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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 October 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number: 0-29045
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T/R SYSTEMS, INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-1958870
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 Oakbrook Drive
Norcross, Georgia
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(Address of principal executive offices)
30093
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(Zip Code)
(770) 448-9008
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 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 [X] No [ ]
As of December 13, 2000, 12,193,763 shares of common stock of the registrant
were outstanding.
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TABLE OF CONTENTS
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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 ....................................... 10
PART II
Item 2 Changes in Securities and Use of Proceeds......................................................... 10
Item 6 Exhibits and Reports on Form 8-K.................................................................. 11
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
T/R SYSTEMS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
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ASSETS
Current Assets:
Cash and cash equivalents ....................................................... $ 27,739 $ 27,514
Receivables, net of allowance ................................................... 7,593 4,659
Inventories, net ................................................................ 4,703 3,466
Prepaid expenses and other ...................................................... 496 475
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Total current assets ...................................................... 40,531 36,114
Property and equipment, net ....................................................... 2,668 1,058
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$ 43,199 $ 37,172
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................................................ $ 3,343 $ 1,733
Deferred revenue ................................................................ 799 1,027
Accrued salaries and wages ...................................................... 1,055 1,388
Other liabilities ............................................................... 975 775
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Total current liabilities ................................................. 6,172 4,923
Shareholders' Equity:
Preferred stock, $0.01 par value, 12,000,000 shares
authorized; 8,977,084 shares designated as redeemable,
convertible preferred stock, 222,222 shares designated
as series D convertible preferred stock; none issued
or outstanding
Common stock, $0.01 par value, 88,000,000 shares authorized;
12,180,960 and 11,733,234 shares issued and outstanding,
respectively .............................................................. 122 117
Additional paid-in capital ...................................................... 43,124 42,839
Deferred compensation ........................................................... (36) (60)
Accumulated deficit ............................................................. (6,183) (10,647)
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Total shareholders' equity ................................................ 37,027 32,249
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$ 43,199 $ 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 THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
-------------------------- --------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenue .............................. $9,070 $5,815 $25,219 $15,704
Cost of sales ........................ 3,063 2,452 9,403 6,662
------ ------ ------- -------
Gross profit ......................... 6,007 3,363 15,816 9,042
Operating Expenses:
Research and development ........... 1,291 899 3,488 2,555
Sales and marketing ................ 2,323 1,676 6,658 4,668
General and administrative ......... 719 626 2,204 1,488
------ ------ ------- -------
Total operating expenses ... 4,333 3,201 12,350 8,711
------ ------ ------- -------
Operating income ..................... 1,674 162 3,466 331
Interest income, net ................. 446 39 1,226 81
------ ------ ------- -------
Income before income taxes ........... 2,120 $ 201 4,692 $ 412
Income tax expense ................... 106 -- 228 --
------ ------ ------- -------
Net income ........................... $2,014 $ 201 $ 4,464 $ 412
====== ====== ======= =======
Net income per common
share -- Basic ...................... $ 0.17 $ 0.08 $ 0.37 $ 0.16
====== ====== ======= =======
Net income per common and common
equivalent share -- Diluted ......... $ 0.16 $ 0.02 $ 0.35 $ 0.04
====== ====== ======= =======
</TABLE>
See notes to financial statements
3
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T/R SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
OCTOBER 31,
--------------------------
2000 1999
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Operating Activities:
Net income ........................................................................ $ 4,464 $ 412
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation ................................................................... 555 392
Deferred compensation expense .................................................. 24 24
Changes in assets and liabilities:
Increase in receivables ..................................................... (3,404) (379)
Increase in inventories ..................................................... (1,237) (551)
Increase in prepaid expenses and other....................................... (21) (104)
Increase (decrease) in accounts payable ..................................... 1,610 (104)
Increase (decrease) in deferred revenue ..................................... (228) 546
Increase (decrease) in accrued salaries and wages ........................... (333) 276
Increase in other liabilities ............................................... 200 169
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Net cash provided by operating activities ................................ 1,630 681
Investing Activities:
Purchases of property and equipment .............................................. (1,695) (276)
Financing Activities:
Principal repayments on long term debt ........................................... -- (65)
Proceeds from sale of common stock ............................................... 421 43
Proceeds from sale of preferred stock ............................................ -- 995
Costs of initial public offering ................................................. (131) --
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Net cash provided by financing activities ........................................... 290 973
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Net increase in cash and cash equivalents ........................................... 225 1,378
Cash and Cash Equivalents:
Beginning of period ............................................................... 27,514 2,166
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End of period ..................................................................... $ 27,739 $ 3,544
======== ========
Supplemental cash flow information:
Cash paid for interest ............................................................ $ -- $ 11
======== ========
Cash paid for income taxes ........................................................ $ 128 $ --
======== ========
Noncash investing activities:
Equipment received for payment of engineering fees ................................ $ 470 $ --
======== ========
</TABLE>
See notes to financial statements
4
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T/R SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim financial statements of T/R Systems, Inc.,
presented herein, have been prepared on the same basis as the audited financial
statements contained in T/R Systems' Annual Report on Form 10-K for the fiscal
year ended January 31, 2000 and should be read in conjunction with those audited
financial statements and the notes thereto. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, which are
necessary to present fairly our financial position and the results of our
operations and cash flows for the interim periods have been made.
The preparation of these unaudited interim financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of October 31, 2000 and the reported amounts of revenue and
expenses during the three and nine months then ended. Actual results could
differ from these estimates. Additionally, our results for the nine months ended
October 31, 2000 are not necessarily indicative of the results to be expected
for the full year.
Certain fiscal year 2000 amounts have been reclassified to conform to
the fiscal year 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, ("SFAS No.
133") which, as amended, is effective for all fiscal years beginning after June
15, 2000. This statement establishes accounting and reporting standards for
derivative instruments, including some derivative instruments embedded in other
contracts and for hedging activities. Under SFAS No. 133, as amended, some
contracts that were not formerly considered derivatives may now meet the
definition of derivatives. We intend to adopt SFAS No. 133, as amended,
effective February 1, 2001. We have not determined the effect, if any, of the
adoption of this statement on our financial position or results of operations,
but we do not believe it will be significant since we do not have significant
derivative activity.
In 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements. SAB No. 101 provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 101,
as amended by SAB No. 101B, is effective beginning in the fourth quarter of
fiscal years beginning after December 15, 1999. We have assessed the impact of
SAB No. 101 on our financial statements and have determined the effect of SAB
No. 101 to not be material.
3. BALANCE SHEET DETAIL
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<CAPTION>
OCTOBER 31, JANUARY 31,
2000 2000
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(IN THOUSANDS)
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RECEIVABLES:
Accounts receivable ................... $7,782 $4,809
Less allowance for doubtful accounts... 189 150
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$7,593 $4,659
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INVENTORIES:
Components and supplies ............... $4,055 $2,861
Finished goods ........................ 1,099 1,026
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5,154 3,887
Less reserve for potential losses ..... 451 421
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$4,703 $3,466
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</TABLE>
5
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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 (in
thousands):
<TABLE>
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For the Three Months For the Nine Months
Ended October 31, Ended October 31,
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2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Digital communications
systems ............... $7,808 $5,133 $22,563 $14,658
Other .................... 1,262 682 2,656 1,046
------ ------ ------- -------
Total .................... $9,070 $5,815 $25,219 $15,704
====== ====== ======= =======
</TABLE>
Digital communications systems include software and hardware products
for managing a document from creation to its final destination. Other revenue
includes revenue from customer service plans, engineering services and
royalties.
Revenue by geographic area is summarized below (in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended October 31, Ended October 31,
--------------------- --------------------------
2000 1999 2000 1999
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United States ............. $7,922 $3,965 $21,651 $11,980
Asia ...................... 131 508 287 664
Europe .................... 421 515 1,885 1,497
Other foreign countries ... 596 827 1,396 1,563
------ ------ ------- -------
Total ..................... $9,070 $5,815 $25,219 $15,704
====== ====== ======= =======
</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 (in thousands, except per share data):
<TABLE>
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FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
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2000 1999 2000 1999
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Numerator:
Net income ......................................... $ 2,014 $ 201 $ 4,464 $ 412
Accretion on redeemable preferred stock ............ -- (6) -- (17)
------- ------- ------- -------
Net income applicable to common
shareholders -- Basic ............................ 2,014 195 4,464 395
Add back accretion on redeemable preferred stock ... -- 6 -- 17
------- ------- ------- -------
Net income applicable to common
shareholders -- Diluted .......................... $ 2,014 $ 201 $ 4,464 $ 412
======= ======= ======= =======
Denominator:
Weighted average shares outstanding -- Basic ....... 12,129 2,548 11,945 2,532
Conversion of preferred stock ...................... -- 6,069 -- 6,016
Effect of outstanding stock options ................ 773 1,319 973 1,212
------- ------- ------- -------
Total -- Diluted ................................... 12,902 9,936 12,918 9,760
======= ======= ======= =======
Net income per common share -- Basic ................. $ 0.17 $ 0.08 $ 0.37 $ 0.16
======= ======= ======= =======
Net income per common and common
equivalent share -- Diluted ........................ $ 0.16 $ 0.02 $ 0.35 $ 0.04
======= ======= ======= =======
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the audited financial statements and related notes thereto
contained in T/R Systems' annual report on Form 10-K for the fiscal year ended
January 31, 2000. Results for the nine months ended October 31, 2000 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 31, 2001. This discussion contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events or our
future financial performance. In many cases, you can identify forward-looking
statements by the use of words such as may, will, should, expects, plans,
anticipates, believes, estimates, predicts, potential or continue, or the
negative of these terms or other comparable terminology. Our actual results
could be materially different from those anticipated in these forward-looking
statements as a result of a number of factors, including those set forth under
"Risk Factors" in Item I and elsewhere in our annual report on Form 10-K.
RESULTS OF OPERATIONS
The following table presents our operating data as a percentage of
revenue.
<TABLE>
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FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
-------------------- -------------------
2000 1999 2000 1999
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Revenue .............................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................................ 33.8 42.2 37.3 42.4
----- ----- ----- -----
Gross profit ......................................... 66.2 57.8 62.7 57.6
Operating expenses:
Research and development ........................... 14.2 15.4 13.8 16.3
Sales and marketing ................................ 25.6 28.8 26.4 29.7
General and administrative ......................... 7.9 10.8 8.8 9.5
----- ----- ----- -----
Total operating expenses ................... 47.7 55.0 49.0 55.5
----- ----- ----- -----
Operating income ..................................... 18.5 2.8 13.7 2.1
Interest income, net ................................. 4.9 0.7 4.9 0.5
----- ----- ----- -----
Income before taxes .................................. 23.4 3.5 18.6 2.6
Income tax expense ................................... 1.2 -- 0.9 --
----- ----- ----- -----
Net income ........................................... 22.2% 3.5% 17.7% 2.6%
===== ===== ===== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED OCTOBER 31, 2000 AND 1999
Revenue. Revenue increased by $3.3 million, or 56.0%, from $5.8 million
in the quarter ended October 31, 1999 to $9.1 million in the quarter ended
October 31, 2000. An increase in revenue from our OEM relationships was the
primary contributor to the total increase in our revenue. Revenue from our OEM
relationships increased $3.7 million in the three months ended October 31, 2000
from the three months ended October 31, 1999. In the quarter ended October 31,
2000, we derived revenue from six OEM customers as opposed to only one OEM
customer, Minolta Co., Ltd., in the quarter ended October 31, 1999. The increase
in OEM revenue was partially offset by a decrease in revenue from products sold
through our network of independent dealers. This decrease was due in part to
many of our past or potential independent resellers having relationships with
our current OEM customers and, thus, buying our products through those OEM
customers rather than directly from us. Additionally, the decrease was due to a
partial shift in the focus of our sales and marketing efforts to our OEM
relationships. We anticipate that revenue from independent resellers as a
percentage of total revenue will continue to decrease as a result of these
trends.
During the quarter ended October 31, 2000, we derived $7.9 million, or
87.3%, of our revenue from sales shipped to customers in the United States. This
compares to $4.0 million, or 68.2%, of our revenue from sales shipped to
customers in the United States in the same quarter of the prior fiscal year.
This growth in domestic revenue as a percent of total revenue was the result of
domestic revenue increasing 99.8% from the same quarter in the prior fiscal
year, while international revenue decreased 37.9% from $1.9 million to $1.1
million during the same period. The rapid growth in domestic revenue was
primarily due to our OEM customers buying more of our products for resale in the
United States. The decline in international revenue was primarily due to a
decrease in shipments to one of our OEM customers, Minolta, outside the United
States. We anticipate
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that international revenue as a percentage of total revenue will increase as we
continue to strengthen our non-U.S. sales force and as our OEM customers expand
the countries into which they sell our products.
Gross Profit. Our gross profit, revenue less cost of sales, increased
$2.6 million, or 78.6%, from $3.4 million in the quarter ended October 31, 1999
to $6.0 million in the quarter ended October 31, 2000. Our gross margin, gross
profit as a percentage of sales, increased from 57.8% in the quarter ended
October 31, 1999 to 66.2% in the quarter ended October 31, 2000. The increase in
gross margin was due in part to an increase in OEM revenue as a percentage of
total revenue. We typically realize higher gross margins on sales to our OEM
customers than we do on sales to our independent dealers, as systems sold to our
OEM customers are typically more software intensive than systems sold to our
independent dealers. We normally realize higher margins on software than on
hardware. Additionally, gross margin increased as a result of an improvement in
gross margins on sales through our OEM relationships. This improvement was due
primarily to an increase in OEM software revenue as a percent of total OEM
revenue due in part to the increase in the number of software products we offer.
Over the past year, we have added additional software modules that increase the
functionality of our systems.
Research and Development. Research and development expenses increased
$392,000, or 43.6%, from $899,000 in the quarter ended October 31, 1999 to $1.3
million in the quarter ended October 31, 2000. The increase was primarily due to
an increase in personnel-related expenses of $313,000 resulting from the hiring
of additional research and development personnel to assist in the further
development of our products. We believe that research and development spending,
including spending for employee salaries and benefits, will further increase in
the future as we continue to expand our product offerings and increase the
connectivity and software functionality of our products. Also contributing to
the change was an increase in depreciation expense. During the quarter ended
October 31, 2000, depreciation expense increased $58,000 over the quarter ended
October 31, 1999, due to the addition of equipment for the development and
testing of connectivity of new print devices to the MicroPress.
Sales and Marketing. Sales and marketing expenses increased by
$647,000, or 38.6%, from $1.7 million in the quarter ended October 31, 1999, to
$2.3 million in the quarter ended October 31, 2000. As a percentage of revenue,
sales and marketing expenses decreased from 28.8% in the quarter ended October
31, 1999 to 25.6% in the quarter ended October 31, 2000. Of the $647,000
increase in sales and marketing expenses in the quarter ended October 31, 2000,
$503,000 was attributable to an increase in personnel-related and travel-related
expenses as a result of the hiring of additional sales personnel as well as
additional technical support personnel to support the growth of our business.
The remaining increase was primarily due to increases in sales and marketing
consulting and facilities-related expenses. We believe that we will need to
continue to increase our sales and marketing efforts to address new markets and
support additional OEM relationships in the future.
General and Administrative. Our general and administrative expenses in
the quarter ended October 31, 2000 were $719,000 as compared to $626,000 in the
same quarter of the prior fiscal year. The increase of $93,000, or 14.9%, was
due to the incurrence of additional expenses as a result of being a
publicly-traded company. The additional public company expenses consisted of
expenses related to public reporting and directors' fees, as well as increased
insurance expense and professional service fees.
Interest Income, Net. Interest income, net increased $407,000 to
$446,000 in the quarter ended October 31, 2000 from the same quarter in the
prior fiscal 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 October 31, 2000, we recorded
$106,000 in income tax expense mainly for alternative minimum taxes after
utilizing our net operating loss carryforward deduction. While we had a net
operating loss carryforward of $7.2 million at January 31, 2000, we have not
recorded a deferred tax asset as of October 31, 2000, due to the uncertainty of
future profitability. No income tax expense was recorded in the quarter ended
October 31, 1999.
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 31, 2000 AND 1999
Revenue. Revenue increased $9.5 million, or 60.6%, from $15.7 million
for the nine months ended October 31, 1999 to $25.2 million for the nine months
ended October 31, 2000. This increase in revenue was primarily due to an
increase in revenue from our OEM relationships. In the first nine months of the
current fiscal year, we derived revenue from six OEM relationships. In the first
nine months of the prior fiscal year, the only OEM customer we made significant
shipments to was Minolta.
During the nine months ended October 31, 2000, we derived $3.6 million,
or 14.1%, of our revenue from sales shipped to customers outside the United
States. This compares to $3.7 million, or 23.7%, of our revenue for the nine
months ended
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October 31, 1999. Revenue from sales shipped internationally decreased as a
percentage of total revenue due to domestic revenue growing at a faster rate
than international revenue. The growth in domestic revenue was primarily a
result of our OEM customers buying more of our products for resale in the United
States in the first nine months of the current fiscal year.
Gross Profit. Our gross profit for the nine months ended October 31,
2000 was $15.8 million, up $6.8 million, or 74.9%, from $9.0 million for the
nine months ended October 31, 1999. Our gross margin for the nine months ended
October 31, 2000 was 62.7%, up from 57.6% in the same period in the prior fiscal
year. This increase in our gross margin was primarily due to an increase in OEM
revenue as a percentage of total revenue. As discussed above, we typically
realize a higher gross margin on sales to our OEM customers than we do from
sales through our independent dealer network, as systems sold to our OEM
customers are typically more software intensive than systems sold through
independent dealers. Additionally, gross margin improved on sales through our
OEM relationships. This additional increase in gross margin was primarily due to
an increase in software revenue as a percentage of total revenue on sales
through our OEM relationships. The increase in software revenue as a percentage
of total revenue was due in part to the additional number of software products
we began to offer. Over the past year, we have added additional software modules
that increase the functionality of our systems.
Research and Development. Research and development expense increased to
$3.5 million for the nine months ended October 31, 2000 from $2.6 million for
the nine months ended October 31, 1999. This increase of $933,000, or 36.5%, was
primarily due to an increase in personnel related expenses of $829,000 resulting
from the hiring of additional research and development personnel to assist in
the further development of our products. Also contributing to the increase was
an increase in depreciation expense of $76,000 due to the acquisition of
additional equipment for the development of connectivity of additional print
devices to the MicroPress. Research and development expense as a percent of
total revenue decreased from 16.3% in the first nine months of the prior fiscal
year to 13.8% in the first nine months of the current fiscal year.
Sales and Marketing. Sales and marketing expenses were $6.7 million for
the first nine months of the current fiscal year as compared to $4.7 million for
the first nine months of the prior fiscal year. The increase in sales and
marketing expenses between the two periods of $2.0 million, or 42.6%, was
primarily due to an increase in personnel-related and travel-related expenses of
$1.6 million as result of the hiring of additional sales personnel.
Additionally, marketing expenses increased $215,000. Marketing expenses
increased due to additional spending on trade shows and marketing consulting
services for the strategic positioning of our company and our products.
General and Administrative. For the nine months ended October 31, 2000,
general and administrative expenses were $2.2 million, up $716,000, or 48.1%,
from $1.5 million for the nine months ended October 31, 1999. The increase was
due in part to the incurrence of $267,000 in additional expenses as a result of
being a publicly-traded company. Additionally, personnel-related and
travel-related expenses increased $263,000 and depreciation expense increased
$50,000. The increase in depreciation expense was the result of capital spending
for company-wide information systems infrastructure. General and administrative
expenses as a percentage of revenue decreased from 9.5% for the nine months
ended October 31, 1999 to 8.8% for the nine months ended October 31, 2000.
Interest Income, Net. Interest income, net was $1.2 million for the
nine months ended October 31, 2000 as compared to $81,000 for the nine months
ended October 31, 1999. The increase in interest income was primarily due to an
increase in cash available for short-term investment, primarily as a result of
our initial public offering, which generated $25.4 million in cash, net of
underwriting discounts, commissions and other offering costs.
Income Tax Expense. In the nine months ended October 31, 2000, we
recorded $228,000 in income tax expense mainly for alternative minimum taxes
after utilizing our net operating loss carryforward deductions. While we had a
net operating loss carryforward of $7.2 million at January 31, 2000, we have not
recorded a deferred tax asset as of October 31, 2000, due to the uncertainty of
future profitability. No income tax expense was recorded for the nine months
ended October 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased by $225,000 to $27.7 million during
the nine months ended October 31, 2000.
For the nine months ended October 31, 2000, net cash provided by
operating activities was $1.6 million as compared to $681,000 in the first nine
months of the prior fiscal year. The increase was primarily due to the increase
in net income during the first nine months of this fiscal year as compared to
the first nine months of the prior fiscal year. The impact of the increase in
net income was partially offset by an increase in accounts receivable as a
result of increased revenue and the timing of payments. Net cash used in
investing activities, which consists of purchases of property and equipment, was
$1.7 million for the nine months ended October 31, 2000 and $276,000 for the
nine months ended October 31, 1999. Additionally, we received $470,000 in
equipment during the nine months ended October 31, 2000 as payment of
engineering fees. Thus, total property
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and equipment additions for the period were $2.2 million. The increase in
purchases of property and equipment was primarily due to purchases of equipment
for product development and testing, product demonstrations, trade shows and
technical support as well as equipment, information systems infrastructure and
leasehold improvements for a newly leased operations and training center
scheduled to open in the fourth quarter of the current fiscal year. Net cash
provided by financing activities was $290,000 in the first nine months of the
current fiscal year consisting of proceeds from stock option exercises of
$421,000 less $131,000 in payments of expenses related to our initial public
offering. Net cash provided by financing activities in the first nine months of
the prior fiscal year of $973,000 was primarily the result of the private
placement of our series D preferred stock.
On October 11, 2000, we entered into a loan modification agreement
amending our existing loan and security agreement with a commercial bank. The
loan modification agreement extends the expiration date of the existing
agreement until October 2001, decreases the rate of interest charged on loans
under the existing agreement to prime plus one-quarter of one percentage point
and amends certain covenants of the existing agreement. There were no borrowings
outstanding under the $3.0 million revolving line of credit provided for under
the loan and security agreement during the nine months ended October 31, 2000.
We were in compliance with the covenants of the agreement at October 31, 2000.
We believe that our current cash and cash equivalents and cash
generated by operations will be sufficient to meet our anticipated cash needs
for working capital, capital expenditures and business expansion for the
foreseeable future. However, if cash generated by operations is insufficient to
satisfy our operating requirements or if we determine to acquire any technology,
we may be required to raise additional funds, through either debt or equity
financings. There can be no assurance that we will be able to obtain any
financing on terms acceptable to us, if at all.
Inflation had no material impact on our operations during the quarter
or nine months ended October 31, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We believe our exposure to market rate fluctuations on our cash
equivalents are minor due to the short-term maturities of those investments,
which are 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 October 31, 2000, we had no borrowings outstanding
under our revolving credit facility. To date, we have not entered into any
derivative instruments to manage interest rate exposure.
A significant portion of our revenue is derived from sales to
international customers. Currently, all of our sales to international customers
are denominated in U.S. dollars. If the value of the U.S. dollar increases
relative to a particular foreign currency, our products could become relatively
more expensive, which could result in a reduction in our sales in that
particular country.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Inapplicable.
(b) Inapplicable.
(c) Inapplicable.
(d) In connection with our initial public offering, the
Securities and Exchange Commission declared our registration
statement on Form S-1 (file no. 333-88439) effective on
January 25, 2000.
As of October 31, 2000, we had invested all of the
net proceeds from our initial public offering in government
securities with original maturities of 90 days or less. No
payments from these proceeds were made to any of our
directors, officers, holders of 10% or more of our equity
securities or any other affiliates of T/R Systems.
10
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.19* Second Addendum to Reseller Agreement, dated
as of August 1, 2000, by and between T/R
Systems, Inc. and Kyocera Mita Corporation
(formerly Mita Industrial Co., Ltd.)
10.20 Loan Modification Agreement, dated as of
October 11, 2000, by and between Silicon
Valley Bank and T/R Systems, Inc.
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
---------
* Confidential treatment has been requested with respect to certain
portions of this exhibit.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
October 31, 2000.
11
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
T/R Systems, Inc.
December 14, 2000 /s/ Lyle W. Newkirk
------------------------- -----------------------------------------------------
Lyle W. Newkirk
Senior Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer and Principal Accounting
Officer)
12
<PAGE> 14
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
10.19* Second Addendum to Reseller Agreement, dated
as of August 1, 2000, by and between T/R
Systems, Inc. and Kyocera Mita Corporation
(formerly Mita Industrial Co., Ltd.)
10.20 Loan Modification Agreement, dated as of
October 11, 2000, by and between Silicon
Valley Bank and T/R Systems, Inc.
27.1 -- Financial Data Schedule (for SEC use
only)
</TABLE>
---------
* Confidential treatment has been requested with respect to certain
portions of this exhibit.
13
