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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2000, OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-29045
T/R SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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GEORGIA 58-1958870
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 OAKBROOK DRIVE 30093
NORCROSS, GEORGIA (Zip Code)
(Address of principal executive offices)
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Registrant's telephone number, including area code: (770) 448-9008
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.01 PAR VALUE
(Title of Class)
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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. Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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 amendment to this
Form 10-K. [ ]
The aggregate market value of the shares held by non-affiliates of the
registrant (based upon the closing price of the registrant's common stock on
April 7, 2000 of $21.50 per share) was about $252.7 million. As of April 7,
2000, 11,753,451 shares of common stock of the registrant were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER THE REGISTRANT'S FISCAL
YEAR ENDED JANUARY 31, 2000, ARE INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K.
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TABLE OF CONTENTS
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PART I
Item 1 Business.................................................... 1
Item 2 Properties.................................................. 16
Item 3 Legal Proceedings........................................... 16
Item 4 Submission of Matters to a Vote of Security Holders......... 16
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6 Selected Financial Data..................................... 19
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 20
Item 7A Quantitative and Qualitative Disclosures About Market
Risk........................................................ 25
Item 8 Financial Statements and Supplementary Data................. 25
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 26
PART III
Item 10 Directors and Executive Officers of the Registrant.......... 26
Item 11 Executive Compensation...................................... 26
Item 12 Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
Item 13 Certain Relationships and Related Transactions.............. 26
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 26
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PART I
ITEM 1. BUSINESS
OVERVIEW
T/R Systems designs, develops and markets digital document processing and
printing systems, consisting of proprietary software and hardware, for the
print-on-demand market. Our highly functional product, the MicroPress Cluster
Printing System, manages multiple digital print devices provided by us or by
third parties as an integrated printing system. This system allows our customers
to flexibly and economically print desired quantities with minimum lead time.
Key MicroPress features include consistent color quality across multiple print
devices as well as the capability to simultaneously support color, black and
white and wide-format digital printing devices and scanned digital input.
We are a leading provider of digital document processing and printing
systems in the mid-range print-on-demand market. We define the mid-range
print-on-demand market as users with monthly print volumes of 100,000 to
1,000,000 black and white pages or 10,000 to 100,000 color pages. We initially
focused our sales and marketing efforts on organizations that provide printing
and copying services, and have expanded our focus to include service bureaus,
in-house print shops and corporate customers.
RECENT DEVELOPMENT
In February 2000, we announced the MicroPress WG server as an addition to
our existing product line. The MicroPress WG, along with the MicroPress DP, our
existing server, will help us meet the needs of a broader spectrum of end users
in the mid-range of the print-on-demand market. A MicroPress WG system will be a
workgroup-oriented system for organizations seeking an entry-level
print-on-demand solution. The MicroPress WG is designed to meet the needs of
organizations that require less throughput and functionality than that provided
by the MicroPress DP, at a lower cost.
The MicroPress WG will use industry-standard, open-architecture
technologies similar to the MicroPress DP, including Microsoft Windows NT(R)
server software, the latest Intel(R) Pentium(R) microprocessor and Harlequin's
ScriptWorks(R). Additionally, much of the software functionality available with
the MicroPress DP will be available as add-ons to the MicroPress WG, including
the ability to create booklets, edit and clean images and apply page numbers.
We expect to begin shipping the MicroPress WG in the second quarter of
fiscal 2001. The MicroPress WG will be sold through our existing network of
independent dealers and will be offered to our OEM partners for distribution
through their sales channels.
Since we have not yet begun shipping the MicroPress WG, all references to
the MicroPress in this annual report on Form 10-K are references to the
MicroPress DP unless otherwise indicated.
INDUSTRY BACKGROUND
The emergence of digital printing technologies is driving significant
changes in all sectors of the printing and publishing industry. Increasingly,
traditional printers, printing presses and copiers are being integrated with
computer, networking and data processing technologies. Among the sectors that
have experienced the most significant changes is the rapidly growing
print-on-demand market in which key customer requirements include the ability to
store, retrieve, manage and print documents quickly and in desired quantities.
CAP Ventures, Inc., a consulting and research firm focused on the
print-on-demand market, estimates that the U.S. market for print-on-demand
equipment, supplies and services was approximately $6.1 billion in 1999 and that
it will grow to approximately $11.8 billion in 2003. The print-on-demand market
is characterized by a large number of printing providers. CAP Ventures estimates
that, at December 1998, the market in the United
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States consisted of approximately 66,000 commercial printers and corporate print
shops and approximately 64,000 secondary market establishments, including
advertising agencies and commercial graphic art firms.
Typical users of print-on-demand solutions require systems that allow them
to produce a wide variety of print outputs, including books, manuals,
newsletters and direct marketing materials. Examples of print-on-demand users
include:
- print-for-pay organizations -- quick printers, printing service bureaus,
commercial printers and offset printers that provide printing and/or
copying services for outside entities;
- educational institutions -- primary, secondary and higher education
institutions including community colleges and universities;
- government entities -- local, city, state and federal agencies as well
as public utilities;
- corporate entities -- in-house print shops and marketing, finance and
training departments;
- facilities management -- service providers that manage print operations
for other entities; and
- book publishers -- organizations that provide publishing services,
including on-demand book publishing.
Historically, the print-on-demand market relied on costly stand-alone,
monochrome devices based on analog technology and dedicated to a single print,
copy or scan function. Since the advent of desktop publishing in the mid-1980s,
the printing industry continues to undergo a widespread transition from analog
systems and processes to digital technologies. With the proliferation of
personal computers, desktop publishing software, digital photography and network
computing, documents are increasingly managed in digital formats. Faster
processor speeds, expanded system memory and increased storage capacity have
combined with advanced software packages to enable complex image processing,
color graphics manipulation and the layout, design and production of digital
documents. Additionally, desktop publishing and general word processing software
allow text, line art and graphics to be digitally integrated in a single
software application. These new digital technologies have improved control over
the document creation process and have enabled documents to be produced more
quickly without the assistance of special trade shops and other outside
services. In addition, the new capabilities offered by digital tools and
processes have contributed to increased customer demand for improved products
and services, including the ability to reliably produce high quality color
documents more quickly and easily, and the ability to produce smaller quantities
economically.
The trend toward advanced digital printing technologies has resulted in new
generations of printers and printing systems. Traditionally, users of
print-on-demand systems have had to choose between two options when selecting
digital printing systems. At the low end are desktop oriented workgroup printers
that may be attached to a network or operate as stand-alone devices, and
typically cost between $3,000 and $15,000. While these devices are relatively
inexpensive, they are often characterized by relatively limited performance and
functionality and do not incorporate digital document management capabilities.
At the high end are high-performance, expensive systems that typically cost
$250,000 or more. Though these systems offer more complete document finishing
and heavy media-handling capabilities, they require large monthly printing
volumes, often in excess of 1,000,000 black and white pages per month to justify
the high cost of acquisition and the significant ongoing maintenance costs.
These traditional solutions fail to adequately address the needs of the
mid-range segment of the print-on-demand market. The low-end products do not
provide the functionality or flexibility needed to meet the diverse and dynamic
requirements of end users. The high-end systems require large capital outlays
that make the traditional systems too expensive for many smaller end users.
These smaller end users are unable to afford the functionality and performance
that their clients increasingly demand. A large gap exists between the low-end
and high-end offerings where limited viable solutions exist. For this reason,
end users in the mid-range segment must make difficult trade-offs among
performance, functionality and price. Even at the high-end, many existing
solutions offer limited performance, including low data transfer speeds for
large color graphics and lengthy print and work flow time requirements from
document creation to output. Additionally, both low-
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end and high-end solutions often fail to offer the reliability required for
mission-critical print jobs or the flexibility to provide cost-effective
printing in both black and white and color.
T/R SYSTEMS' SOLUTION
T/R Systems addresses the needs of the mid-range print-on-demand market by
providing a cost-effective, high speed digital document production system
capable of producing complex, short-run, color and black and white text and
images. The core of our solution is the MicroPress, a server-based software and
hardware system built on industry-standard open-architecture technologies. Our
solution offers the following primary benefits:
Highly Functional. The MicroPress' proprietary cluster printing
architecture provides a wide range of production printing capabilities and
performance levels for digital document processing and printing. By enabling as
many as twelve print devices to be managed by a single server, the MicroPress
can distribute a document among multiple printers and print at speeds several
times faster than a single device could produce independently, regardless of
page complexity or variability. For example, a system with twelve 70 page per
minute print devices can sustain document printing speeds of up to 840 black and
white pages per minute, compared to 70 pages per minute for a single printer.
Our calibration utilities ensure that all print devices within the system will
print with consistent color quality. Additionally, we offer document management
features generally not available even on high-end systems, including
Internet-based job submission and ticketing, document archiving, variable data
printing, document merging, electronic collation and imposition.
Cost-Effective. The MicroPress offers an economical solution for mid-range
users. Our proprietary cluster printing architecture allows the MicroPress to
offer features that are typically available only in high-end solutions at prices
that are significantly lower than those of high-end offerings.
Scalable and Configurable. The MicroPress is scalable and configurable,
permitting users to add color, black and white and wide format printers to meet
their changing needs. Up to twelve print devices can be supported on a single
MicroPress ClusterServer, which is the server that runs our printing systems.
Additionally, our use of industry-standard open-architecture technologies allows
existing users to upgrade their systems without having to replace existing
equipment and losing the value of their original investment.
Integrated Mixed-Mode Capability. The MicroPress supports the production
of documents that are color, black and white, wide format or a combination of
all three with a single system.
Flexible and Reliable. The MicroPress allows users to print a large job
across multiple attached print devices as well as run multiple jobs
simultaneously on different devices. The MicroPress supports mission-critical
printing applications by recognizing available resources and automatically
rerouting print jobs if any of the print devices become inoperable.
Easy to Use. Our software applications are designed to increase the ease
of managing documents and work flow. We designed the MicroPress to require
minimal training. In addition, we provide user-friendly documentation, manuals
and online help.
OUR STRATEGY
T/R Systems' objective is to be the leading provider of digital document
processing and printing systems for the mid-range segment of the print-on-demand
market. To achieve this objective, our strategy includes the following key
elements:
Maintain and Expand Our Leadership Position in the Print-on-Demand
Market. We believe that we have established a market leading position in the
mid-range of the print-on-demand market. We will continue to leverage our sales
and marketing and product development efforts throughout the print-on-demand
segment, including other commercial printers, corporate print shops and
secondary print establishments. We believe many end users in this segment are
seeking digital document production solutions that have the low cost and high
performance characteristics of the MicroPress.
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Expand Distribution. We pursue a dual distribution strategy. As of January
31, 2000, we distributed our products in North America and internationally
through a network of independent dealers and through our original equipment
manufacturer relationships, referred to as OEM relationships, with Minolta Co.,
Ltd. and Hitachi Koki Imaging Solutions. As of January 31, 2000, our products
were distributed through 64 independent domestic and international dealers as
well as through the distribution channels of Minolta and Hitachi. Minolta
currently sells our products in North America, Europe, Australia and South
Africa. Hitachi currently sells our products in North and South America and in
Europe. In the first quarter of fiscal 2001, we began shipping systems to Ricoh
Corporation. Our current agreement with Ricoh provides that Ricoh will sell our
products in North America. We believe there are a number of cities both inside
and outside the United States that are not yet adequately represented by a
dealer or that can sustain more than one dealer. As a result, we are currently
seeking to recruit new, high-quality dealers. In addition, we intend to further
build our distribution channels by continuing to develop OEM distribution
relationships with manufacturers of digital printers and copiers. In addition to
our relationships with Minolta, Hitachi and Ricoh, we have established OEM
agreements with Toshiba America Business Solutions, Inc. and Mita Industrial
Co., Ltd. of Japan and are actively pursuing additional OEM customers.
Develop New Applications and Features. The MicroPress currently supports
devices from Mita, Minolta, Hitachi, Ricoh and Hewlett-Packard, as well as print
devices purchased from third parties and resold under our private label. We
intend to continue to develop multi-device management solutions for print-on-
demand applications through additional investment in research and development.
We have recently introduced new features that optimize the ability of customers
to use the Internet in their day-to-day printing operations and expanded service
offerings to increase customer loyalty. Through upgrades, which historically
have occurred about twice a year, we continually enhance the software
capabilities of the MicroPress to provide customers with market leading
features. We believe that we have achieved technology leadership in the
mid-range print-on-demand market and that continued innovation will be important
for us to maintain a leadership role and to meet increasingly complex customer
demands.
Expand Internet Functionality. We intend to add additional Internet
capabilities to the MicroPress through our upgrades. The MicroPress currently
offers full electronic job submission and ticketing over the Internet and a
proofing mechanism that allows electronic delivery of processed images. A
recently added product feature allows MicroPress users to interactively manage
the MicroPress and its associated work flow functionality from any browser at
any location. This feature gives multiple remote users the ability to
simultaneously modify different print jobs using a browser with Internet access.
Focus on Core Technologies and Build on Industry-Standard Open-Architecture
Technologies. We expect, on an ongoing basis, to use industry-standard
technologies such as Microsoft Windows NT(R) server software, the latest
Intel(R) Pentium(R) microprocessors and Harlequin's ScriptWorks(R). We believe
that utilizing standards-based open systems enables us to bring new product
features to market more quickly and to permit functionality with a wide variety
of computer networks, devices and complementary software. In addition, this
approach allows us to quickly upgrade to next generation computer hardware and
software systems, allowing us to focus on developing the core technologies that
differentiate our products.
Further Develop International Sales. In fiscal 2000, T/R Systems generated
21.6% of its revenue from shipments to customers outside the United States.
While we have historically focused most of our sales efforts on customers inside
the United States, we are presently expanding our dealer network and adding
sales personnel outside the United States to pursue international opportunities.
In addition, we believe relationships with OEMs will enhance international sales
through the OEMs' established global distribution infrastructures.
PRODUCTS
T/R Systems' primary product line is the MicroPress Cluster Printing
System. The MicroPress combines T/R Systems' proprietary software and hardware
with industry-standard third-party software and hardware resold by T/R Systems
to provide a complete digital document printing and processing system. The
software offered with the MicroPress consists of standard software modules, an
extensive family of software add-ons called PowerPacks, and software utilities.
The base hardware offered with the MicroPress consists of the
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ClusterServer and print devices sold by us or PrintLinks that connect to
third-party print devices. The list prices of our typical systems generally
range from about $50,000 to $150,000, depending on system configuration.
SOFTWARE
There are three standard software modules included in the ClusterServer
used to provide functionality for the MicroPress:
- MicroSpool. MicroSpool is the product name for our open prepress
interface spooler, referred to as an OPI spooler, that streamlines the
document production workflow by shifting the burden of printing and
image management tasks from individual workstations to a central server.
The MicroSpool supports both Macintosh(R) and PC platforms, thus
eliminating the need for special workstation software.
- MicroPress RIP. A RIP, or raster image processor, is the software that
translates the instructions for page printing into the actual pattern of
dots needed by the printer to display the page. The MicroPress RIP is a
fast, versatile and powerful application that translates a document
described using either PostScript(R) or page description format,
referred to as PDF, languages and produces output on any number of
devices, including printers, computer screens or files on disk. The
MicroPress RIP combines Harlequin(R) RIP software with plug-ins
developed by T/R Systems.
- MicroPress PrintStation Manager. MicroPress PrintStation Manager is the
product name for our software application that manages most of the
document processing on the MicroPress. Through this application, users
can establish print queues that help organize printing workflow into a
manageable process. Additionally, the PrintStation Manager provides the
functionality of a virtual printer that enables multiple print devices
to process documents as a single high-speed device. The PrintStation
Manager also provides easy access to and control of the value-added
software options offered by T/R Systems.
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The following table summarizes the base software functionality available
with the MicroPress:
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INPUT DOCUMENT MANAGEMENT OUTPUT/STORAGE
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- publish network- - allow for remote job - print to a combination
accessible print management through the of connected print
clusters and queues Internet devices
- accept and RIP - preview post-RIP - automatically or
PostScript(R)-compatible documents manually archive
document files documents
- modify pages for
continuous - move documents from one
- create page thumbnails top-to-bottom layout print queue to another
of various sizes print queue
- manipulate the order of
- create mirror or pages within a document - store documents in
reversed images of a network accessible or
document - automatically print removable storage
documents in duplex devices
- batch RIP documents format
during off-peak - convert MicroPress
printing times - insert and delete pages formatted documents
from post-RIP documents into PDF
- match document color
quality to industry - receive job status - connect to third-party
standard profiles notification through billing or
pager or e-mail authentication systems
- compress color
documents up to 25 - adjust image brightness
times for storage and contrast levels
- merge multiple
documents created by
separate applications
- modify page or print
layout for optimum
performance, including
converting documents
into booklets
- apply discreet numbers
to pages based on the
user's direction
- apply variable data
elements to form
documents
- apply page- or
job-specific annotations
to a document for
searching
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In addition to the three standard modules, we offer the following software
options to increase functionality:
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SOFTWARE FUNCTION
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PowerPacks:
Color Control PowerPack - ensures consistent and accurate color document output
Imaging PowerPack - provides advanced post-RIP document manipulation
e-Ticket PowerPack - allows users to streamline the production process
through Internet job submission
Workflow Automation - enables users to automate complex, repetitive document
PowerPack production tasks
Document PowerPack - provides post-RIP document manipulation (for upgrades
to previous MicroPress versions only)
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Utilities:
OpenPrinter Connection - provides connection to networked printers
MicroPress RIP for PCL 5 - allows processing and preparation of black and white
printer control language, referred to as PCL, files
TurboCharger - allows a job to be distributed to multiple MicroPress
RIPs on multiple servers for processing
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PowerPacks
PowerPacks are document management and manipulation software add-ons which
can be installed with the MicroPress to optimize performance. The specific
PowerPacks offered are:
- Color Control PowerPack. This PowerPack ensures consistent color
quality. This option is required in configurations using color print
devices.
- Imaging PowerPack. This PowerPack provides a family of advanced
post-RIP document manipulation features that enable users to alter a
document's page characteristics. These features include:
- image editing;
- text optical character recognition, referred to as OCR, which allows
users to save a document in any number of industry standard formats,
including hypertext markup language, referred to as HTML, and
Microsoft Word(R);
- conversion of tagged image file format files, referred to as TIFF
files, into the MicroPress post-RIP environment; and
- conversion of MicroPress post-RIP documents into TIFF files.
- e-Ticket PowerPack. This PowerPack enables MicroPress end users to
streamline the production process by receiving print jobs through the
Internet, email or removable media. Using this option, print buyers
submit jobs through a customized job ticket to a print provider using
the MicroPress. The job ticket includes all the specifications of the
job as well as all files for the job. This option allows the user to
save a RIPed job with any enhancements made on the MicroPress in a
compressed file format that can be easily sent back to a print buyer for
on-screen proofing before the job is printed.
- Workflow Automation PowerPack. This PowerPack enables users to create
and run customized, document production scripts to fully automate
complex and repetitive document production tasks. Scripts are created
using industry-standard Microsoft Visual Basic(R) scripting.
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- Document PowerPack. This PowerPack provides post-RIP document
manipulation capabilities for existing customers using a previous
version of the MicroPress. All of the functionality available in this
PowerPack is included in the document management functionality of the
base software available with the current version of the MicroPress.
Utilities
Our software utilities provide users advanced control over document input,
output and storage. These utilities may be purchased individually with the
initial sale or after installation has occurred. Specific utilities available
include the following:
- OpenPrinter Connection. This utility provides an easy way for customers
to print to any 600 dots per inch black and white printer connected
through a standard network infrastructure. This is designed for use by
customers with investments in non-MicroPress supported print devices
that need the power of the MicroPress.
- MicroPress RIP for PCL 5. This utility allows the processing and
preparation of black and white PCL, a PostScript(R) file format, files
for printing on any MicroPress ClusterServer or SatellitePress
ClusterServer. The MicroPress RIP for PCL 5 supports advanced batch or
individual file processing.
- TurboCharger. This powerful utility gives customers the ability to
direct a single job to multiple servers equipped with a MicroPress RIP
to simultaneously RIP distinct page ranges within the job and bring the
job back together in the MicroPress post-RIP application-independent
environment. This is designed for customers who need optimum RIP power,
such as those who produce lengthy direct mail.
HARDWARE
The following summarizes the server and other hardware available in various
configurations of the MicroPress:
Servers
- MicroPress ClusterServer. This is the core server for the MicroPress.
It is equipped to receive, RIP, manipulate, print and store files using
our proprietary standard software modules.
- SatellitePress ClusterServer. This server is designed for environments
requiring remote or distributed printing capabilities. It provides the
same functionality as the MicroPress ClusterServer except that it does
not have RIP capability. The SatellitePress ClusterServer is equipped to
receive, print and store all files already RIPed by a full MicroPress
ClusterServer or MultiRIP server. It can be upgraded to a full
MicroPress ClusterServer by adding MultiRIP software.
- MultiRIP Server. This server provides additional RIP capacity to
supplement a ClusterServer. The MultiRIP Server has the same computing
architecture and growth capabilities of a ClusterServer but is only
equipped to RIP files.
- MicroScan Server. This server has the same computing architecture and
growth capabilities of a ClusterServer but functions as a dedicated scan
server and is equipped to take the burden of scanning off a busy
ClusterServer.
Other Hardware
- PrintLinks. PrintLinks enable the MicroPress ClusterServer to interface
with supported digital printers and printer/copiers manufactured by
third parties. Our PrintLinks currently connect to the Minolta CF900,
Minolta CF910, Minolta CF911PE, Minolta Di520, Minolta Di620,
Minolta Di620PE, Mita Ci7500 and Mita Ci7600.
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- PrintStations. We offer T/R Systems branded printers, known as
PrintStations, that can connect directly to the MicroPress
ClusterServer. PrintStations are high quality, durable devices that are
ideal for cluster printing environments. T/R Systems currently sells two
600 dots per inch black and white PrintStations. The PrintStation 040
can print up to 40 pages per minute using a bulk toner system. The
PrintStation 024 can print up to 24 pages per minute utilizing a
cartridge toner system.
- MicroScanner. The MicroScanner is a high-speed document scanner capable
of scanning up to 40 one-sided pages or 20 two-sided pages per minute.
The MicroScanner includes software that allows direct scanning and
printing of documents on a MicroPress or SatellitePress ClusterServer.
MANUFACTURING
We outsource the manufacturing of most of the hardware components of our
products. These components include the circuit boards incorporated in our
products, PrintLinks and all of our customized servers, including the MicroPress
DP server and the MicroPress WG server. We then integrate hardware components
with our internally developed software to create the various configurations of
the MicroPress. We also purchase complete printing devices and scanners from
third-party manufacturers that we resell under our brand as part of our systems.
Before we ship products to customers, we test both the hardware and software to
assure successful integration.
SALES AND MARKETING
In fiscal 2000, we distributed our products in North America and
internationally through a network of independent dealers and through our
distribution relationships with Minolta and Hitachi. We maintain a sales force
consisting of regional managers whose principal duties are to recruit high
quality dealers in their territories and to facilitate and help close sales
through those dealers and through our OEMs' channels of dealers. As of January
31, 2000, we had twelve regional managers throughout the United States, one in
Canada, one in the United Kingdom and one in Germany.
Dealers sell our products to end users and service our products in a local
geographical area. In the United States, these dealers typically are:
- office products, computer and peripheral resellers;
- copier or graphic arts dealers; or
- independent service organizations providing customized software and
hardware solutions and specializing in providing services that cannot be
obtained through product manufacturers.
We actively seek to enter into and continue to expand OEM relationships
with established printer and copier manufacturers. We currently have
relationships with Minolta, Hitachi, Ricoh, Toshiba and Mita. In February 1999,
we began shipping systems under an OEM agreement with Minolta. Minolta resells
the MicroPress worldwide through independent Minolta dealers as well as through
dealerships owned by Minolta. In April 1999, we executed a development and
distribution agreement with Hitachi. Currently, Hitachi resells the MicroPress
through independent Hitachi dealers and distributors in North and South America
and in Europe. We began shipping systems to Hitachi under this agreement in
November 1999. We signed a development and distribution agreement with Ricoh in
November 1999 and began shipping systems to Ricoh in the first quarter of fiscal
2001. Our current agreement with Ricoh provides that Ricoh will sell our
products in North America. We recently signed an agreement with Toshiba to
develop connectivity of some of Toshiba's print devices to our MicroPress. This
agreement will permit Toshiba to resell the MicroPress connected to its print
devices through its dealer network in North and South America. T/R Systems
signed an OEM agreement with Mita in September 1997, allowing Mita to resell the
MicroPress in Japan. Mita discontinued orders of our systems in June 1998 and
subsequently entered into reorganization proceedings. Since then, our shipments
to Mita have been negligible. We are also actively seeking to enter into
distribution agreements with other major print device manufacturers to access
their dealer networks both within the United States and internationally.
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During fiscal 2000, Minolta accounted for 34.9% and Hitachi accounted for
11.5% of our revenue. Mita accounted for 14.1% of our revenue during fiscal 1999
and 19.0% of our revenue during fiscal 1998. No other customer accounted for
more than 10% of our revenue during any of those fiscal years.
Sales to international customers represented 42.3% of revenue in fiscal
2000, 33.7% of revenue in fiscal 1999 and 33.6% of revenue in fiscal 1998.
Included in sales to international customers in fiscal 2000 and fiscal 1999 were
sales to a Japanese customer which were shipped to that customer's United States
subsidiary for resale in the United States. Adjusting for these domestically
shipped sales, sales shipped internationally were 21.6% of revenue in fiscal
2000 and 30.7% of revenue in fiscal 1999. Sales to international customers in
any region did not exceed 10% of revenue in any of the last three fiscal years,
except that sales to Japanese customers represented 37.0% of revenue in fiscal
2000, 24.4% of revenue in fiscal 1999 and 22.7% of revenue in fiscal 1998. For
additional information on our geographic segments, see note 11 to our financial
statements included elsewhere in this report.
As of January 31, 2000, we had a backlog of firm orders totaling $326,000.
These orders were filled in the first quarter of fiscal 2001. No such backlog
existed at January 31, 1999.
As of January 31, 2000, T/R Systems maintained a marketing organization
consisting of eight people responsible for market research, branding,
advertising, public relations, events, strategic alliances, lead management and
dealer communications. We rely upon industry specific research and customer
interaction to assist in marketing planning. We create market awareness through
advertising, public relations and trade shows. In May 1999, we began to offer a
cooperative marketing program to independent dealers to create additional market
awareness. We believe that our strategic alliances, including OEM relationships,
also enhance market awareness. In addition, we intend to continue expanding
market awareness of our products through consistent promotion of our T/R
Systems, MicroPress and Cluster Printing System brands in marketing events,
advertising and public relations activities. We have a telemarketing operation
that generates qualified leads for our dealers. Additionally, to improve dealer
effectiveness and loyalty, we conduct dealer training and other support
activities.
CUSTOMER SERVICE
We believe that providing quality customer support to end users, dealers
and OEM customers is critical to customer satisfaction. Dealers are considered
the primary support contact for end users, with T/R Systems performing secondary
support. We market a three-year service plan which entitles end users to call
our customer support organization for assistance. We also sell training for
MicroPress users at our offices and at a user's location.
RESEARCH AND DEVELOPMENT
T/R Systems has devoted a significant amount of resources to research and
development. At January 31, 2000, over one-third of our employees were employed
in research and development. Research and development expenses were $3.5 million
for fiscal 2000, $3.2 million for fiscal 1999 and $2.2 million for fiscal 1998.
We believe the markets for our products are characterized by rapid change
and that there are three factors critical to the success of our research and
development efforts:
- we must accelerate the rate of product line expansion in terms of device
connectivity and system features;
- we must continue to develop software applications and feature
enhancements that leverage performance gains realized through the
release of new generations of software and hardware; and
- we must attract and retain qualified technical professionals.
INTELLECTUAL PROPERTY
To be successful, we depend, in part, on proprietary technology in our
products. We rely on a combination of patent, copyright, trade secret and
trademark laws, nondisclosure and other contractual restrictions to
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protect our proprietary rights. Trade secret and copyright laws provide only
limited protection of our software, documentation and other written materials.
We hold 12 United States patents related to cluster printing and print engines
and have filed for additional patents. We have also taken the following measures
to protect our intellectual property and proprietary rights:
- we enter into confidentiality and nondisclosure agreements with our
employees, consultants and OEMs;
- we limit access to, and distribution of, our software and other
proprietary information; and
- we employ hardware security devices and unique key codes to limit
unauthorized use of our software.
Despite the efforts we take to protect our intellectual property, we cannot
assure you that we will be able to protect it, and any failure to do so could
harm our business.
COMPETITION
The MicroPress competes with a variety of other digital document production
systems. Competition in the print-on-demand market is based primarily on product
performance and price as well as customer service. Some of our competitors, such
as Xerox Corporation, are substantially larger, with greater financial,
technical, marketing and other resources, more established sales channels,
greater name recognition and broader product lines than we have. Our present or
future competitors could introduce products with the same or greater
capabilities than ours. Further, these competitors have much greater financial
resources than we do that could enable them to price competing products at
prices less than we charge.
We categorize our competitors into the following four groups:
- the first group includes manufacturers such as Xerox, which currently
offer digital copiers that operate as printers through the use of RIPs
and controllers as well as host print computers;
- the second group of competitors are the high-end electronic printing
system vendors, which are currently selling systems primarily to
commercial and large in-house printers;
- third, there are RIP and controller board providers, whose products
enable digital copiers to also function as printers. These companies
typically operate as OEMs to major, international printing equipment
companies; and
- the final group includes companies that have products with similar
features to our cluster printing system concept.
We believe that none of our competitors are dominant in our market.
Further, we do not believe that any of our competitors has a product that
currently offers all of the capabilities of the MicroPress and is competitively
priced. However, in the future, these or other competitors could develop similar
or more advanced products than ours.
EMPLOYEES
As of January 31, 2000, we had a total of 105 employees, substantially all
of whom were full-time. Of our employees, 37 were in research and development
and 45 were in sales and marketing and customer support, with the remaining 23
in operations, finance and administration. None of our employees is represented
by a labor union, and we have never experienced a work stoppage. We consider our
relations with our employees to be good.
RISK FACTORS
WE HAVE A HISTORY OF LOSSES, AND WE MAY NOT BE ABLE TO MAINTAIN PROFITABILITY
Prior to fiscal 2000, We incurred net operating losses in each fiscal year
since our inception in 1991. As a result, despite net income of $677,000 in
fiscal 2000, we had an accumulated deficit of $10.2 million as of January 31,
2000. We may not be able to sustain our profitability in the future. We are
making significant
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investments in research and development, sales and marketing and our operating
infrastructure. We expect our spending in these areas will increase in the
future. If we do not increase our revenue at an equal or greater rate than this
spending, we will have operating losses. If our revenue does not grow
sufficiently, we would need time to scale expenses back. If we are not able to
react quickly enough to unanticipated decreases in revenue, we will not be able
to maintain profitability.
OUR OPERATING RESULTS HAVE FLUCTUATED AND WE EXPECT THEM TO CONTINUE TO
FLUCTUATE, SO YOU SHOULD NOT RELY ON HISTORICAL OPERATING RESULTS AS AN
INDICATOR OF FUTURE PERFORMANCE
Our operating results have fluctuated from quarter to quarter and year to
year in the past and we expect them to continue to fluctuate in the future. As a
result, you should not rely on our historical operating results as an indicator
of future performance. For example, we reported operating income in the first
quarter of fiscal 1999 followed by operating losses in the last three quarters
of fiscal 1999, followed by operating income in all four quarters of fiscal
2000. We may experience further fluctuations in our operating results because
of:
- competitive market conditions;
- the general level of sales of printer/copiers which connect to our
products;
- the cost and availability of components of our products; and
- variations in the proportion of hardware and software in systems we
sell.
WE HAVE BEEN PUBLIC ONLY A SHORT PERIOD OF TIME AND OUR STOCK PRICE HAS BEEN,
AND MAY CONTINUE TO BE, VOLATILE
We completed our initial public offering in January 2000. Since then, the
market price of our common stock has been highly volatile and is subject to wide
fluctuations. Additionally, in recent years, the stock market in general, and
the stock prices of technology companies in particular, have experienced extreme
price fluctuations, sometimes unrelated to their operating performance. These
market fluctuations may result in a material decline in the market price of our
common stock. In addition to these market fluctuations there are many factors
that are likely to cause the price of our common stock to fluctuate, including:
- fluctuations in our quarterly operating results;
- failure of our quarterly operating results to meet the expectations of
investors;
- announcements of technological innovations, new products or significant
agreements by us or our competitors;
- changes in stock market analysts' recommendations regarding us; and
- future sales of significant amounts of our common stock.
SINCE MANY OF OUR POTENTIAL END USERS ARE SMALL BUSINESSES, IF THEIR BUSINESSES
FAIL OR THEY CANNOT OBTAIN THIRD-PARTY FINANCING, OUR SALES WILL DECLINE
Many of our potential end-user customers are small businesses and run a
greater risk of business failure than large businesses. If their businesses
fail, we will lose potential sales and our revenue may decrease. Further, if
these customers are unable to obtain acceptable third party financing, they may
not purchase our products. Some of our competitors could use their significant
financial resources to offer more attractive financing terms than the financing
terms otherwise available to purchase our products. These factors could limit or
reduce our customer base, causing our sales to suffer.
WE RELY ON SALES OF ONE PRODUCT LINE, AND WE WILL NOT HAVE AN ALTERNATE SOURCE
OF REVENUE IF DEMAND FOR THIS PRODUCT LINE DECLINES
We generate substantially all of our revenue from one product line, the
MicroPress. If potential customers prefer competing products, we would lose a
substantial amount of revenue. Additionally, this
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product line may not be profitable for other reasons, including pricing
pressures or manufacturing difficulties. If this product line is not profitable,
we will not be profitable.
WE RECENTLY ANNOUNCED A NEW PRODUCT WHICH MAY NOT BE COMMERCIALLY SUCCESSFUL
In the first quarter of fiscal 2001, we announced the upcoming availability
of our MicroPress WG, which is expected to meet the entry-level requirements of
the mid-range segment of the print-on-demand market. The MicroPress WG is not
yet commercially available, and we cannot assure you that, when available, the
MicroPress WG will perform satisfactorily in full-scale commercial usage. We may
still experience problems in the development and testing stages of the
MicroPress WG, and our commercial launch of the product may be delayed. Even if
we successfully launch the MicroPress WG, we cannot assure you that it will be
commercially accepted. Any failure by us to launch or successfully market or
sell the MicroPress WG may result in harm to our reputation, increased costs or
lost sales. Further, the availability of the MicroPress WG may adversely impact
sales of the MicroPress DP.
WE DERIVE A LARGE PERCENTAGE OF OUR REVENUE FROM A FEW OEM CUSTOMERS; A LOSS OF
ANY OF THESE CUSTOMERS WOULD REDUCE OUR REVENUE AND OUR RESULTS OF OPERATIONS
WOULD SUFFER
Since fiscal 1998, our OEM customers have represented a significant portion
of our revenues. In fiscal 2000, Minolta accounted for 34.9% of our revenue and
Hitachi accounted for 11.5% of our revenue. If we lose one of our OEM customers
or they decrease orders of our products, our revenue would decline and our
results of operations would suffer. For example, in June 1998, Mita Industrial
Co., Ltd. of Japan discontinued orders of our systems and subsequently entered
into reorganization proceedings. An OEM customer could decrease its orders for
our products if demand for its products declines. Alternatively, our OEM
customers could choose to purchase a competitor's products, particularly if
available in their region. Also, since the majority of our OEM revenue currently
comes from Japanese companies, volatility in the economies of Asian countries
could impact their businesses, which could result in decreased orders of our
products.
WE RELY HEAVILY ON OUR DEALER NETWORK AND IF THEY DO NOT EFFECTIVELY MARKET OR
SELL OUR PRODUCTS, WE WILL LOSE REVENUE
The majority of our revenue has come from sales through our dealer network
and we generally do not sell our products directly to end users. However, we do
not control our dealers and cannot be certain that our dealers will continue to
effectively market or sell our products. If they do not, our sales will suffer.
In the future, if we do not add new dealers and increase business with our
existing dealers, our business will not grow.
BECAUSE OUR PRODUCTS DEPEND ON SOFTWARE LICENSED TO US BY THIRD PARTIES, ANY
LOSS OF THESE LICENSES WOULD RESULT IN INCREASED COSTS AND PRODUCTION DELAYS
Our products depend on software licensed to us on a non-exclusive basis by
third parties. If those parties fail to continue to license their software to us
or to support this software, we would incur costs and experience delays of at
least several months in integrating alternate software into our products. This
would result in diversion of our research and development resources, delays in
production and could result in lost revenue and harm to our reputation. In some
instances, there are a limited number of suppliers of specialized software and
we could have difficulty in obtaining an alternate supplier. This is true of
Harlequin ScriptWorks(R), a PostScript(R) page description software for which
there are extremely limited alternatives. In December 1999, a competitor of
Harlequin's notified us that the competitor believed some of the Harlequin
software licensed to us for use in color processing infringed that competitor's
patents. Harlequin subsequently resolved the dispute with its competitor and our
business suffered no disruption as a result of these claims. However, if the
Harlequin software we license had been found to infringe on the competitor's
patents, we could have been forced to seek an alternative color processing
module, which could have harmed our sales to potential customers seeking color
capabilities.
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NEW RELEASES BY OUR SOFTWARE SUPPLIERS OR THE DEVELOPMENT OF SUPERIOR SOFTWARE
BY THEIR COMPETITORS COULD RESULT IN DELAYS IN SHIPMENT OR LOSS OF REVENUE
We may be required to expend significant time and resources to make our
systems compatible with new releases by our software suppliers, which could
result in product shipment and revenue recognition delays. In addition, if the
competitors of our suppliers develop superior software, our products may not
achieve market acceptance and we would lose revenue unless we obtain a license
for the superior software. We may not be able to obtain new software licenses on
commercially reasonable terms, or at all.
IF THIRD-PARTY SUPPLIERS OF EQUIPMENT FAIL TO DELIVER, WE COULD INCUR
SIGNIFICANT COSTS AND DELAYS IN PRODUCT SHIPMENT
We purchase hardware, such as print devices and scanners, from third-party
manufacturers and resell them under our brand as part of our systems. In
addition, we outsource the manufacturing of some of the hardware components of
our products. If those third party manufacturers fail to deliver these products
or components, we would have to find alternate suppliers, would incur
significant development costs and could experience delays in product shipments.
For example, our black and white print devices are purchased from a Japanese
manufacturer. It would take a significant amount of time and effort to find an
alternate black and white print device and develop the connectivity of that
device to the MicroPress. Failure to find alternative suppliers of other
components could affect our product availability and sales. Additionally, since
we purchase many parts and components from manufacturers in Asia, instability in
this region could impact the pricing or availability of these products.
OUR MARKET IS EXTREMELY COMPETITIVE AND MANY OF OUR COMPETITORS HAVE GREATER
MARKET PRESENCE AND RESOURCES THAN WE HAVE
The market for our product is extremely competitive and we expect
competition to increase. Many of our existing and potential competitors have
longer operating histories, significantly greater resources and greater name
recognition than we have. As a result, these competitors may have an advantage
over us in gaining market acceptance, may respond more effectively to changes in
the market and may be able to devote greater resources to the development,
promotion, sale and support of their products. Increased competition could
result in a loss of revenue as a result of loss of market share and significant
price reductions, reducing our profits.
OUR INTERNATIONAL SALES ARE SUBJECT TO REGULATORY, POLITICAL AND CURRENCY
EXCHANGE RATE RISKS WHICH COULD REDUCE OUR REVENUE
Revenue from customers outside the United States represented 42.3% of our
revenue in fiscal 2000. Our international sales could decrease if tariffs,
duties or taxes increase the cost of our products in foreign countries. Our
foreign product sales could be limited by the imposition of government controls
or political and economic instability, resulting in lower revenues. We may also
experience delays in receipt of revenue or increased difficulties in collecting
accounts receivable.
Additionally, our results of operations could be harmed by changes in
currency exchange rates. Currently, all our sales 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. This
could result in a reduction in our sales in a particular country.
OUR MARKET IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE, AND IF WE FAIL TO
DEVELOP AND MARKET NEW TECHNOLOGIES RAPIDLY, OUR RESULTS OF OPERATIONS WILL
SUFFER
Customers are demanding faster systems with more features and our
competitors are developing new technologies to meet these demands. If we do not
continually develop new technologies and improvements to our existing
technologies we will not remain competitive and our sales and results of
operations will suffer.
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The product life cycle is shortening as new technologies are brought to
market, while development of new technologies requires an increasing amount of
time and money. We may experience delays in product development due to
technological constraints, which could result in lost sales. In addition, our
cost to develop the technologies may be so great that we cannot make a profit
selling products using these technologies. Finally, our competitors may develop
technologies that make our technologies obsolete or less attractive to potential
customers which would also harm our sales.
IF OUR PRODUCTS CONTAIN DEFECTS, OUR SALES COULD SUFFER AND WE COULD HAVE
INCREASED COSTS WHICH WOULD HURT OUR RESULTS OF OPERATIONS
Complex products like ours may contain defects or errors that can only be
detected when the product is in use. Despite extensive testing of our products,
we may release products into the market with undetected errors, which could
result in:
- the loss or delay of revenue;
- loss of market share;
- diversion of research and development resources; or
- increased service and warranty costs.
In addition, if our products are not reliable, we may lose credibility with
existing and potential customers, resulting in lost sales.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS,
WHICH COULD HARM OUR COMPETITIVE POSITION, RESULTING IN DECREASED REVENUE
Our success is based, in part, on our proprietary technology. If we cannot
protect our intellectual property and proprietary rights, we may not remain
competitive. Trade secret and copyright laws provide only limited protection of
our software, documentation and other written materials. We may not be able to
protect our rights if the patents for which we apply or have applied are not
granted or if our patents are challenged or invalidated. Further, because we
sell many of our products in foreign countries where intellectual property laws
are not well developed or are poorly enforced, we may not be able to protect our
proprietary technology in these countries.
A third party could reverse engineer our products, or bypass hardware
security devices and obtain access to our software, or independently develop
similar software or proprietary information and use it to compete with us.
INFRINGEMENT CLAIMS BY THIRD PARTIES COULD BE COSTLY AND CAUSE PRODUCT SHIPMENT
DELAYS
Third parties may file claims against us alleging infringement of their
patents, copyrights or other intellectual property rights. Regardless of its
merit, an infringement claim against us could:
- require significant management time and effort;
- result in costly litigation; or
- cause product shipment delays.
Further, any claims may require us to enter into royalty or licensing
agreements which may not be obtainable on terms acceptable to us.
OUR FAILURE TO RETAIN AND ATTRACT PERSONNEL COULD HARM OUR BUSINESS, OPERATIONS
AND PRODUCT DEVELOPMENT EFFORTS
Our future success depends, in significant part, upon the continued service
of key personnel and our ability to attract, retain and motivate highly
qualified employees. In particular, the services of Michael E. Kohlsdorf, our
president and chief executive officer; E. Neal Tompkins, our executive vice
president and chief
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technology officer; and Michael W. Barry, our senior vice president, development
and engineering are critical to our business. If we lose any of our key
personnel, or fail to attract qualified new employees, our business, operations
and product development efforts would suffer. Although we have employment
agreements with Messrs. Kohlsdorf and Tompkins, these agreements do not obligate
them to remain in our employ. We do not have key man insurance on any of our
employees.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
A number of the matters and subject areas discussed in this annual report
on Form 10-K that are not historical or current facts deal with potential future
circumstances and developments. The discussion of such matters and subject areas
is qualified by the inherent risks and uncertainties surrounding future
expectations generally, and also may materially differ from T/R System's actual
future experience involving any one or more of such matters and subject areas.
Such risks and uncertainties include those referred to above in the "Risk
Factors" section. These risk factors should be considered by investors when
reviewing any forward-looking statements contained in this annual report on Form
10-K, in any of our public filings or press releases or in any oral statements
made by T/R Systems or any of its officers or other persons acting on its
behalf. The important factors that could affect forward-looking statements are
subject to change. We undertake no obligation to update any forward-looking
statements.
ITEM 2. PROPERTIES
T/R Systems leases its principal facility, totaling approximately 52,000
square feet, in Norcross, Georgia under a lease expiring in March 2003. We also
lease office space in Brussels, Belgium, Hilversum, The Netherlands and
Dusseldorf, Germany. We anticipate that we will need additional space as our
business expands and believe that we will be able to obtain suitable space on
commercially reasonable terms as needed.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not
currently engaged in any legal proceedings that we expect would have a material
adverse effect on our business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On January 20, 2000, by written consent in lieu of a meeting, the holders
of 74.0% of the voting capital stock of T/R Systems approved: (i) an amendment
to our Amended and Restated Articles of Incorporation to effect a reverse stock
split; (ii) our Second Restated Articles of Incorporation; and (iii) our
Restated Bylaws. All votes cast were cast for the proposals.
EXECUTIVE OFFICERS OF THE REGISTRANT
Michael E. Kohlsdorf, age 44, has served as our president, chief executive
officer and a director since September 1996. From 1993 to September 1996, Mr.
Kohlsdorf held a variety of positions at Brock Control Systems, Inc., a sales
automation software company, now known as FirstWave Technologies, Inc., most
recently serving as president, chief operating officer and chief financial
officer.
E. Neal Tompkins, age 55, is a co-founder of T/R Systems and has served as
a director and our chief technology officer since our founding in September
1991. Mr. Tompkins served as our president from September 1991 until September
1996, and has served as our executive vice president since that date.
Lyle W. Newkirk, age 47, joined us in September 1997 and has served as our
vice president, chief financial officer, secretary and treasurer since November
1997. From 1992 to September 1997, Mr. Newkirk held various positions with
Peachtree Software, Inc., a maker of accounting software, which became a
subsidiary of Automatic Data Processing, Inc., most recently serving as vice
president and chief financial officer.
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Michael W. Barry, age 42, has served as our senior vice president,
development and engineering since August 1998. From July 1995 to August 1998,
Mr. Barry served as our vice president of systems development. Before that, he
served as our director of systems development from our founding in September
1991 until July 1995.
Charles K. Thackston, age 43, has served as our senior vice president,
sales and marketing since September 1998. From December 1996 to September 1998,
Mr. Thackston served as our vice president, marketing. From April 1995 to
December 1996, Mr. Thackston served as vice president of marketing and director
of sales operations at Brock. From 1988 to April 1995, Mr. Thackston held
various positions with Datalogix International, Inc., a maker of process
manufacturing software, most recently serving as vice president.
E. James White, age 55, has served as our senior vice president, operations
since September 1999. From June 1995 to July 1999, Mr. White served as vice
president, operations at Checkmate Electronics, a manufacturer of payment
automation equipment. Before that, he was director of operations at Solectron
Technology, Inc., a manufacturer of printed circuit boards, from May 1993 to
April 1995.
Jack N. Bartholmae, age 48, has served as our vice president, engineering
since November 1995 and as our director of engineering from April 1994 to
November 1995. Before that, he served as our director of electrical engineering
from our founding in September 1991 until April 1994.
Andrew Nathan, age 46, has served as our vice president, OEM sales since
January 1999. From August 1997 to January 1999, Mr. Nathan served as our vice
president, sales. From 1994 until joining us, Mr. Nathan held various positions
at First Image Management, a data imaging, micrographics and electronic database
management company, which was a subsidiary of First Data Corporation, most
recently serving as senior vice president and general manager of the demand
publishing division.
R. Dean Nolley, age 38, has served as our vice president, North American
sales since January 1999. Before joining us, Mr. Nolley served as vice president
of sales, North America for Colorbus Inc., a maker of network print servers,
from June 1997 until January 1999. From September 1996 until June 1997, Mr.
Nolley owned and operated Digital Imagination, a specialized sports imaging
business. From August 1983 to September 1996, Mr. Nolley held sales positions
with Eastman Kodak Company, a developer, manufacturer and marketer of imaging
products.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock commenced public trading on January 26, 2000 on the Nasdaq
National Market under the symbol "TRSI." During the fourth quarter of fiscal
2000, from January 26, 2000 until January 31, 2000, the high and low sales
prices our common stock, as reported on the Nasdaq National Market, were $21.50
and $10.63, respectively.
As of April 7, 2000, there were approximately 127 holders of record of our
common stock.
DIVIDENDS
We have never paid cash dividends on our common stock. We currently intend
to retain our earnings to fund the development and growth of our business.
Further, our revolving line of credit does not allow us to declare or pay any
cash dividends. Therefore, we currently do not anticipate paying any cash
dividends on our common stock.
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RECENT SALES OF UNREGISTERED SECURITIES
We sold the securities listed below without registration under the
Securities Act in the year ended January 31, 2000.
(a) On May 17, 1999, we sold 222,222 shares of our Series D Preferred
Stock to a corporation for a purchase price of $999,999. Such corporation
was believed to be an "accredited investor" as defined in Regulation D
promulgated under the Securities Act based upon its representations.
(b) An aggregate of 289,027 shares of common stock have been acquired
upon exercise of stock options granted under our option plans for purchase
prices ranging from $0.17 to $4.95 per share.
No underwriter was involved in any of the above sales of securities. The
securities identified in item (a) were issued in reliance on the private
offering exemption set forth in Section 4(2) of the Securities Act and
Regulation D and the securities identified in item (b) were issued in reliance
on Rule 701 promulgated under the Securities Act. All of our shares of preferred
stock automatically converted into common stock upon the closing of our initial
public offering.
USE OF PROCEEDS
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. We registered a total of 3,450,000 shares of our
common stock, with an aggregate offering price of $34.5 million. The offering
commenced on January 26, 2000 and all 3,450,000 shares of common stock were sold
through the underwriters consisting of FleetBoston Robertson Stephens Inc., U.S.
Bancorp Piper Jaffray Inc. and Raymond James & Associates, Inc. The sale of
3,000,000 of those shares closed on January 31, 2000 and the sale of the
remaining 450,000 shares, pursuant to an over-allotment option, closed on
February 16, 2000.
Of the 3,450,000 shares, 570,000 shares were sold by certain selling
shareholders. We did not receive any proceeds from the shares sold by these
selling shareholders. The 2,880,000 shares sold by us had an aggregate offering
price of $28.8 million and the sale closed on January 31, 2000. We paid the
underwriters discounts and commissions totaling $2.0 million. Additionally, we
incurred expenses of $1.3 million in connection with the offering, which, when
added to the underwriting discounts and commissions paid by us, resulted in
total expenses of $3.3 million. Therefore, the net offering proceeds to T/R
Systems were $25.5 million. No offering expenses were paid directly or
indirectly to any of our directors, officers, holders of 10% or more of our
equity securities or any other affiliates of T/R Systems.
As of January 31, 2000, we had invested all of the net proceeds from our
initial public offering in commercial paper, certificates of deposits and
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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ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes data as of and for the five years ended
January 31, 2000. You should read this data in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the related notes.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenue..................................... $22,322 $15,847 $12,032 $ 4,036 $ 1,194
Cost of sales............................... 9,487 6,579 6,107 3,387 1,013
------- ------- ------- ------- -------
Gross profit................................ 12,835 9,268 5,925 649 181
Operating expenses:
Research and development.................. 3,488 3,202 2,164 1,786 1,732
Sales and marketing....................... 6,599 4,891 3,542 2,185 590
General and administrative................ 2,163 1,708 1,623 1,011 729
------- ------- ------- ------- -------
Total operating expenses............... 12,250 9,801 7,329 4,982 3,051
------- ------- ------- ------- -------
Operating income (loss)..................... 585 (533) (1,404) (4,333) (2,870)
Interest income, net........................ 117 150 186 213 51
Other expenses.............................. -- (240) -- -- --
------- ------- ------- ------- -------
Income (loss) before income taxes........... 702 (623) (1,218) (4,120) (2,819)
Income tax expense.......................... 25 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)........................... $ 677 $ (623) $(1,218) $(4,120) $(2,819)
======= ======= ======= ======= =======
Basic net income (loss) per share........... $ 0.25 $ (0.26) $ (0.60) $ (2.43) $ (1.82)
======= ======= ======= ======= =======
Basic weighted average shares outstanding... 2,641 2,444 2,052 1,702 1,555
======= ======= ======= ======= =======
Diluted net income (loss) per share......... $ 0.07 $ (0.26) $ (0.60) $ (2.43) $ (1.82)
======= ======= ======= ======= =======
Diluted weighted average shares
outstanding............................... 9,861 2,444 2,052 1,702 1,555
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
---------------------------------------------
2000 1999 1998 1997 1996
------- -------- ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................... $27,314 $ 1,966 $3,527 $2,826 $7,721
Working capital............................... 31,191 3,892 5,117 3,820 8,251
Total assets.................................. 37,172 7,770 8,184 5,459 9,721
Redeemable, convertible preferred stock....... -- 15,042 15,020 12,272 12,252
Total shareholders' equity (deficit).......... 32,249 (10,238) (9,759) (8,635) (4,510)
</TABLE>
19
<PAGE> 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the related notes. This discussion contains forward-looking
statements that involve risks and uncertainties. The 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 of this annual report on Form 10-K and
elsewhere in this report.
OVERVIEW
T/R Systems was founded in 1991 as an engineering services company
providing consulting services to the printing, copying and multimedia markets.
In 1993, we began development of our own products and in 1995, we introduced the
MicroPress Cluster Printing System, our digital document processing and printing
system.
We derive our revenue primarily from the sale of digital document
processing and printing systems and related add-on software and hardware.
Additionally, we receive revenue from:
- the sale of consumable products, such as toner, and replacement parts
that support our systems;
- engineering services for the development of technology;
- customer service plans; and
- royalties for technology previously licensed.
As required by American Institute of Certified Public Accountants Statement
of Position 97-2 Software Revenue Recognition, we recognize revenue from
printing systems when persuasive evidence of an arrangement exists, the system
has been shipped, the fee is fixed or determinable and collectibility of the fee
is probable. Under multiple element arrangements, we allocate revenue to the
various elements based on vendor-specific objective evidence of fair value. Our
products do not require significant customization. Before the effective date of
this statement, we recognized revenue from printing systems upon shipment. The
adoption of this statement had no effect on our accounting for revenue. We
recognize revenue from the sale of consumables upon shipment.
We recognize revenue from customer service plans ratably over the terms of
each plan, typically one to three years. Engineering service fees are recognized
as the services are rendered. Nonrefundable prepaid royalties are recognized as
revenue over the term of the royalty agreement, based on the greater of actual
royalties earned or the straight-line method. Revenue from customer service
plans, engineering services and royalties have each been less than 10% of total
revenue in each of the last three fiscal years.
We distribute our products in North America and internationally through a
network of independent dealers and through our distribution relationships with
Minolta and Hitachi. We sold our first systems under the Minolta OEM agreement
in February 1999. We sold our first systems under the Hitachi OEM relationship
in November 1999. In fiscal 1998 and 1999, we sold systems under an OEM
agreement with Mita Industrial Co., Ltd. Mita, which resold our systems in
Japan, discontinued orders of our systems in June 1998 and subsequently entered
into reorganization proceedings. Since then, our sales to Mita have been
negligible.
One factor that affects our gross margin is product configuration. Product
configuration, which is determined by the end user, typically affects gross
margin due to the relative amount of software and hardware in each system. The
relative amount of add-on software and hardware we sell also affects our gross
margin. The hardware in our systems typically includes two or more print devices
and, in some instances, a digital scanner. Because we purchase these hardware
devices from third parties for resale, we typically realize lower margins on
them than we realize on our software products.
20
<PAGE> 23
Sales to international customers were $9.4 million, or 42.3% of revenue, in
fiscal 2000. Of the $9.4 million of sales to international customers in fiscal
2000, $4.7 million, or 20.9% of revenue, was billed to a Japanese customer but
the product was shipped to that customer's United States subsidiary for re-sale
in the United States. We expect that international sales will continue to
represent a significant portion of our revenue. Currently, all our sales 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.
As of January 31, 2000, we had approximately $7.2 million in tax net
operating loss carryforwards which, if not utilized, expire at various dates
beginning in 2007. We must recognize taxable income in future periods to be able
to utilize these net operating loss carryforwards. We have not recognized any
benefit from the future use of these carryforwards because we are uncertain that
we will be able to utilize them. Further, under the ownership change limitations
of the Internal Revenue Code of 1986, our utilization of approximately $658,000
of these carryforwards is subject to an annual limitation of approximately
$330,000. If we use these carryforwards in future periods, we will incur
alternative minimum taxes in those periods.
We record software development costs as required by Financial Accounting
Standards Board Statement No. 86. To date, we have expensed software development
costs as incurred due to the immaterial amount of costs incurred between the
establishment of technological feasibility and the time that the software is
generally available for sale.
RESULTS OF OPERATIONS
The following table presents operating data as a percentage of revenue.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Revenue..................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 42.5 41.5 50.8
----- ----- -----
Gross profit................................................ 57.5 58.5 49.2
Operating expenses:
Research and development.................................. 15.6 20.2 18.0
Sales and marketing....................................... 29.6 30.9 29.4
General and administrative................................ 9.7 10.8 13.5
----- ----- -----
Total operating expenses............................... 54.9 61.9 60.9
----- ----- -----
Operating income (loss)..................................... 2.6 (3.4) (11.7)
Interest income, net........................................ 0.5 0.9 1.5
Other expense............................................... -- (1.5) --
----- ----- -----
Income (loss) before taxes.................................. 3.1 (4.0) (10.2)
Income tax expense.......................................... 0.1 -- --
----- ----- -----
Net income (loss)........................................... 3.0% (4.0)% (10.2)%
===== ===== =====
</TABLE>
COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
Revenue. Revenue was $22.3 million for fiscal 2000, representing an
increase of 40.9% over fiscal 1999 revenue of $15.8 million. Revenue for fiscal
1999 increased 31.7% over revenue of $12.0 million for fiscal 1998. The increase
from fiscal 1999 to fiscal 2000 was primarily due to an increase in revenue from
our OEM relationships. In the first quarter of fiscal 2000, we began shipping
systems under our OEM agreement with Minolta. In the fourth quarter of fiscal
2000, we began shipping systems under our OEM agreement with Hitachi. The
increase as a result of sales to Minolta and Hitachi was partially offset by a
decrease in revenue from our OEM relationship with Mita. Revenue from Mita for
fiscal 2000 was negligible, and we do not currently have any significant orders
from Mita for future shipments.
21
<PAGE> 24
The increase from fiscal 1998 to fiscal 1999 was due in part to an increase
in sales of the MicroPress through both our independent dealer channel and our
OEM arrangement with Mita. Of the $3.8 million increase in revenue, $2.1 million
was due to an increase in sales of the MicroPress and related hardware and
software components. Adding to the year-over-year increase in revenue were:
- a $664,000 increase from engineering service fees;
- a $417,000 increase from royalties;
- a $402,000 increase from the sale of consumable products; and
- a $150,000 increase from customer support plans.
During fiscal 2000, we derived $17.5 million, or 78.4% of our revenue, from
sales shipped to customers in the United States. This compares to $11.0 million,
or 69.3% of revenue, in fiscal 1999 and $8.0 million, or 66.4% of revenue, in
fiscal 1998. Included in the fiscal 2000 revenue of $17.5 million was $4.7
million in sales which were billed to a Japanese customer but the product was
shipped to that customer's United States subsidiary for re-sale in the United
States. No similar amounts were included in fiscal 1998 or fiscal 1997 revenue.
Domestic revenue grew at a faster rate than international revenue during fiscal
2000 because of a more established domestic distribution infrastructure, through
both our OEM partners and our independent dealers, and our greater focus on the
domestic market. The remaining international revenue in fiscal 2000 was
primarily generated from sales in Canada and Europe. In fiscal 1999 and fiscal
1998, international revenue was primarily generated by sales in Asia through our
OEM agreement with Mita, services for Minolta for research and development
purposes and sales in Europe.
Gross Profit. Our gross profit, revenue less cost of sales, was $12.8
million in fiscal 2000, $9.3 million in fiscal 1999 and $5.9 million in fiscal
1998. Cost of sales consists primarily of third-party hardware, principally
print devices, board components, finished boards and consumables, and
third-party software, as well as labor and overhead. Gross margin, or gross
profit as a percentage of revenue, was 57.5% in fiscal 2000, 58.5% in fiscal
1999 and 49.2% in fiscal 1998. The decrease in gross margin from fiscal 1999 to
fiscal 2000 was primarily due to an increase in sales of hardware through our
independent dealer network. Specifically, we sold more of our black and white
PrintStations in fiscal 2000 than in fiscal 1999. We typically realize lower
margins on the hardware we sell than the software. The decrease in gross margin
in our independent dealer network was partially offset by an increase in OEM
revenue as a percent of total revenue. We typically realize higher margins on
OEM revenue than we do through our independent dealer network as the OEM systems
typically include less hardware than systems sold through independent dealers.
The increase in gross margin from fiscal 1998 to fiscal 1999 was primarily
due to an improvement in OEM gross margin reflecting the systems sold to Mita
and Minolta, which included more high-margin software and less hardware than the
systems sold to Mita in fiscal 1998. Additionally, our margin improved due to an
increase in OEM revenue as a percent of total revenue.
Research and Development. Research and development expenses consist
primarily of employee salaries and benefits, equipment depreciation, software
and hardware supplies used in product development and an allocation of overhead.
Research and development costs are expensed as incurred. Research and
development expenses were $3.5 million in fiscal 2000, $3.2 million in fiscal
1999 and $2.2 million in fiscal 1998. Research and development expenses
represented 15.6% of revenue in fiscal 2000, 20.2% of revenue in fiscal 1999 and
18.0% of revenue in fiscal 1998. Research and development expenses increased
8.9% from fiscal 1999 to fiscal 2000 and 48.0% from fiscal 1998 to fiscal 1999.
The increase from fiscal 1999 to fiscal 2000 was due to an increase in salaries
and benefits resulting from the hiring of additional research and development
personnel to assist in the further development of the MicroPress.
Of the $1.0 million increase from fiscal 1998 to fiscal 1999, $742,000 was
due to an increase in salaries and benefits. The remaining increase from fiscal
1998 to fiscal 1999 was due to an increase in spending on supplies, hardware and
software for project development and an increase in depreciation expense on
equipment purchased for development of the MicroPress' connectivity to
additional devices. We believe that
22
<PAGE> 25
research and development spending, including spending for employee salaries and
benefits, will increase in the future as we add hardware connectivity and
software functionality to the MicroPress.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries and benefits, sales commissions, trade show costs,
advertising, technical support and travel-related expenses. Sales and marketing
expenses were $6.6 million in fiscal 2000, or 29.6% of revenue. These expenses
were $4.9 million in fiscal 1999, or 30.9% of revenue, and $3.5 million in
fiscal 1998, or 29.4% of revenue. The increase of $1.7 million from fiscal 1999
to fiscal 2000 was primarily due to an increase in our sales force. The increase
in our sales force resulted in an increase in compensation expense of $1.3
million and increased travel related expenditures of $477,000.
Of the $1.3 million increase in sales and marketing expenses from fiscal
1998 to fiscal 1999, $773,000 was due to an increase in employee salaries and
benefits due to an increase in our sales force and marketing personnel during
fiscal 1999 and the second half of fiscal 1998. The year-over-year increase was
also due to an increase in travel expenses of $244,000. We believe that we will
need to continue to increase our sales and marketing efforts to address new
markets and support additional OEM customers in the future.
General and Administrative. General and administrative expenses include
employee salaries and benefits, professional service fees and employee
recruiting expenses. General and administrative expenses were $2.2 million in
fiscal 2000 compared to $1.7 million in fiscal 1999 and $1.6 million in fiscal
1998. These expenses represented 9.7% of revenue in fiscal 2000, 10.8% of
revenue in fiscal 1999 and 13.5% of revenue in fiscal 1998. These expenses
increased $455,000, or 26.6%, from fiscal 1999 to fiscal 2000 and $85,000, or
5.2%, from fiscal 1998 to fiscal 1999. The fiscal 2000 increase was primarily
due to an increase in personnel related expenses of $365,000. Additionally, we
had a $67,000 increase in the amount paid for professional service fees and a
$68,000 increase in expenditures for outside consulting services. We believe our
general and administrative expenses will continue to increase as we hire
additional administrative staff and incur additional expenses as a public
company, including insurance, annual and other public reporting costs and
professional service fees.
Interest Income, Net. Interest income, net was $117,000 in fiscal 2000,
$150,000 in fiscal 1999 and $186,000 in fiscal 1998. The decrease in interest
income over the three year period was due to a decrease in funds available for
short-term investment during the period because we used cash to fund operations
and purchase property and equipment.
Other Expense. In fiscal 1999, we expensed $240,000 for legal and audit
services related to a then planned initial public offering. In July 1998, we
suspended our plans to go public, necessitating the recognition of those
expenses in fiscal 1999. No similar expenses were incurred in fiscal 2000 or
fiscal 1998.
Income Tax Expense. We recorded $25,000 in income tax expense in fiscal
2000 for alternative minimum taxes on net income 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 did not record a deferred
tax asset due to the uncertainty of future profitability as of January 31, 2000.
No income tax expense was recorded in fiscal 1999 or fiscal 1998 since we had
net losses in those periods.
LIQUIDITY AND CAPITAL RESOURCES
From inception, we have funded our operations and investments in property
and equipment primarily through the sale of equity securities. In January 2000,
we completed our initial public offering and received $25.5 million in cash, net
of underwriting discounts, commissions and other offering costs.
Prior to our initial public offering, we funded our operations primarily
through the private placement of preferred stock totaling about $16.1 million.
We also obtained additional funding through the private placement of our common
stock primarily with our founders, other employees and private investors. Prior
to our initial public offering, we had received $1.2 million through the sale of
common stock.
Net cash used in operating activities was $1,101,000 in fiscal 2000,
$929,000 in fiscal 1999 and $1.7 million in fiscal 1998. Net cash used in
operating activities increased in fiscal 2000 despite net income in
23
<PAGE> 26
fiscal 2000 as compared to a net loss in fiscal 1999, due to increases in
receivables and inventories as a result of the increase in our sales and cost of
sales between the two periods. The decrease from fiscal 1998 to fiscal 1999 was
primarily due to a decrease in the operating loss in fiscal 1999.
Net cash used for investing activities was $570,000 in fiscal 2000,
$944,000 in fiscal 1999 and $619,000 in fiscal 1998, reflecting purchases of
property and equipment. The fiscal 1999 total includes furniture and leasehold
improvements purchased for our new office space, which we moved into during
fiscal 1999, as well as spending on equipment used in product development and
spending for trade shows and demonstration equipment for the MicroPress. We
anticipate that we will experience an increase in our capital expenditures
consistent with our anticipated growth in operations, infrastructure and
personnel.
We have a $3,000,000 secured revolving line of credit from a bank which
expires on October 14, 2000. At January 31, 1999, there were borrowings of
$27,000 against this line of credit and at January 31, 2000, there were no
borrowings against this line of credit. All borrowings under the line of credit
bear interest at prime plus 0.75%, which was 9.25% at January 31, 2000, and are
secured by our assets. The line of credit requires the maintenance of various
covenants, including a restriction on paying dividends. We were in compliance
with these covenants at January 31, 2000. The agreement also provides for up to
$200,000 in letters of credit. Any letters of credit issued reduce the amount
available for borrowing under the line. In April 1998, we issued a $250,000
letter of credit under this facility in connection with an operating lease
obligation. This letter of credit is reduced annually by $50,000.
On March 31, 1998, we amended the credit agreement with the bank to provide
an additional line of credit in the amount of $250,000 for the purchase of
property and equipment. This line bears interest at the bank's prime rate plus
one and one-half percent, which was 10.00% at January 31, 2000. Borrowings under
this line are repayable over 36 months. At January 31, 1999, the outstanding
balance on this line was $151,000 of which $52,000 was classified as short-term.
As of January 31, 2000, there were no borrowings against this line. Our ability
to draw against this line expired in December 1998.
At January 31, 2000, we had an unused $200,000 letter of credit from a bank
under an additional credit facility which expires on January 10, 2001. As
security for the letter of credit, we are required to maintain a certificate of
deposit for $200,000. The certificate of deposit is classified as restricted
cash.
Financing activities generated net cash of $27.0 million in fiscal 2000,
$312,000 in fiscal 1999 and $3.0 million in fiscal 1998 resulting primarily from
sale of common and preferred stock. Fiscal 2000 financing activities include our
initial public offering as well as the private placement of 222,222 shares of
series D preferred stock at $4.50 per share in May 1999. Fiscal 1998 financing
activities included $2.7 million from the private placement of series C
preferred stock.
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 has had no material impact on our operations to date.
YEAR 2000 COMPLIANCE
We have experienced no material Year 2000 related problems with any of our
computer systems. Although no material problems are expected, we cannot assure
you that all Year 2000 related problems have been fully recognized. We will
continue to monitor all our systems for any Year 2000 issues. In addition, we
could still be negatively impacted if our customers or suppliers are adversely
affected by any Year 2000 related problems. To our knowledge, none of our
customers or suppliers have experienced significant Year 2000 related problems.
24
<PAGE> 27
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, which is effective for all fiscal years beginning after
June 15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including derivative instruments embedded in other
contracts and for hedging activities. Under this statement, some contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. We intend to adopt this statement effective February 1, 2001. We
have not determined the effect, if any, on the adoption of this statement on our
financial position or results of operations because we believe we do not have
significant derivative activity.
In December 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-9, Modification of Statement of Position 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. This
statement requires recognition of revenue using the residual method when vendor-
specific objective evidence of fair value does not exist for one or more of the
delivered elements in an arrangement. Under the residual method, the arrangement
fee is recognized as follows:
- the total fair value of the undelivered elements, as indicated by
vendor-specific objective evidence, is deferred and subsequently
recognized based on the guidance in Statement of Position 97-2; and
- the difference between the total arrangement fee and the amount
deferred for the undelivered elements is recognized as revenue
related to the delivered elements.
We will adopt this statement in fiscal 2001 and do not expect its adoption
to have a material effect on our financial position or results of operations.
ITEM 7A. 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 January 31, 2000, we had no borrowings 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 international
customers. Currently, all 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information with respect to this item is contained in our audited
financial statements presented elsewhere is this annual report on Form 10-K as
indicated on the index to the audited financial statements below.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Deloitte & Touche, LLP, Independent Auditors...... F-2
Balance Sheets as of January 31, 2000 and 1999.............. F-3
Statements of Operations for the Years Ended January 31,
2000, 1999 and 1998....................................... F-4
Statements of Shareholders' Equity (Deficit) for the Years
Ended January 31, 2000, 1999 and 1998..................... F-5
Statements of Cash Flows for the Years Ended January 31,
2000, 1999 and 1998....................................... F-6
Notes to the Financial Statements........................... F-7
</TABLE>
25
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in Part I under the caption "Executive Officers of the
Registrant" is incorporated by reference herein. The information required by
this item with respect to directors and Section 16(a) reporting is incorporated
by reference to the information under the captions "Election of Directors" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's
definitive proxy statement for the 2000 Annual Meeting of Shareholders (the
"Proxy Statement") to be filed with the Securities and Exchange Commission.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
information under the captions "Election of Directors -- Director Compensation"
and "Executive Compensation" in the Proxy Statement to be filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
information under the caption "Security Ownership of Certain Beneficial Owners
and Management" in the Proxy Statement to be filed with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No information is required to be included in response to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of Form 10-K:
(1) Financial Statements
The information required by this item is included on pages F-1
through F-15 of this annual report on Form 10-K as specified in the
index on page F-1.
(2) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <S>
3.1* Second Restated Articles of Incorporation of T/R Systems,
Inc.
3.2* Restated Bylaws of T/R Systems, Inc.
4.1* Second Amended and Restated Registration Rights Agreement
dated March 31, 1997 among the Company and the shareholders
named therein, as amended by First Amendment to Stock
Purchase Agreement, Second Amended and Restated
Shareholders' Agreement and Second Amended and Restated
Registration Rights Agreement, dated June 20, 1997 among the
Company and the Shareholders named therein
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <S>
4.2* Registration Rights Agreement dated June 29, 1998 among the
Company and the Shareholders named therein
4.3* 1999 Registration Rights Agreement, dated September 10,
1999, by and among the Company and the Shareholders named
therein
10.1* T/R Systems, Inc. 1992 Stock Option Plan
10.2* T/R Systems, Inc. 1994 Stock Option Plan
10.3* T/R Systems, Inc. 1994 Associates Stock Option Plan
10.4* T/R Systems, Inc. 1995 Stock Option Plan
10.5* T/R Systems, Inc. 1999 Stock Option Plan
10.6* Loan and Security Agreement, dated as of October 17, 1997 by
and between Silicon Valley Bank and T/R Systems, Inc., as
amended by Loan Modification Agreement, dated as of March
31, 1998 by and between T/R Systems, Inc. and Silicon Valley
Bank, as further amended by Second Loan Modification
Agreement, dated as of October 16, 1998 by and between T/R
Systems, Inc. and Silicon Valley Bank, as further amended by
Third Loan Modification Agreement, dated as of January 18,
1999 by and between T/R Systems, Inc. and Silicon Valley
Bank, and as further amended by Letter Agreement, dated as
of February 2, 1999
10.7* Letter Agreement with Mike Kohlsdorf, dated September 6,
1996, as amended by Letter Agreement with Mike Kohlsdorf,
dated December 17, 1997
10.8* Employment Agreement, dated as of September 1, 1992 by and
between T/R Systems, Inc. and E. Neal Tompkins
10.9* Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and E. Neal Tompkins
10.11* Indemnification Agreement, dated as of March 4, 1994, by and
between T/R Systems, Inc. and Charles H. Phipps
10.12++* Reseller Agreement, dated as of September 18, 1997, by and
between T/R Systems, Inc. and Mita Industrial Co., Ltd., as
amended by First Addendum to Reseller Agreement, dated as of
September 17, 1998, by and between T/R Systems, Inc. and
Mita Industrial Co., Ltd.
10.13++* Supply Agreement, dated as of January 28, 1999, by and
between Minolta Co., Ltd. and T/R Systems, Inc.
10.14++* Agreement, dated as of April 1, 1999, by and between Hitachi
Koki Imaging Solutions, Inc. and T/R Systems, Inc.
10.15++* Agreement, dated as of September 1, 1999, by and between
Ricoh Corporation and T/R Systems, Inc.
10.16* Fourth Loan Modification Agreement, dated as of October 15,
1999, by and between T/R Systems, Inc. and Silicon Valley
Bank
10.17+ Master Assembly and Distribution Agreement, dated as of
February 19, 2000, by and between Toshiba America Business
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 portions of this
exhibit
++ Confidential treatment has been granted with respect to portions of this
exhibit
* Incorporated by reference to the Company's registration statement on Form
S-1, File No. 333-88439
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended January
31, 2000.
27
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Atlanta, State of Georgia, on April 11, 2000.
T/R Systems, Inc.
/s/ Michael E. Kohlsdorf
By:
Michael E. Kohlsdorf
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Michael E. Kohlsdorf President and Chief Executive Officer April 11, 2000
- --------------------------------------------- (Principal Executive Officer)
Michael E. Kohlsdorf
/s/ Lyle W. Newkirk Vice President, Chief Financial April 11, 2000
- --------------------------------------------- Officer, Secretary and Treasurer
Lyle W. Newkirk (Principal Financial Officer and
Principal Accounting Officer)
/s/ Charles H. Phipps Director April 7, 2000
- ---------------------------------------------
Charles H. Phipps
/s/ C. Harold Gaffin Director April 10, 2000
- ---------------------------------------------
C. Harold Gaffin
/s/ Philip T. Gianos Director April 11, 2000
- ---------------------------------------------
Philip T. Gianos
/s/ E. Neal Tompkins Director April 11, 2000
- ---------------------------------------------
E. Neal Tompkins
/s/ Peter S. Sealey Director April 11, 2000
- ---------------------------------------------
Peter S. Sealey
/s/ Kevin J. McGarity Director April 11, 2000
- ---------------------------------------------
Kevin J. McGarity
</TABLE>
28
<PAGE> 31
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets as of January 31, 2000 and 1999.............. F-3
Statements of Operations for the Years Ended January 31,
2000, 1999 and 1998....................................... F-4
Statements of Shareholders' Equity (Deficit) for the Years
Ended January 31, 2000, 1999 and 1998..................... F-5
Statements of Cash Flows for the Years Ended January 31,
2000, 1999 and 1998....................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 32
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of T/R Systems, Inc.:
We have audited the accompanying balance sheets of T/R Systems, Inc. (the
"Company") as of January 31, 2000 and 1999, and the related statements of
income, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended January 31, 2000. Our audits also included the
financial statement schedule listed in the Index at Item 14. These financial
statements and the financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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, such financial statements present fairly, in all material
respects, the financial position of the Company at January 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended January 31, 2000, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 10, 2000
F-2
<PAGE> 33
T/R SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 27,314 $ 1,966
Restricted cash........................................... 200 200
Receivables, net of allowance of $150 and $200,
respectively........................................... 4,659 2,592
Inventories, net.......................................... 3,466 1,810
Prepaid expenses and other................................ 475 191
-------- --------
Total current assets................................. 36,114 6,759
Property and equipment, net............................... 1,058 1,011
-------- --------
$ 37,172 $ 7,770
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.......................................... $ 1,733 $ 1,681
Deferred revenue.......................................... 1,027 159
Accrued salaries and wages................................ 1,388 574
Income taxes payable...................................... 25 --
Borrowing under line of credit............................ -- 27
Other liabilities......................................... 750 374
Current portion of long-term debt......................... -- 52
-------- --------
Total current liabilities............................ 4,923 2,867
Long-term debt, less current portion........................ -- 99
Commitments (Note 10)
Redeemable, convertible preferred stock: $0.01 par value,
8,977,084 shares designated:
Series A redeemable, convertible preferred stock,
4,799,999 shares designated; none issued and
outstanding at January 31, 2000; 4,799,999 issued and
outstanding at January 31, 1999, with a liquidation
preference of $4,800................................... -- 4,782
Series B redeemable, convertible preferred stock,
2,961,585 shares designated; none issued and
outstanding at January 31, 2000; 2,961,585 issued and
outstanding at January 31, 1999, with a liquidation
preference of $7,552................................... -- 7,530
Series C redeemable, convertible preferred stock,
1,215,500 shares designated; none issued and
outstanding at January 31, 2000; 1,215,500 issued and
outstanding at January 31, 1999, with a liquidation
preference of $2,735................................... -- 2,730
Shareholders' Equity (Deficit):
Preferred stock, $0.01 par value, 12,000,000 shares
Authorized, 8,977,084 shares designated as redeemable,
Convertible preferred stock, 222,222 shares series D
Convertible preferred stock designated, none issued and
outstanding........................................... -- --
Common stock, $0.01 par value, 88,000,000 shares
authorized; 11,733,234 and 2,496,920 shares issued and
outstanding, respectively.............................. 117 25
Additional paid-in capital................................ 42,839 1,154
Deferred compensation..................................... (60) (93)
Accumulated deficit....................................... (10,647) (11,324)
-------- --------
Total shareholders' equity (deficit)................. 32,249 (10,238)
-------- --------
$ 37,172 $ 7,770
======== ========
</TABLE>
See notes to financial statements
F-3
<PAGE> 34
T/R SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Revenue..................................................... $22,322 $15,847 $12,032
Cost of sales............................................... 9,487 6,579 6,107
------- ------- -------
Gross profit................................................ 12,835 9,268 5,925
Operating Expenses:
Research and development.................................. 3,488 3,202 2,164
Sales and marketing....................................... 6,599 4,891 3,542
General and administrative................................ 2,163 1,708 1,623
------- ------- -------
Total operating expenses............................. 12,250 9,801 7,329
------- ------- -------
Operating income (loss)..................................... 585 (533) (1,404)
Interest income, net........................................ 117 150 186
Other expenses.............................................. -- (240) --
------- ------- -------
Income (loss) before income taxes........................... 702 (623) (1,218)
Income tax expense.......................................... 25 -- --
------- ------- -------
Net income (loss)........................................... $ 677 $ (623) $(1,218)
======= ======= =======
Net income (loss) per common share -- Basic................. $ 0.25 $ (0.26) $ (0.60)
======= ======= =======
Net income (loss) per common share -- Diluted............... $ 0.07 $ (0.26) $ (0.60)
======= ======= =======
</TABLE>
See notes to financial statements
F-4
<PAGE> 35
T/R SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SERIES D
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------- ---------------- PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT TOTAL
------- ------- ------- ------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance -- January 31, 1997.......... 1,824 $ 18 $ 830 $ (9,483) $ (8,635)
Stock option exercises............. 453 5 106 111
Deferred compensation related to
stock options.................... 130 $(130) --
Amortization of deferred
compensation..................... 5 5
Accretion of redeemable convertible
preferred stock.................. (22) (22)
Net loss........................... (1,218) (1,218)
------- ---- ------- ----- -------- --------
Balance -- January 31, 1998.......... 2,277 23 1,044 (125) (10,701) (9,759)
Stock option exercises............. 220 2 132 134
Amortization of deferred
compensation..................... 32 32
Accretion of redeemable convertible
preferred stock.................. (22) (22)
Net loss........................... (623) (623)
------- ---- ------- ----- -------- --------
Balance -- January 31, 1999.......... 2,497 25 1,154 (93) (11,324) (10,238)
Issuance of series D preferred
stock at $4.50 per share, net of
issuance costs of $5............. 222 $ 2 993 995
Stock option exercises............. 288 3 202 205
Accretion of redeemable Convertible
preferred stock.................. (22) (22)
Issuance of common stock in initial
public offering, net of offering
costs of $3,265.................. 2,880 29 25,506 25,535
Conversion of preferred stock to
common........................... (222) (2) 6,068 60 15,006 15,064
Amortization of deferred
compensation..................... 33 33
Net income......................... 677 677
------- ------- ------- ---- ------- ----- -------- --------
Balance -- January 31, 2000.......... -- $ -- $11,733 $117 $42,839 $ (60) $(10,647) $ 32,249
======= ======= ======= ==== ======= ===== ======== ========
</TABLE>
See notes to financial statements
F-5
<PAGE> 36
T/R SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
Operating Activities:
Net income (loss)......................................... $ 677 $ (623) $(1,218)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation........................................... 523 702 537
Deferred compensation expense.......................... 33 32 5
Changes in assets and liabilities:
Increase in receivables.............................. (2,067) (223) (1,720)
Increase in inventories.............................. (1,656) (694) (420)
Decrease (increase) in prepaid expenses and other
assets............................................ (284) 12 (1)
Increase (decrease) in accounts payable.............. (410) 170 1,116
Increase in deferred revenue......................... 868 94 65
Increase in accrued salaries and wages............... 814 230 209
Increase (decrease) in other liabilities............. 401 (4) (43)
Decrease in deferred royalty revenue................. -- (625) (246)
------- ------- -------
Net cash used in operating activities............. (1,101) (929) (1,716)
Investing Activities:
Purchases of property and equipment.................... (570) (944) (619)
Financing Activities:
Restricted cash........................................ -- -- 200
Other short-term borrowings............................ 435 27 --
Proceeds on issuance of long term debt................. -- 156 --
Principal repayments on long term debt................. (151) (5) --
Proceeds from sale of common stock..................... 205 134 96
Proceeds from initial public offering.................. 25,535 -- --
Proceeds from sale of series C preferred stock......... -- -- 2,741
Proceeds from sale of series D preferred stock......... 995 -- --
------- ------- -------
Net cash provided by financing activities................. 27,019 312 3,037
------- ------- -------
Net increase (decrease) in cash and cash equivalents...... 25,348 (1,561) 702
Cash and Cash Equivalents:
Beginning of year...................................... 1,966 3,527 2,825
------- ------- -------
End of year............................................ $27,314 $ 1,966 $ 3,527
======= ======= =======
Cash paid for interest.................................... $ 14 $ 17 $ --
======= ======= =======
Supplemental Disclosure of Noncash Financing Activities:
During the year ended January 31, 1998, T/R Systems
issued 24,242 shares of common stock in exchange for
7,000 shares of series C preferred stock.
</TABLE>
See notes to financial statements
F-6
<PAGE> 37
T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
T/R Systems, Inc. was incorporated in Georgia in September 1991. We design,
develop, and market digital document processing and printing systems for the
print-on-demand market. We distribute our products in North America and
internationally through a network of independent dealers and through our
distribution relationships with Minolta Co., Ltd. and Hitachi Koki Imaging
Solutions, Inc.
2. SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents -- Cash equivalents are stated at cost, which
approximates market value, and include investments in a money market account and
commercial paper with original maturities of three months or less.
Revenue Recognition -- Printing system revenues are recognized based on the
guidance in American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition. We recognize revenue from printing
systems when persuasive evidence of an arrangement exists, the system has been
shipped, the fee is fixed or determinable and collectibility of the fee is
probable. Under multiple element arrangements, we allocate revenue to the
various elements based on vendor-specific objective evidence of fair value. Our
products do not require significant customization. Before the February 1, 1998
effective date of SOP 97-2, we recognized revenue from printing systems upon
shipment. The adoption of SOP 97-2 had no effect on our accounting for revenue.
We recognize revenue from the sale of printing consumables upon shipment.
We recognize revenue from customer service plans ratably over the term of
each plan, typically one to three years. Engineering service fees are recognized
as the services are rendered. Nonrefundable prepaid royalties are recognized as
revenue over the term of the royalty agreement based on the greater of actual
royalties earned or the straight-line method. Revenue from customer service
plans, engineering services and royalties individually have been less than 10%
of total revenue in all years.
Research and Development Costs -- Research and development costs are
charged to expense when incurred. Software development costs are expensed as
incurred until technological feasibility is determined. To date, we have
expensed all software development costs.
Inventory -- Inventory is valued at the lower of cost or market. Cost is
determined on the first-in, first-out basis.
Property and Equipment -- Property and equipment is stated at cost.
Depreciation is computed on a straight-line basis over the estimated lives of
the assets, generally one and one-half to seven years. Leasehold improvements
are amortized over the lesser of useful life or the remaining lease term.
Product Warranty -- We provide for estimated future warranty costs as
products are sold.
Accounts Payable -- Included in accounts payable is a bank overdraft of
$462,000 at January 31, 2000.
Income Taxes -- Deferred tax assets and liabilities are determined for
differences between the financial reporting basis and income tax basis of the
assets and liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax rates applicable to the periods that the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Impairment of Long-Lived Assets -- Long-lived assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Any impairment losses are reported in
the period that the recognition criteria are first applied, based on the fair
value of the asset. Long-lived assets to be disposed of are reported at the
lower of carrying amount or fair value less cost to sell.
F-7
<PAGE> 38
Stock-Based Compensation -- We account for compensation cost related to
employee stock options based on the guidance in Accounting Principles Board
Opinion 25, Accounting for Stock Issued to Employees. In fiscal 1997, we adopted
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation. This statement established a fair-value based method of accounting
for compensation cost related to stock options and other forms of stock-based
compensation plans. The adoption of the recognition provisions related to
employee arrangements under SFAS No. 123 is optional; however, the pro forma
effects on operations had these recognition provisions been elected are required
to be disclosed in financial statements.
Net Income or Loss Per Common Share -- Net income or loss per common share
is computed based on the guidance in SFAS No. 128, Earnings Per Share. Basic net
income or loss per common share is computed by dividing net income or loss
available to common shareholders by the weighted average common shares
outstanding. Diluted net income or loss per common share is computed by dividing
net income or loss available to common shareholders by the weighted average
common shares outstanding plus the dilutive effect of stock options and
convertible preferred stock; see Note 13.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted 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 amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Comprehensive Income -- Effective February 1, 1998, we adopted SFAS No.
130, Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components, including
revenues, expenses, gains and losses in a full set of general purpose financial
statements. Because we have no components of other comprehensive income, the
adoption of this statement had no effect on our financial statements.
Fair Value of Financial Instruments -- The carrying value of our cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
notes payable approximate their fair values, due to the short-term nature of
these instruments.
New Accounting Pronouncements -- In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, which 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, some contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. 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 because we believe we do not have
significant derivative activity.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, With Respect to Certain Transactions. SOP 98-9
requires recognition of revenue using the residual method when vendor-specific
objective evidence of fair value does not exist for one or more of the delivered
elements in an arrangement. Under the residual method, the arrangement fee is
recognized as follows:
- the total fair value of the undelivered elements, as indicated by
vendor-specific objective evidence, is deferred and subsequently
recognized based on the guidance in the relevant sections of SOP 97-2;
and
- the difference between the total arrangement fee and the amount deferred
for the undelivered elements is recognized as revenue related to the
delivered elements.
We will adopt SOP 98-9 in fiscal 2001 and do not expect the adoption of SOP
98-9 to have a material effect on revenue recognition.
F-8
<PAGE> 39
3. INVENTORIES
Inventories at January 31, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Components and supplies..................................... $2,861 $1,817
Finished goods.............................................. 1,026 566
------ ------
3,887 2,383
Less reserve for potential losses........................... 421 573
------ ------
$3,466 $1,810
====== ======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment at January 31, 2000 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Furniture and fixtures...................................... $ 744 $ 564
Machinery and equipment..................................... 1,920 1,557
Leasehold improvements...................................... 112 68
------ ------
2,776 2,189
Less accumulated depreciation............................... 1,718 1,178
------ ------
Property and equipment, net............................... $1,058 $1,011
====== ======
</TABLE>
Depreciation expense was $523,000 in fiscal 2000, $702,000 in fiscal 1999
and $537,000 in fiscal 1998.
5. OTHER LIABILITIES
Other liabilities at January 31, 2000 and 1999 consisted of the following:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Professional services fees.................................. $ 71 $ 85
Accrued sales and property taxes............................ 37 59
Accrued initial public offering fees........................ 224 --
Accrued travel costs........................................ 112 48
Accrued marketing programs.................................. 38 --
Accrued warranty............................................ 75 75
Other....................................................... 193 107
---- ----
$750 $374
==== ====
</TABLE>
F-9
<PAGE> 40
6. INCOME TAXES
Our deferred tax assets at January 31, 2000 and 1999 are summarized below:
<TABLE>
<CAPTION>
JANUARY 31,
---------------
2000 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $2,748 $3,141
Accounts receivable....................................... 60 79
Inventory................................................. 199 252
Property and equipment.................................... 167 162
Other assets.............................................. 152 188
Accrued liabilities....................................... 207 146
Deferred revenue.......................................... 253 5
Deferred rent............................................. 12 7
------ ------
3,798 3,980
Valuation allowance......................................... (3,798) (3,980)
------ ------
Net deferred taxes..................................... $ -- $ --
====== ======
</TABLE>
At January 31, 2000 and 1999, net deferred tax assets are fully offset by a
valuation allowance. In estimating the realizability of our deferred tax assets,
we consider both positive and negative evidence and give greater weight to
evidence that is objectively verifiable. Due to our cumulative losses, we
currently believe that the future realization of our deferred tax assets is
uncertain. The valuation allowance decreased by $293,000 in fiscal 2000,
decreased by $298,000 in fiscal 1999 and increased by $507,000 in fiscal 1998.
As of January 31, 2000, we had about $7.2 million in tax net operating loss
carryforwards which, if not utilized, expire from 2007 through 2019. The
utilization of these net operating loss carryforwards and realization of tax
benefits in future years depends mainly upon the recognition of taxable income.
The utilization of $658,000 of these carryforwards is subject to annual
limitations of about $330,000 per year as a result of the change in ownership
provisions of the Internal Revenue Code. The limitation does not reduce the
total amount of net operating losses which we may take, but rather limits the
amount which we may use during a particular year.
7. CREDIT FACILITY
We have a $3,000,000 secured revolving line of credit from a bank which
expires on October 14, 2000. At January 31, 2000, there were no borrowings
against this line of credit and at January 31, 1999, there were borrowings of
$27,000 against this line of credit. All borrowings under the line of credit
bear interest at prime plus 0.75%, which was 9.25% at January 31, 2000, and are
secured by our assets. This agreement requires the maintenance of various
covenants, including a restriction on paying dividends. We were in compliance
with these covenants at January 31, 2000 and 1999. The agreement also provides
for up to $200,000 in letters of credit. Any letters of credit issued reduce the
amount available for borrowing under the line. In April 1998, we issued a
$250,000 letter of credit under this facility in connection with an operating
lease obligation. This letter of credit is reduced annually by $50,000.
On March 31, 1998, we amended the credit agreement with the bank to provide
an additional line of credit in the amount of $250,000 for the purchase of
property and equipment. This line bears interest at the bank's prime rate plus
one and one-half percent, which was 10.00% at January 31, 2000. Borrowings under
this line are repayable over 36 months. As of January 31, 2000, there were no
borrowings against this line. At January 31, 1999, the outstanding balance on
this line was $151,000 of which $52,000 was classified as short-term. Our
ability to draw against this line expired in December 1998.
F-10
<PAGE> 41
At January 31, 2000, we had an unused $200,000 letter of credit from a bank
under an additional credit facility which expires on January 10, 2001. As
security for the letter of credit, we are required to maintain a certificate of
deposit for $200,000. The certificate of deposit is classified as restricted
cash.
8. REDEEMABLE, CONVERTIBLE PREFERRED STOCK
We are authorized to issue up to 12,000,000 shares of preferred stock. We
have designated 4,799,999 shares as series A redeemable, convertible preferred
stock, 2,961,585 shares as series B redeemable, convertible preferred stock, and
1,215,500 shares as series C redeemable, convertible preferred stock. Through
August 1995, we issued 4,799,999 shares of series A preferred stock at $1.00 per
share. In January 1996, we issued 2,961,585 shares of series B preferred stock
at $2.55 per share. During March and June 1997, we issued a total of 1,222,222
shares of series C preferred stock at $2.25 per share.
The preferred shares automatically converted into common shares upon the
closing of our initial public offering on January 31, 2000. Each share of series
A preferred stock converted into .606 shares of common stock. Each share of
series B preferred stock converted into .773 shares of common stock. Each share
of series C preferred stock converted into .606 shares of common stock.
Prior to conversion of the preferred shares, dividends on common shares
required the approval of the holders of a majority of the shares of each series
of preferred stock and were payable only after any preferred stock dividend
requirements were satisfied.
Additionally, the series A, series B, and series C shares each had
liquidation preferences equal to $1.00, $2.55, and $2.25 per share.
The series A, series B, and series C shares of preferred stock were subject
to mandatory redemption in two equal installments in 2001 and 2002 at a
redemption price of each series A, series B, and series C share equal to the
greater of cost or appraised value. The preferred shares were not recorded at
redemption value due to the uncertainty of redemption at amounts greater than
their carrying value.
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
---------------- ---------------- ----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT TOTAL
------ ------- ------ ------- ------ ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 31, 1997.......... 4,800 $ 4,764 2,962 $ 7,508 -- $ -- $ 12,272
Issuance of series C preferred
stock at $2.25 per share in
March and June 1997 for cash
net of issuance costs of
$9........................... -- -- -- -- 1,222 2,741 2,741
Redemption of series C shares... -- -- -- -- (7) (15) (15)
Preferred stock accretion....... -- 9 -- 11 -- 2 22
------ ------- ------ ------- ------ ------- --------
Balance January 31, 1998.......... 4,800 4,773 2,962 7,519 1,215 2,728 15,020
Preferred stock accretion....... -- 9 -- 11 -- 2 22
------ ------- ------ ------- ------ ------- --------
Balance January 31, 1999.......... 4,800 4,782 2,962 7,530 1,215 2,730 15,042
Preferred stock accretion....... -- 9 -- 11 -- 2 22
Conversion of preferred stock to
common....................... (4,800) (4,791) (2,962) (7,541) (1,215) (2,732) (15,064)
------ ------- ------ ------- ------ ------- --------
Balance -- January 31, 2000....... -- $ -- -- $ -- -- $ -- $ --
====== ======= ====== ======= ====== ======= ========
</TABLE>
We netted the costs associated with the issuance of redeemable, convertible
preferred stock against the gross proceeds received and were accreting the
carrying amount of each series of preferred stock through a charge to additional
paid-in capital.
F-11
<PAGE> 42
9. SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock -- We are authorized to issue up to 12,000,000 shares of
$0.01 par value preferred stock. We have designated 8,977,084 shares into three
series of redeemable, convertible preferred stock, as described in Note 8, and
222,222 shares as series D convertible preferred stock. On May 17, 1999, we
issued for cash 222,222 shares of series D preferred stock at $4.50 per share.
The series D shares automatically converted into common shares upon the closing
of our initial public offering on January 31, 2000 at a ratio of .606 shares of
common stock for each share of the series D preferred stock.
Common Stock -- We were authorized to issue up to 17,000,000 shares of
$0.01 par value voting common stock. On September 28, 1999, we increased the
number of authorized common shares to 88,000,000 shares. The financial
statements reflect this change on a retroactive basis.
On January 20, 2000, we completed a 1 for 1.65 reverse split of our common
shares. All common share and per share information included in these financial
statements has been retroactively adjusted to give effect to the reverse stock
split.
Stock Option Plans -- We have stock option plans that provide for the
granting of stock options to officers, employees, and key persons to purchase up
to 3,727,273 shares of our common stock. The plans allow for the grant of both
incentive and nonqualified stock options. The exercise price of the incentive
stock options may not be less than fair market value of the stock on the date of
grant. Generally, these options are exercisable ratably over four years and
expire after ten years.
In October 1994, we established the 1994 associates stock option plan.
Under this plan, we may issue, to nonemployees who act in a role of a director,
consultant or advisor, nonqualified options to purchase up to 30,303 shares of
our common stock. Generally, these options are exercisable immediately upon
grant and expire at the earlier of three months after the nonemployee ceases to
be associated with T/R Systems or ten years from the date of grant.
The following table presents the activity in the above plans:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
------------------------------------------------------------
2000 1999 1998
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Options outstanding as of February 1........ 1,510 $1.16 1,591 $0.76 1,675 $0.58
Granted..................................... 297 9.26 162 4.93 437 0.91
Exercised................................... (288) 0.77 (220) 0.61 (453) 0.25
Forfeited................................... (35) 2.48 (23) 5.41 (68) 0.47
----- ----- -----
Options outstanding as of January 31........ 1,484 2.83 1,510 1.16 1,591 0.76
===== ===== =====
Options exercisable as of January 31........ 764 0.94 703 0.72 564 0.66
===== ===== =====
Weighted-average fair value of options
granted during the year................... $2.18 $0.44 $0.40
===== ===== =====
</TABLE>
F-12
<PAGE> 43
The following table summarizes information about stock options outstanding
at January 31, 2000:
<TABLE>
<CAPTION>
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
JANUARY 31, CONTRACTUAL EXERCISE JANUARY 31, EXERCISE
RANGE OF EXERCISE PRICES 2000 LIFE (YEARS) PRICE 2000 PRICE
- ------------------------ -------------- ------------ --------- -------------- ---------
(SHARES IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
$0.17 to $0.33......................... 114 3.6 $ 0.27 113 $0.27
0.83................................... 929 6.8 0.83 610 0.83
3.30................................... 37 8.0 3.30 12 3.30
4.54 to 4.95........................... 132 8.7 4.94 29 4.94
5.78 to 6.60........................... 90 9.4 6.40 -- --
10.00.................................. 113 9.9 10.00 -- --
13.20.................................. 69 9.6 13.20 -- --
------ ---
$0.17 to $13.20........................ 1,484 7.3 2.83 764 0.94
====== ===
</TABLE>
We have estimated the fair value of options at date of grant using the
Black-Scholes option pricing model using the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-----------------------
2000 1999 1998
----- ----- -----
<S> <C> <C> <C>
Expected life (years)....................................... 2.5 2.5 2.5
Interest rate............................................... 5.6% 4.8% 5.6%
Volatility.................................................. 32.2% 0.0 0.0
Dividend yield.............................................. 0.0 0.0 0.0
</TABLE>
Had compensation for our stock option grants in fiscal 2000, 1999 and 1998
been determined based on grant-date fair value based on the guidance in SFAS No.
123, T/R Systems' net income would have been $541,000 in fiscal 2000. Net loss
would have been $696,000 in fiscal 1999 and $1,334,000 in fiscal 1998. Basic net
income per share would have been $0.20 and diluted net income per share would
have been $0.05 in fiscal 2000. Basic and diluted net loss per share would have
been $0.30 in fiscal 1999, and $0.66 in fiscal 1998. Because SFAS No. 123 has
not been applied to options granted before January 31, 1995, the resulting pro
forma compensation cost may not be representative of that expected in future
years.
During the year ended January 31, 1998, we recorded $130,000 in deferred
compensation representing the excess of the estimated market value of our common
stock over the exercise price of stock options granted at date of grant.
Deferred compensation is amortized over the vesting period of the stock options,
four years. Compensation expense related to stock options was $33,000, $32,000
and $5,000 for fiscal 2000, 1999 and 1998.
10. COMMITMENTS
We lease existing office facilities and equipment under operating lease
agreements which expire through 2004. We have the option to renew the facility
lease for one five-year term at the expiration of the original term. The future
noncancelable minimum rent schedule for these leases is as follows:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31, (IN THOUSANDS)
- ----------------------- --------------
<S> <C>
2001........................................................ $ 367
2002........................................................ 377
2003........................................................ 348
2004........................................................ 56
------
Total.................................................. $1,148
======
</TABLE>
F-13
<PAGE> 44
Rent expense was $389,000 for fiscal 2000, $364,000 for fiscal 1999 and
$143,000 for fiscal 1998.
During fiscal 1998, we adopted a plan to relocate our headquarters and
entered into negotiations to lease a new office facility. We entered into the
new lease in February 1998. We recorded a $180,000 charge in our fiscal 1998
financial statements for expected losses to be incurred under our existing
lease.
11. SEGMENT INFORMATION
We operate in one reportable segment, the print-on-demand market, and
assess performance based on operating income. Revenue is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Printing systems............................................ $21,118 $14,094 $11,627
Other....................................................... 1,204 1,753 405
------- ------- -------
Total....................................................... $22,322 $15,847 $12,032
======= ======= =======
</TABLE>
Other revenue includes revenue from customer service plans, engineering
services and royalties.
Revenue by geographic area is summarized below:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
---------------------------
2000 1999 1998
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States............................................... $17,505 $10,978 $ 7,990
Asia........................................................ 1,047 3,395 2,735
Europe...................................................... 1,662 1,047 702
Other foreign countries..................................... 2,108 427 605
------- ------- -------
Total....................................................... $22,322 $15,847 $12,032
======= ======= =======
</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.
For the year ended January 31, 2000, two customers represented 34.9% and
11.5% of revenue. One customer in each period accounted for 14.1% and 19.0% of
revenue for each corresponding year ended January 31, 1999 and 1998. At January
31, 2000, two customers represented 31.5% and 17.3% of total receivables. One
customer in each corresponding period accounted for 12.7% and 6.9% of total
receivables at January 31, 1999 and 1998.
12. EMPLOYEE RETIREMENT SAVING PLAN
We have a pretax saving plan under Section 401(k) of the Internal Revenue
Code for all eligible U.S. employees. Under the plan, eligible employees are
able to contribute up to 15% of their compensation, not to exceed the maximum
IRS deferral amount. Our discretionary contribution is determined by our board
of directors. Currently, we match 50% of each participant's contribution, up to
6% of the participant's compensation. Our contributions vest with each employee
ratably over four years beginning after the employee's first full year of
service. We contributed to the plan $114,000 during fiscal 2000 and $69,000
during fiscal 1999.
F-14
<PAGE> 45
13. NET INCOME OR LOSS PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income or loss per common share:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------
2000 1999 1998
------ ------ -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net income (loss)......................................... $ 677 $ (623) $(1,218)
Accretion on redeemable preferred stock................... (22) (22) (22)
------ ------ -------
Net income (loss) applicable to common
shareholders -- Basic.................................. 655 (645) (1,240)
Add back accretion on redeemable preferred stock.......... 22 -- --
------ ------ -------
Net income (loss) applicable to common
shareholders -- Diluted................................ $ 677 $ (645) $(1,240)
====== ====== =======
Denominator:
Weighted average shares outstanding -- Basic.............. 2,641 2,444 2,052
Conversion of preferred stock............................. 6,012 -- --
Effect of outstanding stock options....................... 1,208 -- --
------ ------ -------
Total -- Diluted.......................................... 9,861 2,444 2,052
====== ====== =======
Net income (loss) per common share -- Basic................. $ 0.25 $(0.26) $ (0.60)
====== ====== =======
Net income (loss) per common share -- Diluted............... $ 0.07 $(0.26) $ (0.60)
====== ====== =======
</TABLE>
For the years ended January 31, 2000, 1999 and 1998, the historical diluted
computations exclude the effects of all stock options and shares of convertible
preferred stock which were antidilutive. At each corresponding period ended
January 31, 2000, 1999 and 1998, common shares issuable under these arrangements
which were antidilutive were 69,000, 7,444,000 and 7,525,000.
F-15
<PAGE> 46
SCHEDULE II
T/R SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) PERIOD
- ----------- ---------- ---------- -------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended January 31, 2000
allowance for doubtful accounts... $ 200 $ 71 -- $(121) $ 150
Year ended January 31, 1999
allowance for doubtful accounts... 175 25 -- -- 200
Year ended January 31, 1998
allowance for doubtful accounts... 82 175 -- (82) 175
Year ended January 31, 2000
allowance for inventory
obsolescence...................... 573 119 -- (271) 421
Year ended January 31, 1999
allowance for inventory
obsolescence...................... 670 132 -- (229) 573
Year ended January 31, 1998
allowance for inventory
obsolescence...................... 336 504 -- (170) 670
</TABLE>
- ---------------
(1) Deductions represent write-offs to the respective reserve accounts.
S-1
<PAGE> 47
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
<C> <S>
10.17+ Master Assembly and Distribution Agreement, dated February
19, 2000, by and between Toshiba America Business 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 portions of this
exhibit
<PAGE> 1
EXHIBIT 10.17
FEBRUARY 15, 2000
MASTER ASSEMBLY AND DISTRIBUTION AGREEMENT
This AGREEMENT is entered into as of the 19th day of February, 2000,
by and between Toshiba America Business Solutions, Inc., a California, U.S.A.
corporation having its principal place of business at 2 Musick, Irvine,
California 92618-1631 (hereinafter "TOSHIBA"), and T/R SYSTEMS, INC., a
Georgia, U.S.A. corporation having its principal place of business at 1300
Oakbrook Drive, Norcross, Georgia, U. S. A. 30093 (hereinafter "T/R").
RECITALS:
a. T/R has designed and developed, and currently assembles,
distributes and sells, a proprietary commercial printing
system known as the MicroPress(R) Cluster Printing System,
which as of the date of this Agreement includes MicroPress(R)
Release 5.0.
b. T/R has proprietary skills, know-how, technology, inclusive
of trade secrets and other know-how, and patent rights
applicable to the product architecture, development, design,
assembly, manufacturing, connectivity, production and
distribution of the MicroPress(R) commercial printing system.
c. TOSHIBA desires to license certain rights and properties from
T/R so as to permit TOSHIBA to complete the assembly of
MicroPress(R) commercial printing systems, and to purchase
certain equipment from T/R to incorporate into such products,
.with such products to be distributed and sold by TOSHIBA and
either marked or identified with trademarks owned, possessed
or controlled by TOSHIBA marked or identified with trademarks
of a party other than TOSHIBA or for "private label"
distribution. This method of distribution shall involve the
assembly of Systems by TOSHIBA.
d. To accommodate the foregoing agreements, and to effect
certain other agreements and undertakings between T/R and
TOSHIBA, such parties have entered into this Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
<PAGE> 2
1. DEFINITIONS.
1.1 "Confidential Information" means information of
either party including, but not limited to, technical or non-technical data,
Know-how, trade secrets, skills and processes, from which either party derives
economic value by such information not being generally known to, and not being
readily ascertainable by proper means, by third parties, but excluding any such
information which (i) is publicly available through no fault of the receiving
party; (ii) is in the receiving party's possession free of any obligation of
confidence to T/R at the time it was communicated to the receiving party; (iii)
is received independently from a third party who is free to disclose such
information; or (iv) is demonstrated to have been subsequently and
independently developed by the receiving party without the use of confidential
information of the disclosing party. The parties hereby agree and acknowledge
that the Non-Disclosure Agreement dated August 20, 1999 shall be merged and
integrated into this Agreement. Furthermore, either party may disclose
Confidential Information of the other party to its Affiliates with prior
written consent of the other party, which consent shall not be unreasonably
withheld.
1.2 "Completion" means the stage where the connectivity
work of Systems under each project shall be fully performed by T/R in a
mutually agreed schedule and manner. For Completion, T/R will be subject to
inspection at each stage as agreed by the parties. Such inspection will include
appropriate testing. T/R will perform the testing and provide a report which
will be subject to TOSHIBA's approval, which approval may not be unreasonably
withheld.
1.3 "Customer" means any Person that acquires Systems
from TOSHIBA for its own use or for sale, lease or other disposition.
1.4 "Deliverables has the meaning set forth in Section 4
hereof.
1.5 "End User" means a Person that acquires a System
directly from TOSHIBA or indirectly from a Customer of TOSHIBA, and uses the
System for any purpose.
1.6 "Improvement" means any and all derivatives,
improvements or betterments of the Licensed Intellectual Property Rights made
by T/R or any other Person, including all intellectual property rights
pertaining thereto, including patent rights, copyright rights, trade secrets,
know-how or similar rights recognized under applicable law, and all technical
information, including, but not limited to computer programming code, including
object code and source code as well as associated procedural code, microcode,
firmware, programmable array logic, algorithms, programs, routines,
subroutines, designs, plans, methods, processes, systems, concepts, ideas,
formulae, flow charts, descriptions, schematics, lay-out drawings, assembly
drawings, printed circuit patterns, specifications, parts lists and inspection
and test procedures, experiments and inventions associated therewith.
- 2 -
<PAGE> 3
1.7 "Know-how" means knowledge, information, inventions
(other than those embodied in the Patent Rights), trade secrets and systems
used in the design, development, manufacture, assembly, servicing or testing of
the MicroPress(R) commercial printing system.
1.8 "License" means the license granted by T/R to
TOSHIBA pursuant to this Agreement.
1.9 "Licensed Intellectual Property Rights" means the
following rights, knowledge, know-how and similar intellectual property owned
by T/R and used in the design, development, manufacture, assembly, servicing or
testing of the Deliverables, System or any portion thereof:
(a) Patent Rights;
(b) Copyright rights and applications therefor
(including the right to make derivative
works);
(c) Trade secrets;
(d) Know-how and any other proprietary
information; and
(e) All Improvements.
1.10 "TOSHIBA Orders" has the meaning set forth in
Section 4 hereof.
1.11 "Patent Rights" means all T/R patents (including
applications therefor) pertaining to the Territory, whether now or hereafter
issued, containing a claim or claims in whole or in part covering the design,
development, use or manufacture of the Deliverables, the System or any portion
thereof, and all Improvements thereto that become the subject of a patent
application.
1.12 "Person" means any individual, partnership, joint
venture, corporation, trust, unincorporated organization, government,
governmental agency or any other entity.
1.13 "Affiliates" means group companies, or corporate
affiliates of either party.
1.14 "System" means commercial printing systems to be
assembled by or for TOSHIBA pursuant to the License and to incorporate the
Deliverables, all as more particularly described on Schedule A-1 hereto, or as
used herein as context may require, any portion thereof.
- 3 -
<PAGE> 4
1.15 "Technical Assistance" means the technical
assistance to be provided by T/R to TOSHIBA as provided in Section 3 hereof.
1.16 "Territory" shall mean the territory defined by
connectivity project as defined in Schedule A.
2. LICENSE.
2.1 Grant. Subject to the terms and conditions hereof,
T/R hereby grants to TOSHIBA and TOSHIBA hereby accepts from T/R a license
entitling TOSHIBA during the term of said license to use, on a non-exclusive
basis, the Licensed Intellectual Property Rights in and to the Deliverables to
complete and effect the assembly of the Systems and to distribute, sell or
lease the Systems to Customers for use by End Users located in the Territory.
2.2 No Sublicenses. This Agreement does not grant,
license or permit (either expressly or by implication) TOSHIBA to transfer,
assign, sell, give, license, sub-license, or in any way permit the use of the
Licensed Intellectual Property Rights in and to the Deliverables, by or to any
Person, other than (i) any of its Affiliates for the sole purpose of assembling
the Systems, or any components or subassemblies thereof; or (ii) any other
third party under TOSHIBA's supervision for the sole purpose of assembling the
Systems or any components or subassemblies thereof, for supply only to TOSHIBA.
If TOSHIBA becomes aware, or gains reasonable suspicion, of the unauthorized
use or exercise of the Licensed Intellectual Property Rights in and to the
Deliverables by any Person, then TOSHIBA shall forthwith notify T/R in writing
and cooperate with T/R, and at T/R's discretion, to abate or terminate such
unauthorized use or actions. With regard to Section 2.1 and 2.2, Toshiba TEC at
Shuwa-Shiba Park Building A, 2-4-1, Shibakoen, Minato-ku, Tokyo, 105-8524,
Japan, is considered a joint party to this agreement with TOSHIBA.
2.3 No Other Licenses. No license or right is granted
under this Agreement by T/R to TOSHIBA by implication, estoppel or otherwise,
except as expressly set forth in this Agreement and TOSHIBA may not use the
corporate names, trademarks, trade names, service marks, or logos of T/R
without the prior written consent of T/R.
2.4 Labeling. TOSHIBA shall apply to the Systems
assembled for sale by or for TOSHIBA to Customers a statement reasonably
located and sized, identifying the fact that the Systems are assembled under
license from T/R and, as applicable, are subject to patents or patents pending,
and which shall identify by number any issued patents which are part of the
Patent Rights. Such statement, and its proposed location and size, shall be
submitted to T/R by TOSHIBA in advance of its use for pre-approval by T/R,
which approval may not be unreasonably withheld.
2.5 Limitation on Use. TOSHIBA shall not use the Patent
Rights, the Know-how, the Licensed Intellectual Property Rights in and to the
Deliverables or
- 4 -
<PAGE> 5
any other T/R technology, for any purpose or purposes other than those
expressly permitted under the License.
3. TECHNICAL ASSISTANCE. To effectuate the purposes of this
Agreement, upon the reasonable request by TOSHIBA and subject to the terms and
conditions of the License, T/R, employing the Licensed Intellectual Property
Rights in and to the Deliverables into Systems, shall consult with TOSHIBA with
respect to (i) the design and operation of the Systems, inclusive of the
selection and design of print engine therefor; (ii) TOSHIBA's assembling of the
Systems for mass distribution; (iii) TOSHIBA's initiation of assembling for
commercial production of the Systems; (iv) TOSHIBA's outsourcing plans and
operations; (v) TOSHIBA's current and future device connectivity to the System;
and (vi) similar matters related thereto. In addition to consulting, T/R shall
provide standard training for TOSHIBA personnel, upon the reasonable request of
TOSHIBA. Each of T/R and TOSHIBA will appoint and assign a lead technical
liaison to interact and support the technical interface between T/R and
TOSHIBA. The initial connectivity project is specified on Schedule A-1, along
with other particulars concerning same. Additional device connectivity projects
requested by TOSHIBA and agreed to by T/R shall be reflected on further
schedules numbered A-2, A-3 and so forth ( each a connectivity project ).
4. DELIVERABLES.
4.1 For each System, T/R shall deliver, in accordance
with license/purchase orders made by TOSHIBA ("TOSHIBA Orders"), from time to
time and subject to availability, the following items constituting software and
related technology and communications hardware (and which items are defined
herein as the "Deliverables"):
(a) Technology and Software Packages, which
shall include the software in executable
code and other technology, employing the
Licensed Intellectual Property Rights, and
providing the software and related
technology principally required for
operation of the Systems to be distributed
by TOSHIBA pursuant to this Agreement;
(b) Printlinks communication hardware used in
and constituting a part of the Systems
consisting of boards including print
adaptors and host adaptors; and
(c) MicroPress(R) ClusterServers with
pre-configured software packages and host
adaptors.
The Deliverables shall include, as appropriate, certain English language
documentation related thereto prepared by or for T/R. The Deliverables shall be
delivered F.O.B. T/R's warehouse in Norcross, GA if the Deliverables are to be
shipped to a destination in North America or F.O.B. U.S.A. Port ( i.e.,
Savannah, Georgia or comparable ) for other
- 5 -
<PAGE> 6
international shipments. All risk of loss shall be conveyed and passed to
TOSHIBA upon delivery of the Deliverables to TOSHIBA or its carrier or other
agent. To the extent any of the Deliverables includes Licensed Intellectual
Property Rights, including without limitation, software, codes, Know-how,
Patent Rights, Licensed Intellectual Property Rights and other such rights, no
title will pass to TOSHIBA but rather such property will be deemed licensed
pursuant to the License. Title will pass to TOSHIBA as to hardware, media and
other items included within the Deliverables which do not constitute nor
comprise Licensed Intellectual Property Rights.
4.2 TOSHIBA deliverables means any information or
materials provided by TOSHIBA to T/R under this Agreement or each connectivity
project as defined in Schedule A, which will be delivered to T/R in a manner
otherwise agreed upon by the parties hereto. T/R may use TOSHIBA deliverables
for the sole purpose described in this Agreement. TOSHIBA deliverables are and
shall remain TOSHIBA's property.
5. COMPENSATION.
5.1 Technology Access Fee. In exchange for T/R's
agreement to grant the License in respect of the Licensed Intellectual Property
Rights in and to the Deliverables, and in part for T/R's agreement to provide
the Technical Assistance pursuant to Section 3 hereof, TOSHIBA shall pay T/R
non-refundable technology access fee as specified on Schedule A-1, in respect
of the initial Connectivity Project, [ * ]. Additional technology access fees
shall be payable in respect of additional Connectivity Projects if any, as
specified in Schedule A applicable thereto.
5.2 License Fees and Equipment Purchase Price. For each
Deliverable, the license fees or equipment purchase price amounts, as the case
may be, shall [ * ] provided on T/R's United States End User Price List with
the exception of hardware deliverables such as PC Servers and consoles, which
if required will be at a [ * ], as in effect from time to time, which price
list is subject to change from time to time by T/R. Any change in T/R's
standard United States End User Price List will be effective as to TOSHIBA
Orders received after [ * ] days of the issuance of such revised price list.
5.3 Consulting, Training Compensation. As compensation
for the consulting and training required to be provided as Technical Assistance
pursuant to Section 3 hereof, TOSHIBA shall compensate T/R at T/R's standard
rates as in effect from time to time for consulting, and at T/R's standard
rates as in effect from time to time for training. In addition, TOSHIBA shall
reimburse T/R's travel and living expenses
* Confidential information has been omitted and filed separately with the
Commission.
- 6 -
<PAGE> 7
incurred in connection with such consulting and training. T/R's standard per
diem rates are subject to change from time to time by T/R. One training session
of up to one week will be provided at no charge to TOSHIBA ( other than travel
and living expenses ) at a mutually agreed time and location upon initial
completion of each Connectivity Project. TOSHIBA may subcontract to T/R the
technical training from both its dealers and end-user customers. Classes will
be provided to TOSHIBA dealers and customers at T/R Systems standard daily rate
per student. TOSHIBA may also provide direct access to the T/R Technical
Support Hotline to its dealers and customers, under mutually agreed pricing
terms and conditions.
6. PAYMENTS. Payments for technology access fees pursuant to
Section 5.1, for license fees and equipment purchase price amounts in respect
of the Deliverables pursuant to Section 5.2, for consulting and training
pursuant to Section 5.3 and for maintenance pursuant to Section 9 shall be due
and payable by TOSHIBA [ * ] days from the bill of lading date for shipments
and [ * ] days from invoice date for technology access fees or consulting
services. Unless otherwise agreed by T/R in writing, all payments by TOSHIBA
shall be remitted in immediately available U.S. Dollars by wire transfer per
T/R's instructions, and confirmation of each payment shall be made by TOSHIBA
to T/R by facsimile or telegraphic means to T/R's principal place of business.
A late payment charge of one and one-half percent (1.5%) per month shall be
charged upon unpaid balances due for more than [ * ]. All pricing and fees
under this Agreement are exclusive of taxes. Except for taxes based on T/R's
net income, TOSHIBA shall pay any national, federal, state, county, local or
other governmental taxes, fees or duties now or hereafter imposed on the
licensing, export, use or possession of the Licensed Intellectual Property
Rights and the Deliverables or any other transaction contemplated by this
Agreement, as well as any penalties or interest thereon.
7. TOSHIBA ORDERS.
7.1 The terms and conditions of this Agreement shall
apply to all TOSHIBA Orders submitted to T/R and supersede any different or
additional terms contained on TOSHIBA's Orders. TOSHIBA Orders are solely for
the purpose of requesting delivery dates and quantities. All orders are subject
to acceptance by T/R. T/R shall use reasonable efforts to provide for delivery
of accepted TOSHIBA orders.
7.2 Order Policy. TOSHIBA shall submit written orders to
T/R. All orders shall specify: (a) the quantities and descriptions of the
Deliverables; and b) requested delivery dates and shipping instructions. Orders
will be placed by the 10th day of the month, sixty (60) days in advance of
required delivery. PrintLink order quantities will include a firm order for the
first month plus a binding forecast for the next two months and a nonbinding
forecast for the fourth month. Other order quantities, to include Servers,
Software and Host Adapters, will include a firm order for the first month and a
binding forecast for the next two months.
7.3 The order procedures for "Spare Parts" are subject
to the Spare Parts ordering policies contained in Schedule B.
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 8
8. MINIMUM PURCHASES. During the term of this Agreement, TOSHIBA
agrees to license and/or purchase as the case may be Deliverables for Systems
in the per annum quantities specified in Schedule A. Minimum purchase
requirements commence on Completion. In case TOSHIBA fails to realize the
minimum purchase requirements specified in Schedule A, then [ * ] TOSHIBA also
agrees to the activities detailed in Schedule A regarding the launch of the
Product in the TOSHIBA sales channels. Purchase overages for a year can be
carried over to the subsequent year.
9. MAINTENANCE. T/R shall provide TOSHIBA (not TOSHIBA Customers
or End Users) with software updates, major software releases and telephone
support for a annual maintenance charge per System. A maintenance charge at an
annual rate of [ * ] percent ([ * ]%) is due and payable quarterly as attested
below in respect of Deliverables purchases (including equipment purchases and
license fees). The maintenance charge is payable on the 15th day of January,
April, July and October in respect of the calendar quarter ending December 31,
March 31, June 30 and September 30, respectively, and such quarterly payment
shall equal [ * ] percent ([ * ]%) of the license fees and equipment purchase
price amounts paid or payable in respect of Deliverables ordered during such
calendar quarter and the same calendar quarter of each of the previous two
years of this Agreement. Such fee is only for maintenance provided in the
quarter the fee is payable. [ * ]
10. OWNERSHIP AND PROPRIETARY RIGHTS.
10.1 Ownership. T/R represents that it has all rights in
and to copyrights, trade secrets, patent rights and other intellectual property
rights associated with the Licensed Intellectual Property Rights and the
Deliverables as are necessary to license the Licensed Intellectual Property
Rights and license and/or sell the Deliverables, as the case may be, under and
pursuant to this Agreement.
10.2 Proprietary Rights. Either party acknowledges that
the Confidential Information constitute valuable trade secrets and confidential
information of the disclosing party. Ownership of all applicable copyrights,
trade secrets, patents and other intellectual property rights in the Licensed
Intellectual Property Rights and the Deliverables shall remain vested in T/R.
Title to all Licensed Intellectual Property Rights shall remain with T/R.
Either party shall not use or disclose the Confidential Information, except as
expressly permitted by this Agreement. TOSHIBA shall not remove T/R's copyright
notices, restricted rights legends or any other notices from the Deliverables
and such notices shall appear on all tapes, diskettes and other tangible media
distributed by TOSHIBA containing the Licensed Intellectual Property Rights or
constituting the
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 9
Deliverables.
10.3 Unauthorized Use or Copying. Except as expressly
permitted hereunder, TOSHIBA shall not copy, modify or reproduce the
Deliverables in any way, nor shall it permit third parties to do so. TOSHIBA
shall fully cooperate with T/R in any action relating to enforcement of T/R's
proprietary rights.
10.4 End User License. TOSHIBA shall only distribute the
Deliverables to Customers for delivery to End Users in the Territory. TOSHIBA
shall inform the End User of the terms and conditions of the purchase of the
Deliverables and the Licensed Software. The terms and conditions of the
End-User Software License are in Schedule C. TOSHIBA shall make no
representations or warranties on behalf of T/R. TOSHIBA shall make no
representations to Customers or End Users or other third parties regarding the
Deliverables except as set forth in the applicable documentation therefor
provided by T/R. TOSHIBA will be responsible for all conversions, translations
and localizations necessary for use of the Deliverables by End Users in the
various countries included within the Territory, and shall assume and fulfill
any responsibility therefor of T/R imposed by local law or regulation. T/R will
schedule and provide software translation/localization services on a fee basis
for each translation/localization project.
10.5 Third Party Software. To the extent the software
included within the Deliverables constitutes software or other technology
rights owned by a third party and licensed to T/R, such software, and its
sublicense to TOSHIBA by T/R hereunder, is subject to all terms and conditions,
including where required, approval rights, of such third party license
agreements.
10.6 Security. The software included within the
Deliverables will be protected by a security mechanism known as a "dongle."
TOSHIBA may copy the software for distribution with T/R supplying the "dongle"
for the software for each System. TOSHIBA will ensure that such security
mechanisms remain intact and that such software remains secure from
unauthorized copying, reverse engineering and reverse compiling and
unauthorized distribution. TOSHIBA will use its best efforts to ensure that its
Customers adhere to such security mechanisms.
10.7 Indemnification. TOSHIBA agrees to indemnify and
hold harmless T/R from and against any claim, injury, loss or expense,
including attorneys' fees, arising out of (a) the failure of TOSHIBA to comply
with the provisions of Section 10, (b) any misrepresentations of TOSHIBA in
connection with T/R or the Deliverables or (c) any other wrongful conduct of
TOSHIBA or its agents.
11. WARRANTY.
11.1 T/R warrants to TOSHIBA that the hardware and
equipment included within the Deliverables, with the exception of PrintStations
and MicroScanners sold to TOSHIBA, pursuant to this Agreement will be free of
material defects for a period of [ * ], unless specifically stated differently,
from
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 10
initial delivery. Should any defect in workmanship or material appear within
[ * ], unless specifically stated differently, after initial date of delivery,
T/R will (upon written notification thereof, delivered during the warranty
period, and substantiation by TOSHIBA that the hardware and equipment included
within the Deliverables have been stored, installed, maintained and operated in
accordance with T/R'S requirements and standard industry practice, and that the
defect(s) have not arisen from unauthorized repair, modification, or improper
connection by mechanical or electrical means to any other piece of equipment or
device) correct such defect(s) by suitable repair or replacement at T/R's
facilities, or at the place of business of T/R's designated local
representative, or at T/R's place of business, at T/R's option. T/R warrants to
TOSHIBA only that the PrintStations and MicroScanners sold to TOSHIBA pursuant
to this Agreement will be free of material defects for a period of [ * ];
unless specifically stated differently, from initial delivery.
All returns to T/R or its representative must be
pre-authorized in writing and shipped prepaid. T/R assumes no risk of loss or
damage prior to acceptance of delivery. Return shipment will not be prepaid by
T/R if inspection fails to disclose a warranted defect. It is agreed between
the parties that the foregoing shall be TOSHIBA's exclusive remedy for
warranted defects.
The sole purpose of this exclusive remedy shall be to provide
TOSHIBA with free repair and replacement of the defective parts in the manner
provided herein, and the hardware and equipment included within the
Deliverables shall not be deemed to have failed of its essential purpose so
long as T/R is willing and able to repair or replace defective parts in the
described manner.
THIS WARRANTY IS EXCLUSIVE AND IN LIEU OF (AND T/R DISCLAIMS)
ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR PARTICULAR PURPOSE OR OTHER
WARRANTY WHETHER EXPRESSED OR IMPLIED.
Correction of non-conformities, in the manner and for the
time period provided above, shall constitute fulfillment of all liabilities of
T/R to TOSHIBA with respect to, or arising out of, the goods or their use,
whether based on contract, negligence, strict liability or otherwise. TOSHIBA
shall be fully responsible for any warranty claims brought by its End-Users,
and shall hold T/R harmless with regard to same.
11.2 Licensed Software Warranty T/R makes no warranties
with regard to the software included within Deliverables, other than the
warranties offered in the End User Software License, including all warranties
of merchantability and fitness for a particular purpose. Except as therein
expressly provided, such software is provided to TOSHIBA on an "as-is" basis.
11.3 Product Liability
(a) If any product liability accident occurs
out of or in relation to
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 11
Deliverables or Systems, and there is a reasonable suspicion that such accident
is caused by defect in Deliverables or Systems due to T/R's responsibility;
then T/R shall cooperate with TOSHIBA in the investigation of causes and
defending on such accident.
(b) Should any claim or suit be made or filed
for damages of product liability accident
in relation to Deliverables or Systems as a
result of any defect in Deliverables or
Systems attributable to T/R's
responsibility, T/R shall undertake the
sole and complete defense of any such claim
or suit at its own expense and
responsibility, and indemnify TOSHIBA
against all such damages and costs suffered
or incurred by TOSHIBA. T/R shall
investigate and study the possibility of
recurrence of the product liability
accident due to the same cause and report
the result of such investigation to
TOSHIBA; and T/R shall take proper and
reasonable measures, at its own expenses
and responsibility, to prevent the
recurrence if the recurrence is foreseen as
a result of the investigation. In the
course of defense of claim or suit or
measures of prevention of recurrence, T/R
shall pay attention not to discredit
TOSHIBA's name or trust, and shall consult
with TOSHIBA in determining method of
defense or preventive measures, although
such defense or preventive methods shall be
finally determined by T/R.
(c) Notwithstanding the foregoing, T/R shall
not be liable for any claim suit of product
liability which is based on defect or
failure caused by; 1) any modifications to
the Deliverables or 2) documentation
prepared or made by other party which is
not authorized or designated by TR or 3)
specifications designated by TOSHIBA or 4)
use or combination of Deliverables or
Systems with any hardware or software which
is not intended or designated by T/R.
12. LIMITATION OF REMEDIES.
12.1 THE SOLE REMEDIES FOR BREACH OF ANY AND ALL
WARRANTIES AND THE SOLE REMEDIES FOR TR'S LIABILITY OF ANY KIND FOR SERVICES
PROVIDED PURSUANT TO THIS AGREEMENT AND ANY OTHER PERFORMANCE BY TR UNDER OR
PURSUANT TO THIS AGREEMENT SHALL BE LIMITED TO THIS AGREEMENT AND THE
ATTACHMENTS HERETO. IN NO EVENT SHALL TR'S LIABILITY TO TOSHIBA FOR DAMAGES OF
ANY NATURE EXCEED THE TOTAL CHARGES PAID FOR THE PRODUCT OR SERVICE UPON WHICH
SUCH LIABILITY IS BASED.
12.2 IT IS AGREED THAT EACH PARTY SHALL NOT BE LIABLE FOR
THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES
OR FOR THE LOSS OF PROFIT, REVENUE, PRODUCTS OR SERVICES EVEN IF HE SHALL HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE
12.3 TOSHIBA agrees that T/R shall not have any
responsibility for any equipment, service, hardware, software or other items
provided with or incorporated into the Systems by any persons other than T/R.
12.4 No action, whether in contract or tort, including
negligence,
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<PAGE> 12
arising out of the sale of the Deliverables or the performance of services
under this Agreement may be brought by the T/R or TOSHIBA more than [ * ] after
the cause of action arises, except for an action by the T/R for non-payment by
TOSHIBA
13. EPIDEMIC FAILURE. If TOSHIBA should discover epidemic
failures (same defects occurring from same cause) in at least [ * ] percent
([ * ]%) of deliverables delivered within a [ * ] month period or [ * ]
percent ([ * ]%) of deliverables delivered within a [ * ] month period,
TOSHIBA shall notify T/R of occurrence of such failure. After receiving such
notification by T/R, T/R shall inspect such failure of Deliverables. As a
result the inspection, in case that both parties recognize that such failure
is epidemic failure, then in addition to remedies in the preceding Section 11,
hereof, T/R shall reimburse all the costs incurred by TOSHIBA in rectifying
such epidemic failures in respect of Deliverables delivered to TOSHIBA within
the prior [ * ] months, including, but not limited to, the cost for callback
of such defective equipment or media from the market, subject to the
limitations of Section 12.
14. TOSHIBA'S AFFILIATES. Subsequent to the execution of this
Agreement, if TOSHIBA's Affiliates wish to be granted the License under this
Agreement, T/R agrees to enter into an agreement with such parties in
accordance with the terms and conditions under this Agreement with the
exception of purchase quantities, technical access fees, deliverable prices,
territories and product launch commitments. For the purpose of this Article,
TOSHIBA may disclose T/R's Confidential Information, the summary and sample of
Deliverables and Systems, and the contents and existence of this Agreement to
such parties upon execution of such agreements with T/R provided, however,
TOSHIBA will be jointly and severally liable for T/R with such parties under
this Agreement or any other Agreement executed by such parties.
15. TERM AND TERMINATION.
15.1 Expiration. This Agreement shall commence on the
date set forth above and shall continue for an initial term of three (3) years.
Thereafter, this Agreement shall be automatically renewed for additional terms
of one (1) year unless either party serves written notice, at least ninety (90)
days prior to the expiration of the initial term or any renewal term, of its
intention not to renew.
15.2 T/R Termination. This Agreement may be terminated by
T/R under any of the following conditions:
(a) if one of the parties shall be declared
insolvent or bankrupt;
(b) if a petition is filed in any court and not
dismissed in ninety (90) days to declare
one of the parties bankrupt or for a
reorganization under the Bankruptcy Law or
any similar statute;
(c) if a trustee in Bankruptcy or a receiver or
similar entity is
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 13
appointed for one of the parties;
(d) if TOSHIBA does not pay T/R within sixty
(60) days from receipt of a T/R invoice; or
(e) if TOSHIBA commits a material breach of
this Agreement which is not cured by
TOSHIBA within sixty (60) days after notice
of such breach is given by T/R.
15.3 TOSHIBA Termination. This Agreement may be
terminated by TOSHIBA upon a material breach by T/R which is not cured by T/R
within sixty (60) days after notice of such breach is given by TOSHIBA.
(a) if one of the parties shall be declared
insolvent or bankrupt;
(b) if a petition is filed in any court and not
dismissed in ninety (90) days to declare
one of the parties bankrupt or for a
reorganization under the Bankruptcy Law or
any similar statute;
(c) if a trustee in Bankruptcy or a receiver or
similar entity is appointed for one of the
parties;
(d) if T/R does not pay TOSHIBA within sixty
(60) days from receipt of a TOSHIBA
invoice; or
(e) if T/R commits a material breach of this
Agreement which is not cured by T/R within
sixty (60) days after notice of such breach
is given by TOSHIBA.
15.4 EFFECT OF TERMINATION. Upon expiration or
termination of this Agreement:
(a) T/R may stop accepting any orders from
TOSHIBA, provided that T/R shall return all
Confidential Information, Toshiba
deliverables, promotional materials,
marketing literature, written information
and reports pertaining to the Systems that
have been supplied by TOSHIBA.;
(b) TOSHIBA shall immediately (i) pay to T/R
all amounts remaining due under any
contract or purchase order, (ii) remove
from TOSHIBA's premises all signs
advertising the Systems or the Trademarks,
(iii) cease to engage in advertising or
promotional activities concerning the
Products and the use of Trademarks, (iv)
cease to represent in any manner that
TOSHIBA has been designated by T/R as a
licensee for the Licensed Intellectual
Property Rights, (v) order and promptly pay
for the remaining balance (order
requirements specified in Schedule A less
systems ordered to date during the current
term of the agreement) and (vi) return all
confidential information, promotional
materials, marketing literature, written
information and reports pertaining to the
Deliverables that have been supplied by
T/R. Service manuals and materials required
for on-going support of TOSHIBA customers
may be retained upon written request from
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<PAGE> 14
TOSHIBA specifying the specific manuals and
materials to be retained and written
approval by T/R which shall not be
unreasonably withheld. The following
provisions of this Agreement shall survive
its termination: Sections 1.1, 5, 6, 7.3,
10, 11, 12, 15, 16 and 17. In the event
that TOSHIBA has any paid-up inventory of
the Deliverables as of the date of
termination under Section 15.2 or 15.3,
termination of this Agreement shall be
adjourned for a period not to exceed six
(6) months, during which period TOSHIBA may
continue to market and distribute its
inventories of the Deliverables.
(c) Neither party shall, in connection with the
expiration and/or termination of this
Agreement, have the right to claim any
indemnity, reimbursement or compensation
for alleged loss of clientele, goodwill,
loss of profits on anticipated sales or the
like or have any other liability for losses
or damages resulting from the expiration or
termination. Each party acknowledges that
it has decided and will decide on all
investments, expenditures and commitments
in full awareness of the possibility of its
potential losses or damages resulting from
such expiration or termination and being
willing to bear the risk therefor; and
(d) If after the expiration or termination of
this Agreement, TOSHIBA places orders and
T/R accepts such orders by TOSHIBA for
Deliverables thereof at the prices and
terms prevailing under this Agreement or
any other prices and terms, such acts on
the part of T/R shall be fully gratuitous
and shall not obligate T/R to continue any
practice or course of trade not secured by
written obligation. Any such T/R sales
shall not renew this Agreement or waive its
expiration or termination.
(e) T/R shall make available to TOSHIBA the
spare parts or equivalent replacements
during the term of this Agreement and for a
minimum of [ * ] from the earlier of the
date of termination of this Agreement, the
date of discontinuance of the item or the
Deliverables or from delivery of the last
unit of equipment included within
Deliverables hereunder.
16. INDEMNIFICATION.
16.1 Intellectual Property. T/R shall, at its
expense, defend any claim against TOSHIBA that use of the Deliverables
infringes a copyright, trade secret or patent right of any third party. T/R
shall pay any direct costs and damages attributable to such claim finally
awarded by a court against TOSHIBA on such claim. T/R shall have no liability
for any such claim if TOSHIBA is in material breach of this Agreement, or if
the claim is based on use of or anything other than an unaltered current
release of the Deliverables available from T/R, alone and not in combination
with any other software, data or hardware, if such infringement would have been
avoided by the use of a current unaltered release of the Deliverables available
from T/R.
16.2 Cooperation by TOSHIBA. T/R shall have no
obligations under Section 16.1 of this Agreement unless:
(a) T/R shall have been promptly
notified of the suit or
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 15
claim by TOSHIBA and furnished by
TOSHIBA with a copy of each
communication, notice or other
action relating to said claim;
(b) T/R shall have the right to assume
sole authority to conduct the
trial or settlement of such claim
or any negotiations related
thereto at T/R's expense; and
(c) TOSHIBA shall provide reasonable
information and assistance
requested by T/R in connection
with such claim or suit.
17. GENERAL.
17.1 Force Majeure. T/R shall not be liable for any delay
or failure in performance under this Agreement resulting directly or indirectly
from acts of God, or any causes beyond its reasonable control.
17.2 Jurisdiction and Venue. This Agreement shall be
governed by and construed in accordance with the laws of the State of Georgia,
U.S.A., without reference to its conflicts of laws provisions.
17.3 Arbitration. Any and all disputes arising under this
Agreement shall be amicably and promptly settled upon consultation between the
parties hereto, but in case of failure to reach such settlement, all disputes
that may arise under or in relation to this Agreement shall be submitted to
arbitration under the Commercial Arbitration Rules of the International Chamber
of Commerce. The cost of arbitration shall be borne equally by the parties. Any
award of the arbitration shall be final and binding upon the parties.
17.4 Entire Agreement. This Agreement, including the
Schedules and Exhibits attached hereto, constitutes the entire agreement
between the parties with respect to this subject matter and supersedes all
previous proposals, both oral and written, negotiations, representations,
writings and all other communications between the parties. This Agreement may
not be released, discharged, or modified except by an instrument in writing
signed by the parties. Provided however, the Non Disclosure Agreement concluded
between the parties hereto shall be merged and integrated into the related
Articles under this Agreement.
17.5 Independent Contractors. It is expressly agreed that
TOSHIBA and T/R are acting hereunder as independent contractors. Under no
circumstances shall any of the employees of one party be deemed the employees
of the other for any purpose.
17.6 Notice. Any notice required to be given by either
party to the other shall be deemed given if in writing and actually delivered
or if deposited in the United States mail in registered or certified form with
return receipt requested, postage
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<PAGE> 16
paid, addressed to the notified party at the address set forth herein.
17.7 Assignment. This Agreement is not assignable by
Either Party.
17.8 Severability. If any provision of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
such determination shall not affect the validity or enforceability of any part
or provision of this Agreement.
17.9 Waiver. No waiver by any party hereto of any breach
of any provisions hereof shall constitute a waiver of any other term of this
Agreement unless made in writing signed by such party.
17.10 Other Distribution. Nothing in this Agreement shall
be deemed to preclude T/R from distributing or licensing Deliverables and the
Licensed Intellectual Property Rights, as it deems appropriate, or from
appointing others to do so, in or outside of the Territory.
18. INTERNATIONAL MATTERS.
18.1 Export License. TOSHIBA shall be exclusively
responsible for the procurement and renewing of all export or import licenses
required under United States or any foreign law for the export or import of the
Deliverables or the value added products and shall pay all costs and other
expenses in connection with such procurement and renewal.
18.2 Export Assurance. Regardless of any disclosure made
by TOSHIBA to T/R of any ultimate destination of a Deliverable or any System
assembled using same, TOSHIBA shall not export or re-export directly or
indirectly the Deliverable or any System assembled using same, without first
obtaining the required written approval or export license, if any, to do so
from the United States Department of Commerce or any other agency of the U.S.
Government having jurisdiction over such transaction. TOSHIBA hereby assures
T/R that it does not intend to nor will it knowingly, without the prior written
consent, if required, of the Office of Export Administration of the U.S.
Department of Commerce, transmit or ship the Deliverable or any System
assembled using same, directly or indirectly, to any country as to which such
export is made unlawful as provided in laws or by regulations issued by the
U.S. Department of Commerce, or other such regulations as may be adopted from
time to time.
18.3 Compliance with Local Laws. TOSHIBA shall be
exclusively responsible at its own expense for compliance with all local laws
relating to a Deliverable or any System assembled using same, in the countries
in which TOSHIBA licenses or markets same.
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<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
a duly authorized representative as of the date set forth above.
T/R SYSTEMS, INC. TOSHIBA AMERICA BUSINESS SOLUTIONS, INC.
By: /s/ Mike Kohlsdorf By: /s/
------------------------- ------------------------------------------
Title: President / CEO Title: VP/GM, Electronic Imaging Division
------------------- ------------------------------------
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<PAGE> 18
SCHEDULE A- 1
DEVICE CONNECTIVITY DEVELOPMENT
Name of Device for Connectivity: [ * ]
Authorized Territory for Distribution: United States
Technology Access Fee NRE: $[ * ]
Language Translation Fee: Not Applicable (English Version Only)
Minimum Purchase Amount: Year 1 $[ * ]
Year 2 $[ * ]
Year 3 $[ * ]
(MicroPress Cluster Servers, Software and PrintLinks for [ * ])
PRODUCT MARKETING REQUIREMENTS
1. TOSHIBA agrees to the following with regard to the launch of
the product in the TOSHIBA Sales Channels during the initial term of
this agreement.
- Product Launch investments and activities will be
equivalent to a typical TOSHIBA launch for other
TOSHIBA digital products.
- Marketing collateral will be developed and available
at launch for the deliverables equivalent to other
similar classes of TOSHIBA digital products.
- Advertising and promotions programs equivalent to
other similar classes of TOSHIBA digital products.
- Compensation programs for TOSHIBA Sales and Sales
Management equivalent to or better then other
similar classes of TOSHIBA digital products.
- Sales, Service and Training programs equivalent to
other similar classes of TOSHIBA digital products.
2. Purchase quantities for additional terms of this agreement
will be mutually agreed in accordance with Section 8.
Estimated Start Date: [ * ]
Estimated Completion Date: [ * ]
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 19
SCHEDULE A-1 (CON'T)
TOSHIBA PROJECT DELIVERABLES:
- Supply of Video Interface
- Technical Resource Availability for Video Interface
Clarification
- Joint Development of Acceptance Criteria with T/R
Systems
- [ * ] and Set-up to Support Project Plan ( [ * ] )
T/R PROJECT DELIVERABLES:
- Project Scope and Definition
- Project Plan
- [ * ] PrintLink Design and Development
- [ * ] Specific Software Design and Development
- Regulatory Testing ( US Only )
- Quality Assurance Testing
- Packaging for Delivery of [ * ] PrintLink
- Installation Instructions
- Documentation Specific to [ * ] PrintLink and [ * ]
Specific Software [ * ]
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 20
SCHEDULE A-2
DEVICE CONNECTIVITY DEVELOPMENT
Name of Device for Connectivity: [ * ]
Authorized Territory for Distribution: United States
Technology Access Fee NRE: $[ * ]
Language Translation Fee: Not Applicable (English Version Only)
PRODUCT MARKETING REQUIREMENTS
1. TOSHIBA agrees to the following with regard to the launch of
the product in the TOSHIBA Sales Channels during the initial term of
this agreement.
- Product Launch investments and activities will be
equivalent to a typical TOSHIBA launch for other
TOSHIBA digital products.
- Marketing collateral will be developed and available
at launch for the deliverables equivalent to other
similar classes of TOSHIBA digital products.
- Advertising and promotions programs equivalent to
other similar classes of TOSHIBA digital products.
- Compensation programs for TOSHIBA Sales and Sales
Management equivalent to or better then other
similar classes of TOSHIBA digital products.
- Sales, Service and Training programs equivalent to
other similar classes of TOSHIBA digital products.
2. Purchase quantities for additional terms of this agreement
will be mutually agreed in accordance with Section 8.
Estimated Start Date: [ * ]
Estimated Completion Date: [ * ]
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 21
SCHEDULE A-2 (CON'T)
TOSHIBA PROJECT DELIVERABLES:
- Supply of Video Interface
- Technical Resource Availability for Video Interface
Clarification
- Joint Development of Acceptance Criteria with T/R
Systems
- [ * ] and Set-up to Support Project Plan
- ([ * ])
T/R PROJECT DELIVERABLES:
- Project Scope and Definition
- Project Plan
- [ * ] PrintLink Design and Development
- [ * ] Specific Software Design and Development
- Regulatory Testing ( US Only )
- Quality Assurance Testing
- Packaging for Delivery of [ * ] PrintLink
- Installation Instructions
- Documentation Specific to [ * ] PrintLink and [ * ]
Specific Software [ * ]
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 22
ATTACHMENT B
SPARE PARTS ORDERING POLICIES (SERVERS, MICROSCANNERS AND PRINTLINKS)
The policies and procedures which follow are subject to change upon [ * ] in
writing.
1. Service Support. T/R shall offer to TOSHIBA spare parts required to
service/repair the Deliverables and provide TOSHIBA with a recommended spare
parts stocking guide which identifies the proper type of parts to be stocked on
an ongoing basis by TOSHIBA. TOSHIBA shall assume full responsibility for
stocking spare parts.
2. Regular Spare Parts Ordering Procedures. T/R shall, from time to time
during the term of the Agreement, make available to TOSHIBA its most current
list of spare parts for the Deliverables, and the prices then applicable
thereto. In the event of manufacturer production or shipping delays, T/R shall
allocate distribution of such items in a fair, and equitable manner among all
customers, even though this may effectively limit delivery of ordered
quantities.
(A) Placement of Orders. TOSHIBA will place regular stocking
spare parts orders by formal purchase orders via TOSHIBA's written purchase
order form to T/R. A separate order must be submitted for each delivery date
and T/R part number must be referenced. Additionally, spare parts order's with
like delivery dates should be combined into a single order. A hard copy of all
TOSHIBA telephone orders must be received by T/R within three (3) days of
placement. T/R will confirm acceptance of such orders within three (3) weeks of
receipt of TOSHIBA's purchase order.
(B) Lead - Time. For all parts orders other than emergency parts
orders delivery will generally be made about [ * ] weeks after receipt of
order.
(C) Spare Parts Availability. In the event of discontinuance of a
spare part, its subsequent unavailability and need. T/R and TOSHIBA shall
discuss mutually satisfactory solutions which may include provision of
commercially available alternative sources.
(D) Spare Parts Pricing. During the term of this Agreement the
prices charged for spare parts will be the same as those offered to T/R's other
customers purchasing similar materials in the same or lesser quantities on
similar terms and conditions.
(E) Monthly Regular Stocking Order (Standard/Special Parts)
Limitations. T/R reserves the right to limit the maximum number of units of a
given part to be shipped to TOSHIBA in any one (1) month.
3. Emergency Spare Parts Support
* Confidential information has been omitted and filed separately with the
Commission.
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<PAGE> 23
(A) Placement of Orders. TOSHIBA shall place emergency parts
orders via Purchase Orders, Telephone or Facsimile. All "Emergency Orders" must
be so noted at the time of placement and such a legend must appear on all
purchase orders. A separate order referencing T/R's part number must be
submitted for each delivery date. Packing slips will bear both T/R's and
TOSHIBA's part numbers if same appears on TOSHIBA's hard copy purchase order.
Until further notice, the telephone number for submitting
facsimile orders is 770-448-3202. Hard copies of or facsimiles of TOSHIBA's
telephone Emergency Orders must be received within twenty four (24) hours. T/R
shall confirm Emergency Orders immediately over telephone if in stock, or it
part number is out of stock, T/R will advise of estimated time of part number
arrival (availability) by facsimile within five (5) working days.
It is understood and agreed that emergency parts support will
be provided only when Systems is inoperative at End-User's location and TOSHIBA
has maintained a regular stock of spare parts which is exhausted and TOSHIBA
has no inventory at hand to effect the repair or has an open order for the
spare parts sought on an emergency basis.
T/R may decline to honor an emergency spare parts order where
(i) TOSHIBA has failed to maintain the inventory levels recommended in the
Recommended Stocking List or (ii) T/R does not have such spare part in its
inventory; provided however, that in such event, T/R shall advise TOSHIBA
within five (5) Days of the estimated date of delivery of such spare part.
Separate purchase orders must be issued by TOSHIBA for each shipment
destination.
(B) Lead-Time. Except when a spare part is not in stock, T/R will
generally ship within [ * ] working days of the receipt of an Emergency Order
or to meet TOSHIBA's due date whichever is later.
(C) Handling and Freight Charges. A handling charge equal to
[ * ] percent ([ * ]%) of the regular TOSHIBA price for the part shall be added
to any part shipped from stock, except when the part had been previously ordered
by TOSHIBA and has not been delivered within the time frames set forth in 2.B
above. TOSHIBA shall designate the method of delivery and shall bear the costs
hereof.
(D) Emergency Order Limitations. A daily maximum of [ * ] part
numbers, each with no more than [ * ] units may be ordered.
4. Duration of Spare Parts Support
T/R shall make available to TOSHIBA the spare parts and consumables
during the term of this Agreement and for a minimum of [ * ] years from the
earlier of the date of termination to the Agreement, the date of discontinuance
of the item or the Deliverables or from delivery of the last unit of equipment
included within Deliverables hereunder. Thereafter, T/R shall give TOSHIBA
ninety (90) days prior written notice of
* Confidential information has been omitted and filed separately with the
Commission.
- 23 -
<PAGE> 24
discontinuance and the opportunity to purchase a reasonable number of such
parts within the said ninety (90) day period.
T/R shall, from time to time, during the term of the Agreement, make
available to TOSHIBA its most current list of supplies for the Deliverables and
the prices then applicable thereto In the event of manufacturer production or
shipping delays, T/R shall allocate distribution of such items in a fair and
equitable manner among all other customers, even though this may effectively
limit delivery of ordered quantities.
5. Terms of Payment for Spare Parts and Repairs
Payment is due [ * ] days after bill of lading date.
ALL SPARE PARTS PRICES FOR T/R ARE QUOTED ON A F.O.B. NEAREST U.S.
SHIPPING POINT WHERE PARTS ARE THEN AVAILABLE. THEY SHALL BE INVOICED AND
PAYABLE IN U.S. DOLLARS.
6. Service Documentation
T/R will supply TOSHIBA, one set of documentation with the initial
delivery of Deliverables. TOSHIBA may purchase reasonable additional quantities
of documentation for TOSHIBA's internal use only at T/R's then prevailing
prices. With reasonable lead-time, T/R shall deliver to TOSHIBA artwork for
reproduce and publish portions of said documentation for incorporation in
TOSHIBA's own User Manual and Field Maintenance Manual(s). Such manual(s) of
TOSHIBA shall bear a copyright notice of TOSHIBA provided, however, that any
copyright interest of TOSHIBA therein shall be subordinate to any existing
copyright interest of T/R or such other author as T/R may designate.
* Confidential information has been omitted and filed separately with the
Commission.
- 24 -
<PAGE> 25
ATTACHMENT C
MICROPRESS(TM) SOFTWARE LICENSE AGREEMENT
This Software License Agreement enumerates the terms and conditions upon which
T/R Systems, Inc., grants use of the MicroPress software programs ("Software")
and MicroPress documentation ("Documentation") to the end-user of the
MicroPress digital printing system. T/R Systems, Inc., the owner and licensor
of the Software and Documentation, is referred to as "Licensor", and the
end-user and purchaser of the MicroPress(C) system is referred to as the
"User".
1. LICENSE. Licensor is the exclusive owner of the Software and
Documentation. Licensor grants to User, and User accepts, a non-exclusive
license to use the Software and Documentation.
User's right to use the MicroPress Software and Documentation under this
Agreement is called the "License." Software means the computer programs
included within the MicroPress digital printing system being sold to User
contemporaneously with delivery of this Agreement (the "Purchased MicroPress").
Documentation means any user manual and other materials provided User relating
to the Software.
2. AUTHORIZED USER. User alone has the right to use the Software and
Documentation. User may not allow another person or entity to use the Software
or Documentation, except to the extent permitted by Section 4 of this
Agreement.
3. AUTHORIZED USE. User may use the Software and Documentation only with
the MicroPress digital printing system at User's principle place of business.
User may not use the Software in respect of any other printers or any other
equipment whatsoever.
Without T/R Systems' prior express written consent, User may NOT (a) copy the
Software, (b) copy the Documentation, other than for its internal use; (c)
decompile, disassemble, reverse engineer, or cross-compile the Software or seek
to do any of the foregoing; (d) merge or embed the Software into another
program; or (e) modify or alter the Software or Documentation, or (f) install
the Software on any equipment outside its principal place of business.
4. ASSIGNMENT. User may assign the License to another person, but ONLY if
(a) prior written approval is obtained from the Company, (b) the assignment is
for the remainder of the License term, (c) User delivers all of the Software
and Documentation to the assignee, (d) the assignee delivers the Software
License Agreement in this form in favor of Licensor, (e) the entire Purchased
MicroPress system is transferred and delivered to the assignee and (f) the
assignee agrees in writing with T/R Systems to be bound by the terms hereof.
When User assigns this License, User's right to use the Software and
Documentation ends. User may not assign the License or direct product of the
Software or
- 25 -
<PAGE> 26
Documentation to persons located in certain countries specified by the United
States Export Administration Act.
5. TERM. The License is effective for a term coincident with use of the
Purchased MicroPress. Licensor may terminate the License if User violates this
Agreement. User must then return the Software and the Documentation and all
copies thereof to Licensor.
6. LICENSOR'S RIGHTS. Licensor's Software and Documentation contain
confidential unpublished information protected by copyright, trade secret,
trademark and patent laws. User may not disclose the Software or Documentation
to others, or remove or alter Licensor's ownership and copyright notices on the
Software, Purchased MicroPress or the Documentation. User must prevent any
unauthorized use, copying, or disclosure of the Software and Documentation.
These obligations survive any termination or the License.
7. INFRINGEMENT. User shall promptly notify Licensor if any party makes a
claim against User that the Software or Documentation infringes its rights. If
User gives Licensor sufficient notice and such claim of infringement is deemed
by Licensor to represent a bona fide claim, Licensor will at its option defend,
settle or compromise such claim. Licensor may at its option make the Software
and Documentation non-infringing, obtain for User the right to use the Software
and Documentation, or give User an appropriate refund based on the depreciated
value of the Software and the Documentation. This is User's sole remedy in the
event of a claim of infringement.
8. LIMITED WARRANTY AND DISCLAIMER OF OTHER WARRANTIES AND LIABILITIES.
Licensor warrants that the Software will be free of material defects for a
period of [ * ] days immediately following the date of delivery. Without
limiting the generality of the foregoing, Licensor shall not have any
responsibility for any third party products, service, hardware, software or
other items provided with or incorporated into the MicroPress digital printing
system.
EXCEPT FOR THE LIMITED WARRANTY DESCRIBED ABOVE, THERE ARE NO WARRANTIES,
EITHER EXPRESSED OR IMPLIED, FOR THE SOFTWARE OR DOCUMENTATION, WHICH ARE
LICENSED TO USER "AS IS." LICENSOR EXPRESSLY DISCLAIMS ANY WARRANTY AS TO
PERFORMANCE OF THE SOFTWARE OR AS TO RESULTS USER MAY OBTAIN FROM IT. LICENSOR
ALSO EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, INCLUDING (WITHOUT LIMITATION)
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
IN NO EVENT SHALL LICENSOR, OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE
CREATION, PRODUCTION, OR DELIVERY OF THE SOFTWARE OR DOCUMENTATION, BE LIABLE
FOR ANY INDIRECT, SPECIAL, CONSEQUENTIAL OR INCIDENTAL DAMAGES WHETHER ARISING
IN CONTRACT OR IN TORT RESULTING FROM THE USE OF THE SOFTWARE OR DOCUMENTATION
OR ARISING OUT OF ANY BREACH OF ANY WARRANTY.
* Confidential information has been omitted and filed separately with the
Commission.
- 26 -
<PAGE> 27
IN NO EVENT SHALL THE LICENSOR'S LIABILITY TO USER FOR DAMAGES OF ANY NATURE
EXCEED THE TOTAL CHARGES PAID FOR THE SOFTWARE OR DOCUMENTATION BY THE USER.
9. GENERAL. This Agreement shall be governed by the laws of the State of
Georgia and the United States. If, notwithstanding the foregoing choice of law,
the law of another jurisdiction is applied to this Agreement, then any term of
this Agreement found to be inconsistent with such law shall automatically be
deemed to be revised to the limited extent necessary to comport with such law
without affecting any of the remaining terms. Any waiver by Licensor of a
breach of this Agreement shall not constitute a waiver of any later breach. No
legal action arising out of this Agreement may be commenced by User more than
one year after the cause of action has accrued. In any legal action to enforce
this Agreement, the prevailing party shall be entitled to recover reasonable
expenses and attorneys' fees.
This Agreement represents the entire and complete agreement between the parties
hereto, and supersedes any prior agreement, oral or written, and any other
communications between the parties on the Software and Documentation. This
Agreement will be effective upon delivery of the MicroPress digital printing
system together with the License Software and Documentation.
T/R Systems, Inc.
1300 Oakbrook Drive
Norcross, GA 30093
- 27 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JANUARY 31, 2000 AND THE STATEMENT OF OPERATIONS FOR THE YEAR ENDED
JANUARY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-2000
<PERIOD-END> JAN-31-2000
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<SECURITIES> 0
<RECEIVABLES> 4,809
<ALLOWANCES> 150
<INVENTORY> 3,466
<CURRENT-ASSETS> 36,114
<PP&E> 2,776
<DEPRECIATION> 1,718
<TOTAL-ASSETS> 37,172
<CURRENT-LIABILITIES> 4,923
<BONDS> 0
0
0
<COMMON> 117
<OTHER-SE> 32,132
<TOTAL-LIABILITY-AND-EQUITY> 37,172
<SALES> 22,322
<TOTAL-REVENUES> 22,322
<CGS> 9,487
<TOTAL-COSTS> 9,487
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 71
<INTEREST-EXPENSE> 117
<INCOME-PRETAX> 702
<INCOME-TAX> 25
<INCOME-CONTINUING> 677
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 677
<EPS-BASIC> 0.25
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