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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-29045
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T/R SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1958870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Oakbrook Drive
Norcross, Georgia
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(Address of principal executive offices)
30093
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(Zip Code)
(770) 448-9008
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 5(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. Yes [x] No [ ]
As of September 8, 2000, 12,131,764 shares of common stock of the registrant
were outstanding.
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TABLE OF CONTENTS
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Page
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PART I
Item 1 Financial Statements.................................................................... 2
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations... 7
Item 3 Quantitative and Qualitative Disclosures About Market Risk ............................. 10
PART II
Item 2 Changes in Securities and Use of Proceeds............................................... 10
Item 4 Submission of Matters to a Vote of Security Holders..................................... 11
Item 6 Exhibits and Reports on Form 8-K........................................................ 11
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
T/R SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
2000 2000
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ASSETS
Current Assets:
Cash and cash equivalents ........................................ $ 29,014 $ 27,514
Receivables, net of allowance .................................... 4,599 4,659
Inventories, net ................................................. 4,183 3,466
Prepaid expenses and other ....................................... 589 475
-------- --------
Total current assets ....................................... 38,385 36,114
Property and equipment, net ........................................ 1,565 1,058
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$ 39,950 $ 37,172
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................. $ 2,146 $ 1,733
Deferred revenue ................................................. 865 1,027
Accrued salaries and wages ....................................... 1,131 1,388
Other liabilities ................................................ 943 775
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Total current liabilities .................................. 5,085 4,923
Shareholders' Equity:
Preferred stock, $0.01 par value, 12,000,000 shares
authorized, 8,977,084 shares designated as redeemable,
convertible preferred stock, 222,222 shares designated as
series D convertible preferred stock, none issued or
outstanding .................................................... -- --
Common stock, $0.01 par value, 88,000,000 shares authorized;
12,024,554 and 11,733,234 shares issued and outstanding, ....... 120 117
respectively
Additional paid-in capital ....................................... 42,986 42,839
Deferred compensation ............................................ (44) (60)
Accumulated deficit .............................................. (8,197) (10,647)
-------- --------
Total shareholders' equity ................................. 34,865 32,249
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$ 39,950 $ 37,172
======== ========
</TABLE>
See notes to financial statements
2
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T/R SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED ENDED
JULY 31, JULY 31,
-------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue .............................. $ 8,839 $ 5,233 $ 16,149 $ 9,889
Cost of sales ........................ 3,406 2,264 6,340 4,210
-------- -------- -------- --------
Gross profit ......................... 5,433 2,969 9,809 5,679
Operating Expenses:
Research and development ........... 1,105 841 2,197 1,656
Sales and marketing ................ 2,240 1,608 4,335 2,992
General and administrative ......... 751 410 1,485 862
-------- -------- -------- --------
Total operating expenses ... 4,096 2,859 8,017 5,510
-------- -------- -------- --------
Operating income ..................... 1,337 110 1,792 169
Interest income, net ................. 400 26 780 42
-------- -------- -------- --------
Income before income taxes ........... 1,737 136 2,572 211
Income tax expense ................... 87 -- 122 --
-------- -------- -------- --------
Net income ........................... $ 1,650 $ 136 $ 2,450 $ 211
======== ======== ======== ========
Net income per common
share -- Basic ..................... $ 0.14 $ 0.05 $ 0.21 $ 0.08
======== ======== ======== ========
Net income per common and common
equivalent share -- Diluted ........ $ 0.13 $ 0.01 $ 0.19 $ 0.02
======== ======== ======== ========
</TABLE>
See notes to financial statements
3
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T/R SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
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<CAPTION>
FOR THE SIX MONTHS
ENDED
JULY 31,
--------------------------
2000 1999
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Operating Activities:
Net income ................................................ $ 2,450 $ 211
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ........................................... 317 273
Deferred compensation expense .......................... 16 17
Changes in assets and liabilities:
(Increase) decrease in receivables .................. 60 (480)
Increase in inventories ............................. (717) (46)
Increase in prepaid expenses and and other .......... (114) (102)
Increase (decrease) in accounts payable ............. 413 (333)
Increase (decrease) in deferred revenue ............. (162) 1,227
Increase (decrease) in accrued salaries and wages ... (257) 80
Increase in other liabilities ....................... 168 59
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Net cash provided by operating activities ........ 2,174 906
Investing Activities:
Purchases of property and equipment ...................... (824) (172)
Financing Activities:
Principal repayments on long term debt ................... -- (25)
Proceeds from sale of common stock ....................... 281 38
Proceeds from sale of preferred stock .................... -- 995
Costs of initial public offering ......................... (131) --
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Net cash provided by financing activities ................... 150 1,008
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Net increase in cash and cash equivalents ................... 1,500 1,742
Cash and Cash Equivalents:
Beginning of period ....................................... 27,514 2,166
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End of period ............................................. $ 29,014 $ 3,908
======== =======
Cash paid for interest ...................................... $ -- $ 9
======== =======
Cash paid for income taxes .................................. $ 34 $ --
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</TABLE>
See notes to financial statements
4
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T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim financial statements of T/R Systems,
Inc., presented herein, have been prepared on the same basis as the
audited financial statements contained in T/R Systems' Annual Report on
Form 10-K for the fiscal year ended January 31, 2000 and should be read
in conjunction with those audited financial statements and the notes
thereto. In the opinion of management, all adjustments, consisting only
of normal recurring adjustments, which are necessary to present fairly
our financial position and the results of our operations and cash flows
for the interim periods have been made.
The preparation of these unaudited interim financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of July 31, 2000 and the
reported amounts of revenue and expenses during the three and six
months then ended. Actual results could differ from these estimates.
Additionally, our results for the six months ended July 31, 2000 are
not necessarily indicative of the results to be expected for the full
year.
Certain fiscal 2000 amounts have been reclassified to conform
to the fiscal 2001 financial statement presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which, as amended, is effective for all fiscal years
beginning after June 15, 2000. This statement establishes accounting
and reporting standards for derivative instruments, including some
derivative instruments embedded in other contracts and for hedging
activities. Under SFAS No. 133, as amended, some contracts that were
not formerly considered derivatives may now meet the definition of
derivatives. We intend to adopt SFAS No. 133 effective February 1,
2001. We have not determined the effect, if any, of the adoption of
this statement on our financial position or results of operations, but
we do not believe it will be significant since we do not have
significant derivative activity.
In 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in
Financial Statements. The SAB provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed
with the SEC. SAB No. 101, as amended by SAB No. 101B, is effective
for the fourth quarter of fiscal years beginning after December 15,
1999. Although we are in the process of assessing the impact of SAB No.
101 on our financial statements, we do not expect the effect of SAB
No. 101, if any, to be material.
3. BALANCE SHEET DETAIL
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JULY 31, JANUARY 31,
2000 2000
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(IN THOUSANDS)
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RECEIVABLES:
Accounts receivable .................... $4,779 $4,809
Less allowance for doubtful accounts ... 180 150
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$4,599 $4,659
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INVENTORIES:
Components and supplies ................ $3,736 $2,861
Finished goods ......................... 975 1,026
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4,711 3,887
Less reserve for potential losses ...... 528 421
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$4,183 $3,466
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</TABLE>
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4. SEGMENT INFORMATION
We operate in one reportable segment, the print-on-demand
market, and assess performance based on operating income. Revenue is
summarized below:
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<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------------ -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Digital communications
systems ................. $ 8,044 $ 5,001 $ 14,900 $ 9,576
Other ..................... 795 232 1,249 313
-------- -------- -------- --------
Total ..................... $ 8,839 $ 5,233 $ 16,149 $ 9,889
======== ======== ======== ========
</TABLE>
Digital communications systems include software and hardware
products for managing a document from creation to its final
destination. Other revenue includes revenue from customer service
plans, engineering services and royalties.
Revenue by geographic area is summarized below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------------ -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
United States ............. $ 7,732 $ 3,776 $ 13,729 $ 8,015
Asia ...................... 16 153 156 156
Europe .................... 738 925 1,464 982
Other foreign countries ... 353 379 800 736
-------- -------- -------- --------
Total ..................... $ 8,839 $ 5,233 $ 16,149 $ 9,889
======== ======== ======== ========
</TABLE>
Revenue by geographic area is based on where we ship our products.
Substantially all of our long-lived assets are located in the
United States.
5. NET INCOME PER COMMON SHARE
The following table summarizes the computation of basic and
diluted net income per common share:
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FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------------ ------------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS, EXCEPT (IN THOUSANDS, EXCEPT
PER SHARE DATA) PER SHARE DATA)
<S> <C> <C> <C> <C>
Numerator:
Net income ......................................... $ 1,650 $ 136 $ 2,450 $ 211
Accretion on redeemable preferred stock ............ -- (6) -- (11)
------- ------- ------- -------
Net income applicable to common
shareholders -- Basic ............................ 1,650 130 2,450 200
Add back accretion on redeemable preferred stock ... -- 6 -- 11
------- ------- ------- -------
Net income applicable to common
shareholders -- Diluted .......................... $ 1,650 $ 136 $ 2,450 $ 211
======= ======= ======= =======
Denominator:
Weighted average shares outstanding -- Basic ....... 11,950 2,536 11,854 2,524
Conversion of preferred stock ...................... -- 6,044 -- 5,989
Effect of outstanding stock options ................ 913 1,175 1,073 1,159
------- ------- ------- -------
Total -- Diluted ................................... 12,863 9,755 12,927 9,672
======= ======= ======= =======
Net income per common share -- Basic ................. $ 0.14 $ 0.05 $ 0.21 $ 0.08
======= ======= ======= =======
Net income per common and common
equivalent share -- Diluted ........................ $ 0.13 $ 0.01 $ 0.19 $ 0.02
======= ======= ======= =======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the audited financial statements and related notes thereto
contained in T/R Systems' annual report on Form 10-K for the year ended January
31, 2000. Results for the six months ended July 31, 2000 are not necessarily
indicative of the results to be expected for the fiscal year ending January 31,
2001. This discussion contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In many cases, you can identify forward-looking statements by the
use of words such as may, will, should, expects, plans, anticipates, believes,
estimates, predicts, potential or continue, or the negative of these terms or
other comparable terminology. Our actual results could be materially different
from those anticipated in these forward-looking statements as a result of a
number of factors, including those set forth under "Risk Factors" in Item I and
elsewhere in our annual report on Form 10-K.
RESULTS OF OPERATIONS
The following table presents operating data as a percentage of revenue.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JULY 31, ENDED JULY 31,
------------------------ ------------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue .............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................................ 38.5 43.3 39.3 42.6
----- ----- ----- -----
Gross profit ......................................... 61.5 56.7 60.7 57.4
Operating expenses:
Research and development ........................... 12.5 16.1 13.6 16.7
Sales and marketing ................................ 25.3 30.7 26.8 30.3
General and administrative ......................... 8.5 7.8 9.2 8.7
----- ----- ----- -----
Total operating expenses ................... 46.3 54.6 49.6 55.7
----- ----- ----- -----
Operating income ..................................... 15.2 2.1 11.1 1.7
Interest income, net ................................. 4.5 0.5 4.8 0.4
Income before taxes .................................. 19.7 2.6 15.9 2.1
Income tax expense ................................... 1.0 -- 0.8 --
----- ----- ----- -----
Net income ........................................... 18.7% 2.6% 15.1% 2.1%
===== ===== ===== =====
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COMPARISON OF THE THREE MONTHS ENDED JULY 31, 2000 AND 1999
Revenue. Revenue increased by $3.6 million, or 68.9%, from $5.2 million
in the quarter ended July 31, 1999 to $8.8 million in the quarter ended July 31,
2000. This increase was primarily due to an increase in revenue from our OEM
relationships, including shipments to two additional OEM partners. In the second
quarter of the current fiscal year, we sold systems to Hitachi Koki Imaging
Solutions and to Ricoh Corporation as well as to Minolta Co., Ltd. In the second
quarter of the prior fiscal year, Minolta was the only OEM partner from whom we
derived significant revenue.
During the quarter ended July 31, 2000, we derived $7.7 million, or
87.5%, of our revenue from sales shipped to customers in the United States. This
compares to $3.8 million, or 72.2%, of our revenue in the same quarter of the
prior fiscal year. The growth in domestic revenue as a percent of total revenue
was the result of domestic revenue growing 104.7% from the same quarter in the
prior fiscal year, while sales shipped to international customers decreased
24.0% from $1.5 million to $1.1 million over the same period. The rapid growth
in domestic revenue was primarily due to our OEM partners buying more of our
products for resale in the United States. The decline in international sales was
primarily due to a decrease in shipments to one of our OEM partners in Europe.
In the second quarter of our prior fiscal year, Minolta was in the process of
rolling out the MicroPress in Europe and, thus, shipments to Minolta in Europe
were greater than comparable shipments in the second quarter of the current
fiscal year. We anticipate that our international revenue as a percent of total
revenue will increase due to a strengthening of our non-US sales force and as
our OEMs expand the countries into which they sell our products.
Gross Profit. Our gross profit, revenue less cost of sales, increased
$2.4 million, or 83.0%, from $3.0 million in the quarter ended July 31, 1999 to
$5.4 million in the quarter ended July 31, 2000. Our gross margin, gross profit
as a percent of sales, increased from 56.7% in the quarter ended July 31, 1999
to 61.5% in the quarter ended July 31, 2000. The increase in
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gross margin was due to an increase in OEM revenue as a percent of total revenue
as well as an improvement in the gross margins of sales through our OEM
relationships. We typically realize higher gross margins on OEM revenue than we
do through our independent dealer network as the OEM systems typically include
relatively more software than systems sold through independent dealers. We
normally realize higher margins on software than on hardware. The improvement in
gross margin from sales through our OEM relationships was due primarily to an
increase in OEM software revenue as a percent of total OEM revenue due in part
to the increase in the software products we offer. Over the past year, we have
added additional software modules that increase the functionality of our
systems.
Research and Development. Research and development expenses increased
$264,000, or 31.4%, from $841,000 in the quarter ended July 31, 1999 to $1.1
million in the quarter ended July 31, 2000. The increase was due to an increase
in personnel-related expenses resulting from the hiring of additional research
and development personnel to assist in the further development of our products.
We believe that research and development spending, including spending for
employee salaries and benefits, will increase in the future as we expand our
product offerings and increase the connectivity and software functionality of
our products.
Sales and Marketing. Sales and marketing expenses increased by
$632,000, or 39.3%, from $1.6 million to $2.2 million. As a percent of revenue,
sales and marketing expenses decreased from 30.7% in the quarter ended July 31,
1999 to 25.3% in the quarter ended July 31, 2000. Of the $632,000 increase in
sales and marketing expenses, $561,000 was due to an increase in
personnel-related and travel-related expenses as a result of the hiring of
additional sales personnel as well as additional technical support personnel to
support the growth of our business. The remaining increase was primarily due to
an increase in marketing expenses, which included costs associated with
advertising, public relations and trade shows, of $38,000. We believe that we
will need to continue to increase our sales and marketing efforts to address new
markets and to support additional OEM relationships in the future.
General and Administrative. Our general and administrative expenses in
the quarter ended July 31, 2000 were $751,000 as compared to $410,000 in the
same quarter of the prior fiscal year. The increase of $341,000, or 83.2%, was
due primarily to the incurrence of $148,000 in additional expenses as a result
of being a publicly traded company and an increase in personnel-related expenses
of $116,000. The additional public company expenses consisted of expenses
related to public reporting and directors' fees, as well as increased insurance
expense and professional service fees.
Interest Income, Net. Interest income, net increased $374,000 to
$400,000 in the quarter ended July 31, 2000 from $26,000 in the same quarter
last year. The increase was due to an increase in the cash available for
short-term investment during the quarter, primarily as a result of our initial
public offering. Upon completion of our initial public offering in January 2000,
we received $25.4 million in cash, net of underwriting discounts, commissions
and other offering costs.
Income Tax Expense. In the quarter ended July 31, 2000, we recorded
$122,000 in income tax expense for alternative minimum taxes after utilizing our
net operating loss carryforward deduction. While we had a net operating loss
carryforward of $7.2 million at January 31, 2000, we have not recorded a
deferred tax asset as of July 31, 2000, due to the uncertainty of future
profitability. No income tax expense was recorded in the quarter ended July 31,
1999.
COMPARISON OF THE SIX MONTHS ENDED JULY 31, 2000 AND 1999
Revenue. Revenue increased $6.3 million, or 63.3%, from $9.9 million
for the six months ended July 31, 1999 to $16.1 million for the six months ended
July 31, 2000. This increase in revenue was primarily due to an increase in
revenue from our OEM relationships. In the first half of the current fiscal
year, we sold systems to Hitachi and Ricoh as well as Minolta. In the first half
of the prior fiscal year, the only OEM partner we had significant shipments to
was Minolta. In addition to the increase in revenue from our OEM relationships,
we had an increase in revenue from sales through our network of independent
dealers. The increase in revenue from our independent dealer network was
primarily due to the introduction of new products, including the PrintStation
070 and new software options for the MicroPress.
During the six months ended July 31, 2000, we derived $2.4 million, or
15.0%, of our revenue from sales shipped to customers outside the United States.
This compares to $1.9 million, or 19.0%, for the six months ended July 31, 1999.
Revenue from sales shipped internationally decreased as a percent of total
revenue due to domestic revenue growing at a faster rate than international
revenue. The growth in domestic revenue was due in part to our OEM partners
buying more of our products for resale in the United States in the first six
months of July 31, 2000. We anticipate that our international revenue as a
percent of total revenue will increase due to a strengthening of our non-US
sales force and as our OEMs expand the countries into which they sell our
products.
8
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Gross Profit. Our gross profit for the six months ended July 31, 2000
was $9.8 million, up $4.1 million, or 72.7%, from $5.7 million for the six
months ended July 31, 1999. Our gross margin for the six months ended July 31,
2000 was 60.7%, up from 57.4% for the same period last year. This increase in
our gross margin was primarily due to an increase in OEM revenue as a percent of
total revenue. As discussed above, we typically realize a higher gross margin on
OEM revenue than we do through our independent dealer network as OEM systems
typically include relatively more software than systems sold through independent
dealers. Additionally, gross margin improved on sales through both our OEM
relationships and our independent dealer network. These increases in gross
margin were primarily due to an increase in software revenue as a percent of
total revenue on both sales through our OEM relationships and through our
independent dealers. The increase in software revenue as a percent of total
revenue was due in part to additional software products we began to offer. Over
the past year, we have added additional software modules that increase the
functionality of our systems.
Research and Development. Research and development expense increased
$541,000, or 32.7%, to $2.2 million for the six months ended July 31, 2000 from
$1.7 million for the six months ended July 31, 1999. This increase was due to an
increase in personnel related expenses resulting from the hiring of additional
research and development personnel to assist in the further development of our
products. Research and development expense as a percent of total revenue
decreased from 16.7% in the first six months of the prior fiscal year to 13.6%
in the first six months of the current fiscal year.
Sales and Marketing. Sales and marketing expenses were $4.3 million, or
26.8% of total revenue, for the first half of the current fiscal year as
compared to $3.0 million, or 30.3% of revenue, for the first half of the prior
fiscal year. The increase in sales and marketing expenses between the two
periods of $1.3 million, or 44.9%, was primarily due to an increase in
personnel-related and travel-related expenses of $1.1 million as result of the
hiring of additional sales personnel. The remaining increase was due to an
increase in marketing expenses of $147,000. Marketing expenses increased due to
additional spending on trade shows and marketing consulting services for the
strategic positioning of our company and our products.
General and Administrative. For the six months ended July 31, 2000,
general and administrative expenses were $1.5 million, up $623,000, or 72.3%,
from $862,000 for the six months ended July 31, 1999. The increase was primarily
due to the incurrence of $266,000 in additional expenses as a result of being a
publicly traded company and an increase in personnel-related expenses $242,000.
Interest Income, Net. Interest income, net was $780,000 for the six
months ended July 31, 2000 as compared to $42,000 for the six months ended July
31, 1999. The increase in interest income was primarily due to an increase in
cash available for short-term investment, primarily as a result of our initial
public offering, which generated $25.4 million in cash, net of underwriting
discounts, commissions and other offering costs. Additionally, cash generated
from operations was $2.2 million for the six months ended July 31, 2000.
Income Tax Expense. In the six months ended July 31, 2000, we recorded
$87,000 in income tax expense for alternative minimum taxes after utilizing our
net operating loss carryforward deductions. While we had a net operating loss
carryforward of $7.2 million at January 31, 2000, we have not recorded a
deferred tax asset as of July 31, 2000, due to the uncertainty of future
profitability. No income tax expense was recorded for the six months ended July
31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $1.5 million to $29.0 million
during the six months ended July 31, 2000.
For the six months ended July 31, 2000, net cash provided by operating
activities was $2.2 million as compared to $906,000 in the first half of the
prior fiscal year. The increase was primarily due to the increase in net income
during the first six months of this year as compared to the first six months of
last year. Net cash used in investing activities, which consists of purchases of
property and equipment, was $824,000 for the six months ended July 31, 2000 and
$172,000 for the six months ended July 31, 1999. The increase in purchases of
property and equipment was primarily due to purchases of equipment for product
demonstrations and trade shows, product development and testing and technical
support as well as equipment, information systems infrastructure and leasehold
improvements purchased for a newly leased operations and training center
scheduled to open in the third quarter of the current fiscal year. Net cash
provided by financing activities was $150,000 in the first half of the current
fiscal year consisting of proceeds from stock option exercises of $281,000 less
$131,000 in payments of expenses related to our initial public offering. Net
cash provided by financing activities in the first six months of the prior
fiscal year of $1.0 million was primarily the result of the private placement of
our series D preferred stock.
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There were no borrowings outstanding under our $3.0 million revolving
line of credit during the six months ended July 31, 2000. We were in compliance
with the covenants of the revolving line of credit at July 31, 2000. This
revolving line of credit expires in October 2000. In April 2000, the $200,000
letter of credit we had outstanding under this agreement in connection with an
operating lease obligation was reduced to $150,000 in accordance with the terms
of the operating lease.
We believe that our current cash and cash equivalents and cash
generated by operations will be sufficient to meet our anticipated cash needs
for working capital, capital expenditures and business expansion for the
foreseeable future. However, if cash generated by operations is insufficient to
satisfy our operating requirements or if we determine to acquire any technology,
we may be required to raise additional funds, through either debt or equity
financings. There can be no assurance that we will be able to obtain any
financing on terms acceptable to us, if at all.
Inflation had no material impact on our operations during the quarter
or six months ended July 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We believe our exposure to market rate fluctuations on our cash
equivalents are minor due to the short-term maturities of those investments,
typically 90 days or less. We have market risk relating to borrowings under our
credit facility because the interest rates under the facility are variable.
However, as of July 31, 2000, we had no borrowings outstanding under our
revolving credit facility. To date, we have not entered into any derivative
instruments to manage interest rate exposure.
A significant portion of our revenue is derived from sales to
international customers. Currently, all of our sales to international customers
are denominated in U.S. dollars. If the value of the U.S. dollar increases
relative to a particular foreign currency, our products could become relatively
more expensive, which could result in a reduction in our sales in a particular
country.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a) Inapplicable.
(b) Inapplicable.
(c) Inapplicable.
(d) In connection with our initial public offering, the Securities
and Exchange Commission declared our registration statement on Form
S-1 (file no. 333-88439) effective on January 25, 2000.
As of July 31, 2000, we had invested all of the net proceeds
from our initial public offering in government securities with
original maturities of 90 days or less. No payments from these
proceeds were made to any of our directors, officers, holders of
10% or more of our equity securities or any other affiliates of T/R
Systems.
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<PAGE> 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On May 11, 2000, we held our annual meeting of the shareholders (the
"Meeting"). Set forth below is information regarding the matters submitted for a
vote of security holders at the Meeting, as well as the number of votes cast
for, against or withheld from such proposal, including abstentions and broker
non-votes.
I. Proposal to elect three directors as class I directors to serve a
three-year term expiring at the annual meeting of the shareholders in
2003:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
---- --------- --------------
<S> <C> <C>
Charles H. Phipps 9,432,270 1,668
Peter S. Sealey 9,432,920 1,018
Kevin J. McGarity 9,432,645 1,293
</TABLE>
The following are the names and terms of office of the directors whose terms
continued after the Meeting: E. Neal Tompkins and Philip T. Gianos are class II
directors whose term will expire at the annual meeting of the shareholders in
2001; and Michael E. Kohlsdorf and C. Harold Gaffin are class III directors
whose term will expire at the annual meeting of the shareholders in 2002.
II. Proposal to ratify and approve our 2000 Employee Stock Purchase Plan:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld Abstentions Broker Non-Votes
--------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Total 9,379,018 23,100 0 31,820 0
</TABLE>
III. Proposal to ratify the appointment of Deloitte & Touche LLP as our
independent auditors for the 2001 fiscal year:
<TABLE>
<CAPTION>
Votes For Votes Against Votes Withheld Abstentions Broker Non-Votes
--------- ------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Total 9,425,018 615 0 8,305 0
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.18* Master Assembly and Distribution
Agreement, dated July 27, 2000, by and
between IKON Office Solutions, Inc. and
T/R Systems, Inc.
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
---------
* Confidential treatment has been requested with respect to certain
portions of this exhibit.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended July
31, 2000.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T/R Systems, Inc.
September 13, 2000 /s/ Lyle W. Newkirk
-------------------------- ------------------------------------
Lyle W. Newkirk
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
12
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.18* Master Assembly and Distribution
Agreement, dated July 27, 2000,
by and between IKON Office
Solutions, Inc. and T/R Systems,
Inc.
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
-------------
* Confidential treatment has been requested with respect to certain portions of
this exhibit.
13
