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, 2001
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, 2001, 12,271,508 shares of common stock of the registrant
were outstanding.
TABLE OF CONTENTS
PART I Page
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Item 1 Consolidated Financial Statements........................................................... 2
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations....... 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk ................................. 11
PART II
Item 2 Changes in Securities and Use of Proceeds................................................... 12
Item 6 Exhibits and Reports on Form 8-K............................................................ 12
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
T/R SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
OCTOBER 31, JANUARY 31,
2001 2001
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 16,670 $ 26,394
Receivables, net .............................................. 4,052 7,074
Inventories, net .............................................. 4,145 4,817
Deferred income taxes ......................................... 940 2,108
Prepaid expenses and other .................................... 530 501
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Total current assets .................................... 26,337 40,894
Property and equipment, net ..................................... 6,559 3,979
Deferred income taxes ........................................... 5,139 518
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$ 38,035 $ 45,391
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................. $ 2,562 $ 2,992
Deferred revenue .............................................. 551 803
Accrued salaries and wages .................................... 960 1,485
Other liabilities ............................................. 815 915
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Total current liabilities ............................... 4,888 6,195
Shareholders' Equity:
Preferred stock, $0.01 par value, 12,000,000 shares authorized;
880,000 shares designated as Series A Junior
Participating Preferred Stock, none issued or outstanding ... -- --
Common stock, $0.01 par value, 88,000,000 shares authorized;
12,269,992 and 12,214,634 shares issued and outstanding,
respectively ................................................ 123 122
Additional paid-in capital .................................... 43,488 43,415
Deferred compensation ......................................... (4) (28)
Accumulated deficit ........................................... (10,460) (4,313)
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Total shareholders' equity .............................. 33,147 39,196
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$ 38,035 $ 45,391
======== ========
See notes to consolidated financial statements
2
T/R SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
OCTOBER 31, OCTOBER 31,
----------- -----------
2001 2000 2001 2000
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Revenue ......................................... $ 3,064 $9,070 $ 14,523 $25,219
Operating Expenses:
Cost of imaging systems ....................... 2,515 3,063 7,331 9,403
Research and development ...................... 1,945 1,291 5,391 3,488
Sales and marketing ........................... 3,046 2,323 8,784 6,658
General and administrative .................... 1,126 719 3,204 2,204
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Total operating expenses .................. 8,632 7,396 24,710 21,753
------- ------ -------- -------
Operating income (loss) ......................... (5,568) 1,674 (10,187) 3,466
Interest income ................................. 134 446 596 1,226
------- ------ -------- -------
Income (loss) before income tax expense (benefit) (5,434) 2,120 (9,591) 4,692
Income tax expense (benefit) .................... (1,956) 106 (3,444) 228
------- ------ -------- -------
Net income (loss) ............................... $(3,478) $2,014 $ (6,147) $ 4,464
======= ====== ======== =======
Net income (loss) per common share-- Basic ...... $ (0.28) $ 0.17 $ (0.50) $ 0.37
======= ====== ======== =======
Net income (loss) per common share-- Diluted .... $ (0.28) $ 0.16 $ (0.50) $ 0.35
======= ====== ======== =======
See notes to consolidated financial statements
3
T/R SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
FOR THE NINE
MONTHS ENDED
OCTOBER 31,
---------------------
2001 2000
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Operating Activities:
Net income (loss) .............................................. $ (6,147) $ 4,464
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation ................................................ 1,516 555
Deferred compensation expense ............................... 24 24
Changes in assets and liabilities:
Increase in receivables .................................. (105) (3,404)
Decrease (increase) in inventories ....................... 672 (1,237)
Increase in prepaid expenses and other and other assets .. (29) (21)
Increase in deferred income taxes and other assets ....... (3,453) --
(Decrease) increase in accounts payable .................. (430) 2,072
Decrease in deferred revenue ............................. (252) (228)
Decrease in accrued salaries and wages ................... (525) (333)
(Decrease) increase in other liabilities ................. (100) 200
-------- --------
Net cash (used in) provided by operating activities ... (8,829) 2,092
Investing Activities:
Purchases of property and equipment ........................... (969) (1,695)
Financing Activities:
Decrease in bank overdrafts ................................... -- (462)
Proceeds from sale of common stock ............................ 74 421
Costs of initial public offering .............................. -- (131)
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Net cash provided by (used in) financing activities .............. 74 (172)
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Net (decrease) increase in cash and cash equivalents ............. (9,724) 225
Cash and Cash Equivalents:
Beginning of period ............................................ 26,394 27,514
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End of period .................................................. $ 16,670 $ 27,739
======== ========
Supplemental cash flow information:
Cash paid for income taxes ..................................... $ 83 $ 128
======== ========
Noncash investing activities:
Equipment received for payment of engineering fees ............. $ 3,127 $ 470
======== ========
See notes to consolidated financial statements
4
T/R SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements of T/R
Systems, Inc., presented herein, have been prepared on the same basis
as the audited consolidated financial statements contained in T/R
Systems' annual report on Form 10-K for the fiscal year ended January
31, 2001 and should be read in conjunction with those audited
consolidated 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 consolidated
financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of October 31, 2001 and the reported amounts of
revenue and expenses during the quarter and nine months then ended. Our
actual results could differ from these estimates. Additionally, our
results for the quarter and nine months ended October 31, 2001 are not
necessarily indicative of the results to be expected for the full year.
The consolidated financial statements include the accounts of
T/R Systems, Inc. and its subsidiaries, all of which are wholly owned.
All significant intercompany transactions and balances have been
eliminated in consolidation.
Certain fiscal year 2001 amounts have been reclassified to
conform to the fiscal year 2002 financial statement presentation.
2. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
Accounting for Derivative Instruments and Hedging Activities.
Subsequently, SFAS No. 133 was amended by SFAS No. 137 and SFAS No. 138
and, as amended, is effective for all fiscal years beginning after June
15, 2000. SFAS No. 133 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 adopted SFAS No. 133, as
amended, effective February 1, 2001. The adoption of this statement did
not have a significant impact on our financial position or results of
operations because we do not have any significant derivative
instruments.
In December 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 adopted SAB No. 101, as amended, in the
fourth quarter of fiscal year 2001 and have determined that the effect
of SAB No. 101 is not material.
In July 2001, the Financial Accounting Standards Board issued
SFAS No. 141, Business Combinations and SFAS No. 142 Goodwill and Other
Intangible Assets. SFAS No. 141 requires that the purchase method of
accounting be used for all business combinations initiated after June
30, 2001 and indicates that the use of the pooling-of-interests method
of accounting is no longer allowed. SFAS No. 142 requires that upon
adoption, amortization of goodwill will cease and instead, the carrying
value of goodwill will be evaluated for impairment on an annual basis.
Identifiable intangible assets will continue to be amortized over their
useful lives and reviewed for impairment in accordance with SFAS No.
121 Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. SFAS No. 142 is effective for
fiscal years beginning after December 15, 2001. The new standards are
not expected to have a significant impact on our financial statements
because we have not entered into any business combinations.
In August 2001, the Financial Accounting Standards Board
issued SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. SFAS No. 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121 and APB Opinion No. 30. SFAS No. 144 is
effective
5
beginning February 1, 2002 for the first quarter of fiscal year 2003,
and is not expected to have a material impact on our consolidated
financial statements.
3. BALANCE SHEET DETAIL
OCTOBER 31, JANUARY 31,
2001 2001
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(IN THOUSANDS)
RECEIVABLES:
Accounts receivable .................... $4,672 $7,374
Less allowance for doubtful accounts ... 620 300
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$4,052 $7,074
====== ======
INVENTORIES:
Components and supplies ................ 3,978 $3,980
Finished goods ......................... 1,458 1,336
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5,436 5,316
Less reserve for potential losses ...... 1,291 499
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$4,145 $4,817
====== ======
4. SEGMENT INFORMATION
We operate in one reportable segment, the output management market, and
assess performance based on operating income. Revenue is summarized below
(in thousands):
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
----------------- -----------------
2001 2000 2001 2000
------ ------ ------- -------
Imaging systems .... $2,122 $7,775 $ 9,523 $22,530
Services ........... 942 1,295 5,000 2,689
------ ------ ------- -------
Total .............. $3,064 $9,070 $14,523 $25,219
====== ====== ======= =======
Imaging systems include software and hardware products for
managing a document from creation to its final destination. Services
include revenue from engineering services, customer service plans and
other customer services, such as training and product-related
consulting.
Revenue by geographic area is summarized below (in thousands):
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
--------------------- ----------------------
2001 2000 2001 2000
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United States .............. $2,275 $7,922 $ 9,920 $21,651
Asia ....................... 621 131 3,154 287
Europe ..................... 100 421 1,159 1,885
Other foreign countries .... 68 596 290 1,396
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Total ...................... $3,064 $9,070 $14,523 $25,219
====== ====== ======= =======
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.
6
5. NET INCOME (LOSS) PER COMMON SHARE
The following table summarizes the computation of basic and diluted net
income (loss) per common share (in thousands, except per share data):
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
-------------------- ---------------------
2001 2000 2001 2000
-------- ------- -------- -------
Numerator:
Net income (loss) .............................. $ (3,478) $ 2,014 $ (6,147) $ 4,464
Denominator:
Weighted average shares outstanding-- Basic .... 12,266 12,129 12,251 11,945
Effect of outstanding stock options ............ -- 773 -- 973
-------- ------- -------- -------
Weighted average shares outstanding-- Diluted .. 12,266 12,902 12,251 12,918
======== ======= ======== =======
Net income (loss) per common share-- Basic ....... $ (0.28) $ 0.17 $ (0.50) $ 0.37
======== ======= ======== =======
Net income (loss) per common share-- Diluted ..... $ (0.28) $ 0.16 $ (0.50) $ 0.35
======== ======= ======== =======
7
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, 2001. Results for the nine months ended October 31, 2001 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 31, 2002. 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:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED OCTOBER 31, ENDED OCTOBER 31,
----------------- -----------------
2001 2000 2001 2000
------ ------ ------ ------
Revenue .......................... 100.0% 100.0% 100.0% 100.0%
Operating expenses:
Cost of imaging systems ........ 82.1 33.8 50.5 37.3
Research and development ....... 63.5 14.2 37.1 13.8
Sales and marketing ............ 99.4 25.6 60.5 26.4
General and administrative ..... 36.7 7.9 22.1 8.8
------ ------ ------ ------
Total operating expenses ... 281.7 81.5 170.1 86.3
------ ------ ------ ------
Operating income (loss) .......... (181.7) 18.5 (70.1) 13.7
Interest income .................. 4.4 4.9 4.1 4.9
------ ------ ------ ------
Income (loss) before income tax
expense (benefit) ............. (177.3) 23.4 (66.0) 18.6
Income tax expense (benefit) ..... (63.8) 1.2 (23.7) 0.9
------ ------ ------ ------
Net income (loss) ................ (113.5)% 22.2% (42.3)% 17.7%
====== ====== ====== ======
COMPARISON OF THE THREE MONTHS ENDED OCTOBER 31, 2001 AND 2000
Revenue. Revenue for the three months ended October 31, 2001 was $3.1
million as compared to $9.1 million for the same quarter in the prior year. The
decrease of $6.0 million, or 66.2%, was primarily due to a decrease in sales of
imaging systems through our OEM and independent reseller channels. Imaging
systems revenue decreased by $5.7 million between the two quarters. This
decrease in imaging systems revenue was due primarily to weakness in our
industry driven by weakness in the overall economy.
Revenue derived from shipments to customers outside the United States
was $789,000, or 25.8% of revenue, in the quarter ended October 31, 2001, as
compared to $1.1 million, or 12.7% of revenue, in the quarter ended October 31,
2000. The decrease in international revenue was due to decreases in shipments to
customers in Canada and Europe. These decreases were partially offset by an
increase in revenue from Asia, primarily due to an increase in engineering
service fees from certain of our Japanese OEM customers.
Operating Expenses. Operating expenses increased $1.2 million, or
16.7%, from $7.4 million in the quarter ended October 31, 2000 to $8.6 million
in the quarter ended October 31, 2001. Operating expenses as a percentage of
revenue increased to 281.7% from 81.5% due to the decrease in revenue between
the two quarters. As a result of our decreased revenue and the continued global
economic weakness, we have reduced our number of employees by 38 people, or
24.8%, since August 1, 2001. The overall reduction was achieved through
workforce reductions in August and November along with other attrition. The cost
reductions will not be fully reflected in our operating results until the first
quarter of our next
8
fiscal year. However, we do anticipate that operating expenses in the fourth
quarter of the current fiscal year will be lower than third quarter operating
expenses.
Cost of Imaging Systems. Cost of imaging systems was $2.5 million, or
118.5% of imaging systems revenue, in the quarter ended October 31, 2001 as
compared to $3.1 million, or 39.4% of imaging systems revenue, in the same
quarter of the prior year. The increase in cost of imaging systems as a percent
of imaging systems revenue was due in part to inventory reserves recorded to
cost of imaging systems in the third quarter of the current fiscal year. During
the quarter ended October 31, 2001, we recorded a non-recurring charge of
$600,000 for the write down of certain inventory items to their net realizable
value. Additionally, we incurred additional costs in both our OEM and
independent channels due to transitions in our product line. Finally, the
overhead component of cost of imaging systems increased as a percentage of
revenue due primarily to the decrease in revenue.
Research and Development. Research and development expenses increased
$654,000, or 50.7%, from $1.3 million in the quarter ended October 31, 2000 to
$1.9 million in the quarter ended October 31, 2001. The increase was due in part
to a $259,000 increase in personnel-related expenses resulting from the hiring
of additional research and development personnel during the second half of last
fiscal year to assist in the development of our products. Additionally,
depreciation expense increased $185,000 and certain project-related expenses
increased $137,000 as a result of new connectivity projects.
Sales and Marketing. Sales and marketing expenses for the quarter ended
October 31, 2001 were $3.0 million, up $723,000, or 31.1%, from $2.3 million in
the same quarter in the prior year. This increase was primarily due to an
increase in personnel-related expenses of $438,000 as a result of the hiring of
additional sales and technical support personnel during the second half of last
fiscal year to support the anticipated growth of our business. Also adding to
this increase were increases in marketing expenses and depreciation. The
increase in marketing expenses resulted from an increase in trade show expense
due primarily to one large trade show, which only occurs once every four years,
held during the quarter ended October 31, 2001. The increase in depreciation was
due to the addition of new equipment for use in providing technical support and
in demonstrating our imaging systems as well as capital expenditures for new
facilities in Europe.
General and Administrative. Our general and administrative expenses in
the quarter ended October 31, 2001 were $1.1 million as compared to $719,000 in
the same quarter of the prior fiscal year. The increase of $407,000, or 56.6%,
was primarily due to an increase in the provision for doubtful accounts. We
believe that the increase in our provision for doubtful accounts was necessary
given concerns about the creditworthiness of certain of our independent
resellers. As of October 31, 2001, we believe our allowance for doubtful
accounts is adequate to cover our potential credit losses. However, further
deterioration in the overall economy could cause our credit risk to rise and
could result in further additions to the allowance for doubtful accounts.
Interest Income. Interest income decreased $312,000 to $134,000 in the
quarter ended October 31, 2001 from $446,000 in the same quarter in the prior
fiscal year. The decrease was due to a decrease in the cash available for
short-term investment during the quarter, as we used cash to fund our operations
and capital expenditures, and to a drop in interest rates compared to the same
quarter in the prior year.
Income Tax Expense (Benefit). During the quarter ended October 31,
2001, we recorded an income tax benefit of $2.0 million as a result of our
pre-tax loss of $5.4 million. During the quarter ended October 31, 2000, we
recorded income tax expense for alternative minimum taxes of $106,000 after
utilizing our net operating loss carryforward deduction.
COMPARISON OF THE NINE MONTHS ENDED OCTOBER 31, 2001 AND 2000
Revenue. Revenue for the nine months ended October 31, 2001 was $14.5
million compared to $25.2 million in the first nine months of the prior fiscal
year. The decrease of $10.7 million, or 42.4%, resulted from a decrease in
imaging systems revenue of $13.0 million as a result of decreased orders from
our OEM customers as well as our independent resellers. The decrease in imaging
systems revenue was partially offset by an increase in services revenue due to
an increase in engineering service fees for the development of new technology
for the connection of additional print devices to our products for new and
existing OEM customers.
Revenue from shipments to customers outside the United States during
the nine months ended October 31, 2001 was $4.6 million, or 31.7% of revenue, up
from $3.6 million, or 14.1% of revenue, in the first nine months of the prior
fiscal year. This increase reflects an increase in revenue of $2.9 million in
Asia, primarily for engineering service fees from
9
Japanese customers, offset in part by a decrease in revenue from Canada of $1.1
million and a decrease in revenue from Europe of $726,000.
Cost of Imaging Systems. Cost of imaging systems for the nine months
ended October 31, 2001 was $7.3 million, or 77.0% of imaging systems revenue, as
compared to $9.4 million, or 41.7% of imaging systems revenue. The increase as a
percentage of imaging systems revenue over the prior year was due to the
following:
- during the first nine months of fiscal 2002, we recorded
non-recurring charges of $1.1 million in cost of imaging
systems for the write down of print devices and other hardware
components in inventory to their net realizable value. During
the first nine month of fiscal 2001, we recorded $108,000 for
write downs of inventory components to their net realizable
value;
- the labor and overhead components of cost of imaging systems
increased as a percentage of imaging systems revenue primarily
due to a decrease in imaging systems revenue; and
- imaging systems revenue from sales to our OEM customers
decreased as a percentage of total imaging systems revenue.
Systems sold to our OEM customers have lower levels of
hardware content, and thus carry a lower cost of sales, than
systems sold to our independent resellers.
Research and Development. Research and development expenses increased
$1.9 million, or 54.6%, to $5.4 million for the nine months ended October 31,
2001 from $3.5 million in the nine months ended October 31, 2000. The increase
was due primarily to an increase in personnel-related expenses of $1.0 million
resulting from the hiring of additional research and development personnel
during the prior fiscal year to assist in the further development of our
products. Also contributing to the increase was an increase in depreciation
expense of $504,000, due primarily to the addition of equipment for the
development and testing of connectivity of new print devices to our products, as
well as an increase in certain project-related expenses also as a result of the
new connectivity projects.
Sales and Marketing. Sales and marketing expenses for the nine months
ended October 31, 2001 were $8.8 million, up $2.1 million, or 31.9%, from $6.7
million in the same period in the prior fiscal year. The increase was primarily
due to an increase in personnel-related and travel-related expenses of $1.6
million as a result of the hiring of additional sales and technical support
personnel during the prior fiscal year to support the anticipated growth of our
business. Additionally, depreciation expense increased by $297,000, primarily
due to the expansion of our training and product demonstration facilities during
the second half of fiscal 2001 to support the expected growth in our business
during fiscal 2001. The remaining increase was primarily due to an increase in
trade show expenses related to one large trade show that only occurs once every
four years.
General and Administrative. Our general and administrative expenses
were $3.2 million for the nine months ended October 31, 2001 as compared to $2.2
million in the same period of the prior fiscal year. The increase of $1.0, or
45.4%, was primarily due to an increase in the provision for doubtful accounts.
During the first nine months of fiscal 2002, we expensed $884,000 in the
provision for doubtful accounts due to our concerns about the creditworthiness
of certain of our independent resellers.
Interest Income. Interest income was $596,000 for the first nine months
of fiscal 2002 and $1.2 million for the first nine months of fiscal 2001. The
decrease was due to a decrease in the cash available for short-term investment
during the period, as we used cash to fund our operations and capital
expenditures, and to a drop in interest rates from the prior year.
Income Tax Expense (Benefit). We recorded an income tax benefit of $3.4
million during the nine months ended October 31, 2001 as a result of our pre-tax
loss of $9.6 million for that period. During the same period last year, we
recorded income tax expense for alternative minimum taxes of $228,000 after
utilizing our net operating loss carryforward deduction.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $16.7 million at October 31, 2001, down
from $26.4 million at January 31, 2001.
For the nine months ended October 31, 2001, net cash used in operating
activities was $8.8 million as compared to net cash provided by operating
activities of $2.1 million in the first nine months of the prior fiscal year.
The decrease was primarily due to our net loss for the first nine months of the
current fiscal year as compared to net income in the same period of the prior
fiscal year. Net cash used in investing activities, which consists of purchases
of property and
10
equipment, was $969,000 for the nine months ended October 31, 2001 and $1.7
million for the nine months ended October 31, 2000. Capital expenditures for the
first nine months of the prior fiscal year included spending for leasehold
improvements, furniture and equipment for a new training and operations
facility, which opened in the fourth quarter of the prior fiscal year, as well
as for leasehold improvements to our corporate headquarters. Additionally, we
received equipment with a value totaling $3.1 million in equipment during the
nine months ended October 31, 2001 and $470,000 during the nine months ended
October 31, 2000 as payment of engineering fees. Thus, total property and
equipment additions were $4.1 million for the first nine months of the current
fiscal year and $2.2 million for the first nine months of the prior fiscal year.
The increase in equipment received for payment of engineering fees during the
current fiscal year was the result of additional connectivity projects for new
and existing OEM customers that we have undertaken. Net cash provided by
financing activities was $74,000 in the nine months ended October 31, 2001,
consisting of proceeds from the sale of stock through stock option exercises and
our employee stock purchase plan. Net cash used in financing activities in the
nine months ended October 31, 2001 of $172,000 was primarily the result of the
settlement of bank overdrafts, which was offset by the proceeds from the sale of
stock through stock option exercises.
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, which decreased the rate of interest charged on
loans under the existing agreement to prime plus one-quarter of one percentage
point and amended certain covenants of the existing agreement, expired during
October 2001. Pending the completion of a new loan modification agreement, the
commercial bank has extended the loan and security agreement until January 15,
2002 on the same terms as existed under the modified agreement.
The terms under the new loan modification agreement are expected to be
substantially the same as the terms under the existing agreement with minor
adjustments made to certain existing covenants. 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, 2001.
We were in compliance with the covenants of the agreement at October 31, 2001.
We believe that our current cash and cash equivalents 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 nine
months ended October 31, 2001.
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, 2001, 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, substantially all of our sales to
international customers are denominated in U.S. dollars. The only exception to
this is sales to certain OEM customers denominated in Euros. To date, the
revenue derived from these Euro-denominated sales has been immaterial and we
have not entered into any foreign exchange contracts to hedge currency
fluctuations due to the immateriality of the revenue related to these
Euro-denominated sales. 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.
11
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, 2001, we had used $8.7 million of the net
proceeds from our initial public offering to fund our working capital
and capital expenditure needs. None of these payments were made to any
of our directors, officers or their associates, holders of 10% or more
of our equity securities or any other affiliate of T/R Systems. We have
invested the remaining $16.7 million of the net offering proceeds in
government securities, money market mutual funds and certificates of
deposit, all with original maturities of 90 days or less, as well as
interest-bearing checking accounts.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.25* Software & Hardware Development Agreement, effective
as of January 1, 2001 (signed August 2001), by and
between Canon Inc. and T/R Systems, Inc.
- ---------
* Confidential treatment has been requested with respect to certain portions of
this exhibit.
(b) Reports on Form 8-K
T/R Systems filed no reports on Form 8-K during the quarter
ended October 31, 2001.
12
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 17, 2001 /s/ Lyle W. Newkirk
- ---------------------- ------------------------------
Lyle W. Newkirk
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer
(Principal Financial Officer and Principal
Accounting Officer)
13
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
10.25* Software & Hardware Development Agreement, effective
as of January 1, 2001 (signed August 2001), by and
between Canon Inc. and T/R Systems, Inc.
- ---------
* Confidential treatment has been requested with respect to certain portions of
this exhibit.