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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-29045
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T/R SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1958870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Oakbrook Drive
Norcross, Georgia
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(Address of principal executive offices)
30093
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(Zip Code)
(770) 448-9008
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address, and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 5(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
As of June 12, 2000, 11,913,390 shares of common stock of the registrant were
outstanding.
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TABLE OF CONTENTS
<TABLE>
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PART I Page
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Item 1 Financial Statements......................................................................... 2
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations........ 7
Item 3 Quantitative and Qualitative Disclosures About Market Risk................................... 9
PART II
Item 2 Changes in Securities and Use of Proceeds.................................................... 9
Item 6 Exhibits and Reports on Form 8-K............................................................. 9
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED FINANCIAL STATEMENTS.
T/R SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
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ASSETS
Current Assets:
Cash and cash equivalents .................................... $ 28,607 $ 27,514
Receivables, net of allowance ................................ 3,414 4,659
Inventories, net ............................................. 3,548 3,466
Prepaid expenses and other ................................... 438 475
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Total current assets ................................... 36,007 36,114
Property and equipment, net .................................... 1,074 1,058
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$ 37,081 $ 37,172
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................................. $ 1,623 $ 1,733
Deferred revenue ............................................. 816 1,027
Accrued salaries and wages ................................... 775 1,388
Other liabilities ............................................ 823 775
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Total current liabilities .............................. 4,037 4,923
Shareholders' Equity:
Preferred stock, $0.01 par value, 12,000,000 shares
authorized, 8,977,084 shares designated as redeemable,
convertible preferred stock, 222,222 shares series D
convertible preferred stock designated, none issued and
outstanding ................................................ -- --
Common stock, $0.01 par value, 88,000,000 shares
authorized; 11,860,693 and 11,733,234 shares issued and
outstanding, respectively .................................. 119 117
Additional paid-in capital ................................... 42,824 42,839
Deferred compensation ........................................ (52) (60)
Accumulated deficit .......................................... (9,847) (10,647)
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Total shareholders' equity ............................. 33,044 32,249
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$ 37,081 $ 37,172
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</TABLE>
See notes to financial statements
2
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T/R SYSTEMS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED
APRIL 30,
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2000 1999
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<S> <C> <C>
Revenue................................... $ 7,310 $ 4,656
Cost of sales............................. 2,934 1,946
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Gross profit.............................. 4,376 2,710
Operating Expenses:
Research and development................ 1,092 815
Sales and marketing..................... 2,095 1,384
General and administrative.............. 734 452
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Total operating expenses........ 3,921 2,651
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Operating income ......................... 455 59
Interest income, net...................... 380 16
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Income before income taxes................ 835 75
Income tax expense........................ 35 --
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Net income................................ $ 800 $ 75
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Net income per common
share-- Basic........................... $ 0.07 $ 0.03
======= =======
Net income per common and common
equivalent share-- Diluted.............. $ 0.06 $ 0.01
======= =======
</TABLE>
See notes to financial statements
3
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T/R SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTER
ENDED
APRIL 30,
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2000 1999
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Operating Activities:
Net income ........................................... $ 800 $ 75
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ...................................... 146 138
Deferred compensation expense ..................... 8 8
Changes in assets and liabilities:
Decrease (increase) in receivables ............. 1,245 (519)
Increase in inventories ........................ (82) (456)
Decrease (increase) in prepaid expenses ........ 37 (84)
Increase (decrease) in accounts payable ........ (110) 388
Increase (decrease) in deferred revenue ........ (211) 1,371
Decrease in accrued salaries and wages ......... (613) (88)
Increase in other liabilities .................. 48 36
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Net cash provided by operating activities ... 1,268 869
Investing Activities:
Purchases of property and equipment ................. (162) (80)
Financing Activities:
Principal repayments on long term debt .............. -- (12)
Proceeds from sale of common stock .................. 106 22
Costs of initial public offering .................... (119) --
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Net cash (used in) provided by financing activities .... (13) 10
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Net increase in cash and cash equivalents .............. 1,093 799
Cash and Cash Equivalents:
Beginning of period .................................. 27,514 2,166
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End of period ........................................ $ 28,607 $ 2,965
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Cash paid for interest ................................. $ -- $ 4
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</TABLE>
See notes to financial statements
4
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T/R SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim condensed financial statements of T/R
Systems, Inc., presented herein, have been prepared on the same basis
as the audited financial statements contained in T/R Systems' Annual
Report on Form 10-K for the fiscal year ended January 31, 2000 and
should be read in conjunction with those audited financial statements
and the notes thereto. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, which are necessary to
present fairly our financial position and the results of our operations
and cash flows for the interim periods have been made.
The preparation of these unaudited interim financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of April 30, 2000 and the
reported amounts of revenue and expenses during the three months then
ended. Actual results could differ from these estimates. Additionally,
our results for the three months ended April 30, 2000 are not
necessarily indicative of the results to be expected for the full year.
Certain fiscal 2000 amounts have been reclassified to conform
to the fiscal 2001 financial statement presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, which 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 derivatives. We intend to
adopt SFAS No. 133 effective February 1, 2001. We have not determined
the effect, if any, of the adoption of this statement on our financial
position or results of operations, but we do not believe it will be
significant since we do not have significant derivative activity.
3. BALANCE SHEET DETAIL
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<CAPTION>
APRIL 30, JANUARY 31,
2000 2000
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(IN THOUSANDS)
RECEIVABLES:
<S> <C> <C>
Accounts receivable.................... $ 3,575 $ 4,809
Less allowance for doubtful accounts... 161 150
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$ 3,414 $ 4,659
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INVENTORIES:
Components and supplies................ $ 3,347 $ 2,861
Finished goods......................... 729 1,026
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4,076 3,887
Less reserve for potential losses...... 528 421
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$ 3,548 $ 3,466
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</TABLE>
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4. SEGMENT INFORMATION
We operate in one reportable segment, the print-on-demand
market, and assess performance based on operating income. Revenue is
summarized below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
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2000 1999
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(IN THOUSANDS)
<S> <C> <C>
Printing systems.............. $ 6,856 $ 4,575
Other......................... 454 81
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Total......................... $ 7,310 $ 4,656
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</TABLE>
Other revenue includes revenue from customer service plans, engineering
services and royalties.
Revenue by geographic area is summarized below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
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2000 1999
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(IN THOUSANDS)
<S> <C> <C>
United States.................... $ 5,997 $ 4,239
Asia............................. 140 3
Europe........................... 726 57
Other foreign countries.......... 447 357
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Total............................ $ 7,310 $ 4,656
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</TABLE>
Revenue by geographic area is based on where we ship our products.
Substantially all of our long-lived assets are located in the United States.
5. NET INCOME PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income per common share:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
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2000 1999
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(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Numerator:
Net income ......................................... $ 800 $ 75
Accretion on redeemable preferred stock ............ -- (5)
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Net income applicable to common
shareholders -- Basic ............................ 800 70
Add back accretion on redeemable preferred stock ... -- 5
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Net income applicable to common
shareholders -- Diluted .......................... $ 800 $ 75
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Denominator:
Weighted average shares outstanding -- Basic ....... 11,757 2,511
Conversion of preferred stock ...................... -- 5,934
Effect of outstanding stock options ................ 1,233 1,144
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Total -- Diluted ................................... 12,990 9,589
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Net income per common share -- Basic ................. $ 0.07 $ 0.03
======= =======
Net income per common and common
equivalent share -- Diluted ......................... $ 0.06 $ 0.01
======= =======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis should be read in
conjunction with the Management's Discussion and Analysis of Financial Condition
and Results of Operations and the audited financial statements and related notes
thereto contained in T/R Systems' annual report on Form 10-K for the year ended
January 31, 2000. Results for the three months ended April 30, 2000 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 31, 2001. This discussion contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events or our
future financial performance. In many cases, you can identify forward-looking
statements by the use of words such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential or continue, or the
negative of these terms or other comparable terminology. Our actual results
could be materially different from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
"Risk Factors" in Item I and elsewhere in our annual report on Form 10-K.
RESULTS OF OPERATIONS
The following table presents operating data as a percentage of revenue.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED APRIL 30,
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2000 1999
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Revenue ............................ 100.0% 100.0%
Cost of sales ...................... 40.1 41.8
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Gross profit ....................... 59.9 58.2
Operating expenses:
Research and development ......... 14.9 17.5
Sales and marketing .............. 28.7 29.7
General and administrative ....... 10.1 9.7
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Total operating expenses . 53.7 56.9
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Operating income ................... 6.2 1.3
Interest income, net ............... 5.2 0.3
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Income before taxes ................ 11.4 1.6
Income tax expense ................. 0.5 --
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Net income ......................... 10.9% 1.6%
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</TABLE>
Revenue. Revenue increased by $2.6 million, or 57.0%, from $4.7 million
in the quarter ended April 30, 1999 to $7.3 million in the quarter ended April
30, 2000. This increase was primarily due to an increase in revenue from our OEM
relationships, including shipments to two additional OEM partners. In the first
quarter of the current fiscal year, we sold systems to Hitachi Koki Imaging
Solutions and to Ricoh Corporation. We derived no revenue from these OEM
partners in the first quarter of the prior fiscal year.
During the quarter ended April 30, 2000, we derived $6.0 million, or
82.0%, of our revenue from sales shipped to customers in the United States. This
compares to $4.2 million, or 91.0%, of revenue in the same quarter of the prior
fiscal year. Revenue from sales shipped internationally was a greater percentage
of revenue in the first quarter of the current fiscal year than in the first
quarter of the prior year due primarily to an increase in sales in Europe. Sales
in Europe were $726,000, or 9.9% of revenue, in the first quarter of the current
fiscal year as compared to $57,000, or 1.2% of revenue, in the first quarter of
the prior year. The increase in sales in Europe was due to our improved sales
infrastructure in Europe as well as improved sales in Europe through our OEM
relationships. The remaining revenue from sales shipped internationally in the
quarter ended April 30, 2000 was primarily generated from sales in Canada.
Gross Profit. Our gross profit, revenue less cost of sales, increased
$1.7 million, or 61.5%, from $2.7 million in the quarter ended April 30, 1999 to
$4.4 million in the quarter ended April 30, 2000. Our gross margin, gross profit
as a percent of sales, increased from 58.2% in the quarter ended April 30, 1999
to 59.9% in the quarter ended April 30, 2000. The increase in gross margin was
due to an increase in OEM revenue as a percent of total revenue as well as an
improvement in the gross margins of system sales through both our independent
dealer network and our OEM relationships. We typically realize higher gross
margins on OEM revenue than we do through our independent dealer network as the
OEM systems typically include less
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hardware than systems sold through independent dealers. We normally realize
higher margins on software than hardware. The improvement in gross margin from
sales through our independent dealer network was due to an increase in software
revenue as a percent of total revenue from our dealer network, as well as cost
reductions in our black and white print engines. The improvement in gross margin
from sales through our OEM relationships was due primarily to an increase in OEM
software revenue as a percent of total OEM revenue. These increases in our gross
margin were partially offset by an increase in overhead costs.
Research and Development. Research and development expenses increased
$277,000, or 34.0%, from $815,000 in the quarter ended April 30, 1999 to $1.1
million in the quarter ended April 30, 2000. The increase was primarily due to
an increase of $196,000 in personnel-related expenses resulting from the hiring
of additional research and development personnel to assist in the further
development of our products. The remaining increase was due to increases in
expenses related to product development and testing, including costs of print
engine consumables, regulatory testing and travel. We believe that research and
development spending, including spending for employee salaries and benefits,
will increase in the future as we expand our product offerings and increase
connectivity and software functionality of our products.
Sales and Marketing. Sales and marketing expenses increased by
$711,000, or 51.4%, from $1.4 million to $2.1 million. As a percent of revenue,
sales and marketing expenses decreased from 29.7% in the quarter ended April 30,
1999 to 28.7% in the quarter ended April 30, 2000. Of the $711,000 increase in
sales and marketing expenses, $296,000 was due to an increase in salaries and
benefits as a result of the hiring of additional sales personnel as well as
additional technical support personnel to support the growth of our business.
The remaining increase was primarily due to an increase in travel-related
expenses of $153,000 and an increase in marketing expenses, which include costs
associated with advertising, public relations and trade shows, of $109,000. We
believe that we will need to continue to increase our sales and marketing
efforts to address new markets and to support additional OEM relationships in
the future.
General and Administrative. Our general and administrative expenses in
the quarter ended April 30, 2000 were $734,000, or 10.0% of revenue, as compared
to $452,000, or 9.7% of revenue, in the first quarter of the prior fiscal year.
The increase of $282,000, or 62.4%, was due primarily to an increase in
personnel-related expenses of $125,000 and the incurrence of $119,000 in
additional expenses as a result of being a publicly traded company. The
additional public company expenses consist of expenses related to public
reporting and directors' fees, as well as increased insurance expense and
professional service fees. We completed our initial public offering in January
2000.
Interest Income, Net. Interest income, net increased $364,000 to
$380,000 in the quarter ended April 30, 2000 from $16,000 in the same quarter
last year. The increase was due to an increase in the cash available for
short-term investment during the quarter, primarily as a result of our initial
public offering. Upon completion of our initial public offering in January 2000,
we received $25.4 million in cash, net of underwriting discounts, commissions
and other offering costs.
Income Tax Expense. In the quarter ended April 30, 2000, we recorded
$35,000 in income tax expense for alternative minimum taxes on net income after
utilizing our net operating carryforward deduction. While we had a net operating
loss carryforward of $7.2 million at January 31, 2000, we have not recorded a
deferred tax asset as of April 30, 2000, due to the uncertainty of future
profitability. No income tax expense was recorded in the quarter ended April 30,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $1.1 million during the quarter
ended April 30, 2000 from $27.5 million at January 31, 2000 to $28.6 million at
April 30, 2000. Working capital increased by $779,000 due to the increase in
cash and a decrease in current liabilities offset by a decrease in accounts
receivable since the end of the prior fiscal year.
Net cash provided by operating activities was $1.3 million in the
quarter ended April 30, 2000 as compared to $869,000 in the same quarter of the
prior fiscal year. The increase was primarily due to the increase in our net
income. Cash used in investing activities, which consists of purchases of
property and equipment, was $162,000 in the quarter ended April 30, 2000 and
$80,000 in the quarter ended April 30, 1999. Net cash used in financing
activities of $13,000 for the quarter ended April 30, 2000 consisted of $106,000
in proceeds from employee stock option exercises offset by $119,000 in
additional costs related to our initial public offering paid during the quarter.
There were no borrowings outstanding under our $3.0 million revolving
line of credit during the quarter ended April 30, 2000. We were in compliance
with the covenants of the revolving line of credit at April 30, 2000. In April
2000, the $200,000 letter of credit we had outstanding under this agreement in
connection with an operating lease obligation was reduced to $150,000 in
accordance with the terms of the operating lease.
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We believe that our current cash and cash equivalents and cash
generated by operations will be sufficient to meet our anticipated cash needs
for working capital, capital expenditures and business expansion for the
foreseeable future. However, if cash generated by operations is insufficient to
satisfy our operating requirements or if we determine to acquire any technology,
we may be required to raise additional funds, through either debt or equity
financings. There can be no assurance that we will be able to obtain any
financing on terms acceptable to us, if at all.
Inflation had no material impact on our operations during the quarter
ended April 30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe our exposure to market rate fluctuations on our cash
equivalents are minor due to the short-term maturities of those investments,
typically 90 days or less. We have market risk relating to borrowings under our
credit facility because the interest rates under the facility are variable.
However, as of April 30, 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.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Inapplicable.
(b) Inapplicable.
(c) Inapplicable.
(d) In connection with our initial public offering, the Securities
and Exchange Commission declared our registration statement on Form S-1
(file no. 333-88439) effective on January 25, 2000. The 2,880,000
shares sold by us had an aggregate offering price of $28.8 million. We
paid the underwriters discounts and commissions totaling $2.0 million
and incurred expenses of $1.4 million in connection with the offering,
which resulted in total expenses of $3.4 million. Therefore, the net
offering proceeds to T/R Systems were $25.4 million.
As of April 30, 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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<S> <C>
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter ended April
30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T/R Systems, Inc.
June 13, 2000 /s/ Lyle W. Newkirk
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Lyle W. Newkirk
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
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<S> <C>
27.1 -- Financial Data Schedule (for SEC use only)
27.2 -- Financial Data Schedule (for SEC use only)
</TABLE>
11
