Employment Period and the Employee’s salary, other compensation and other rights under this Agreement as an employee of the Company shall terminate immediately upon written notice from the Company to the Employee, but such termination shall not affect the liability of the Employee by reason of his malfeasance or gross negligence. In such a termination, Employee would not be due the severance in Section 4.E. of this Agreement. D. Not withstanding anything to the contrary of this agreement, in the event  of a Board of Director approved liquidation of the Company, Employee is entitled to no severance payment. 9. Covenants Not to Disclose.  The Company agrees to provide the Employee with confidential and proprietary information and trade secrets in exchange for the Employee’s promise not to disclose them (the “Nondisclosure Provision”).  In accordance with this Non-disclosure Provision, the Employee covenants and agrees that he will not, at any time during or after the termination of his employment by the Company, communicate, divulge or disclose to any Person (as hereinafter defined) or use for his own account, or advise, discuss with or in any way assist any other Person or firm in obtaining or learning about, without the prior written consent of the Company, information concerning any of the Company’s services, systems, employees, customers, pricing practices, strategies, plans, general or specific “know-how,” training programs, methods of doing business, proces ses, programs, flow charts or equipment used in its business, or any other secret or confidential information (including, without limitation, any customer lists, trade secrets, future business plans or information concerning any work done by the Company for its customers or done in any effort to solicit or obtain customers) concerning, the business and affairs of the Company or any of its Affiliates acquired or obtained by the Employee during the term of her employment by the Company.  The Employee further covenants and agrees that he shall retain all such knowledge and information concerning the foregoing in trust for the sole benefit of the Company and its Affiliates and their respective successors and assigns.  For purposes of this Agreement, the term “Person” shall mean any individual, corporation, partnership, association, trust, estate or other entity or organization. The Employee agrees to return to the Company, within fifteen (15) days from the date of termination of his employment by the Company, all books, catalogues, customer lists, computer diskettes and files, Company credit cards and any other materials and documents relating to the Company and its services, systems, employees, customers, pricing practices, strategies, plans, general or specific “know-how,” training programs, methods of doing business, processes, programs, flow charts or equipment used in its business, or any other secret or confidential information (including, without limitation, any customer lists, trade secrets, future business plans or information concerning any work done by the Company for its customers or done in any effort to solicit or obtain customers) concerning the business and affairs of the Company or any of its Affiliates acquired or obtained by the Employee during the term of his employment by the Company.  The Employee agrees not to use or retain any copies of any such materials after the date of termination of his employment by the Company. 10. Covenant Not to Compete.  To enforce the Non-disclosure Provision contained in Section 9 above, the Employee covenants and agrees that if he resigns, for remainder of the current Employment Period, he will not, directly or indirectly, except upon the written consent of the Company, own any interest in, render services or advice to or be engaged in any segment of a business of a company, partnership or firm (“Business Segment”) that is similar to or in competition with any significant business of the Company or its Affiliates which has been, is then or will in the future be marketed through the Company or any of its Affiliates in the geographic areas where the Company or any of its Affiliates had or solicited customers during the Employment Period, including but not limited to the following Business Segments: (i) Manufacturing, development or marketing of semiconductor memory testing or memory testing-related equipment or any other market that the Company has entered or is planning to enter during the current Employment Period. The Employee agrees that from the date of his resignation to the conclusion of the current Employment Period the Employee will not, directly or indirectly, solicit or accept business from, or otherwise attempt to do business with, any customers of the Company (the “Non solicitation Provision”). This Non solicitation Provision shall be limited to the same specific geographic area noted above. The Employee represents that his experience and capabilities are such that the restrictions contained herein will not prevent the Employee from obtaining employment, or otherwise earning a living, at the same general economic benefit as reasonably required by his and that he has, prior to the execution of this Agreement, carefully reviewed this Agreement. There will be no Covenant Not to Compete if the Employee is terminated by the Company, for or without, Cause.  Section 9 and 10 and their provisions would be null and void. 1.                                                                                                                         Essential Nature of Covenants.  The covenants of the Employee contained in Sections 9 and 10 shall be construed as independent of any other provision of this Agreement.  The existence of any claim or cause of action of the Employee against the Company or any of its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of said covenants.  The Employee understands that the covenants contained in Sections 9 and 10 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of the Employee to Sections 9 and 10, the Company would not have agreed to enter into such transactions.  The Employee has been advised to consult with his counsel in order to be informed in all respects concerning the reasonableness an d propriety of Sections 9 and 10, with specific regard to the nature of the business conducted by the Company, and the Employee acknowledges that Sections 9 and 10 are reasonable and acceptable in all respects. 2.                                                                                                                         Indemnification.  The Employee agrees to indemnify, defend and hold the Company harmless from any and all claims, demands, activities, suits, allegations, actions or causes of action arising from or incident to, whether directly or indirectly, any malfeasance, gross negligence or omission on the part of the Employee in the conduct of his duties or any conduct outside the scope of his employment which may give rise to liability or potential liability on the part of the Company, its directors, officers, agents, representatives or employees. 3.                                                                                                                         Directors and Officers Insurance.  The Company shall maintain an appropriate level of Directors and Officers Liability Insurance. 14.     Remedies.  It is stipulated that the parties to this Agreement recognize that a breach by the Employee of his obligations under Sections 9 and 10 of this Agreement cannot be adequately compensated by money damages.  In the event of a breach or threatened breach by the Employee of Section 9 or 10, the Company shall be fully entitled to seek and obtain a temporary restraining order and an injunction restraining the Employee from the commission of such breach.  Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of money damages. 15. Arbitration.  As part of, and in consideration for this Agreement and the compensation and other benefits paid by the Company to the Employee herein, and in consideration for the Company’s mutual agreement to arbitrate certain claims, the Employee agrees that any dispute he may have against the Company, its Affiliates, directors, officers, agents, representatives, attorneys, employees, successors or assigns, under either state or federal law, arising out of the Employee’s employment by the Company or termination of employment will be submitted to final and binding arbitration in accordance with the Company’s arbitration procedures. By agreeing to arbitrate, the Employee understands that he is not giving up any substantive rights under either state or federal law.  Rather, the Employee and the Company are mutually agreeing only to submit all disputes to an arbitral, rathe r than judicial, forum. Prior to submitting any dispute to arbitration, the parties shall first attempt to resolve the matter by the claimant notifying the other party in writing of the dispute; by giving the other party the opportunity to respond in writing to the dispute within fifteen (15) days of receipt of the written claim; and by giving the other party the opportunity to meet and confer.  If the matter is not resolved in this manner, the dispute then may proceed to arbitration at the request of either party. Pursuant to the Company’s arbitration procedures, the American Arbitration Association shall schedule any arbitration and appoint the arbitrator, if the parties cannot agree on the selection of the arbitrator.  The Employee understands that the cost of the arbitrator will be borne equally by the Employee and the Company (although the Employee will not be required to contribute more than $2,500.00 towards the cost of the arbitrator) and that the decision of the arbitrator shall be final and binding upon the parties.  In the event that a party to this Agreement brings or pursues a dispute in a court of law, which dispute is subject to final and binding arbitration in accordance with this Section 14, and should have been brought or submitted to arbitration pursuant to the foregoing procedures, that party shall pay all reasonable attorneys’ fees and court costs incurred by the other party in f iling any motion to compel arbitration, motion to dismiss or other pleadings with said court to enforce arbitration pursuant to this Section 14. The Employee understands and agrees that the Company is engaged in transactions involving interstate commerce and that this Section 14 evidences a transaction involving commerce. 16. Waiver of Breach.  The waiver by the Company of a breach of any provision of this Agreement by the Employee shall not operate or be construed as a waiver of any subsequent breach by the Employee. 17. Binding Effect; Assignment.  This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives.  Insofar as the Employee is concerned, this Agreement, being personal, cannot be assigned. 18. Severability; Judicial Reformation.  The invalidity of all or any part of any section or provision of this Agreement shall not render invalid the remainder of this Agreement or the remainder of such section or provision.  If any section or provision of this Agreement is so broad as to be unenforceable, such section or provision shall be reformed and interpreted to be only so broad as is enforceable.  To the extent possible and permitted by applicable law, judicial reformation of this Agreement, or any section or provision hereof, is acknowledged by the parties to be preferred and desired to preserve the intent and purpose of any section or provision herein to the fullest extent allowed by applicable law, should said section or provision be found or deemed to be unlawful and invalid by a court of competent jurisdiction. 19. Counterparts.  This Agreement may be executed in any number of counterparts, each of which, when executed, shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 20. Governing Law.  This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 21. Notice.  All notices which are required or which may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first-class mail, postage prepaid, return receipt requested, if to the Employee at 1104 Brown Drive, Pflugerville, Texas 78660, or if to the Company, at the address listed above, or to such other address as either party shall have specified by written notice to the other party. 22. Entire Agreement; Modification.  This Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof.  This Agreement may not be changed, modified or altered except by written agreement signed by the Company and the Employee or by judicial reformation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TANISYS TECHNOLOGY, INC. By:  /s/ C. Lee Cooke, Jr. By:  /s/ Terry W. Reynolds       C. Lee Cooke, Jr.        Terry W. Reynolds       President & CEO Exhibit 21.1 SUBSIDIARIES OF THE COMPANY (1) 1st Tech Corporation, a Delaware corporation (2) DarkHorse Systems, Inc., a Delaware corporation (3) Rosetta Marketing and Sales, Inc., a Texas corporation