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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number: 0-29045

T/R Systems, Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (770) 448-9008

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 Par Value, together with Preferred Share Purchase Rights
(Title of class)

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  o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes   o   No  x

The aggregate market value of the common stock held by non-affiliates of the registrant (based upon the closing price of the registrant’s common stock on July 31, 2002 of $0.70 per share) was $8.7 million. As of April 10, 2003, 12,469,415 shares of common stock of the registrant were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the registrant’s fiscal year ended January 31, 2003 are incorporated by reference in Part III of this Form 10-K.

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TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

Overview

     T/R Systems designs, develops and markets innovative software and hardware applications designed to help organizations manage, store, distribute and produce digital documents. We offer two main digital document applications:

	•		the MicroPress®, our digital document production output management system; and
	•		Digital StoreFront™, our web-based print job submission, management and control application.

     The MicroPress consists of software that enhances the print process, a server and links to production-oriented printers. The MicroPress allows users to automate much of the workflow involved in the printing process, thus eliminating many steps that had been handled manually. Additionally, a process known as clustering allows MicroPress users to link multiple printers to our server resulting in those printers functioning as a unified printing system. Typical users of the MicroPress include corporate, educational or governmental organizations that have in-house printing capabilities, as well as entities that provide print services for a fee.

     Digital StoreFront simplifies print job submission and proofing over the Internet. Digital StoreFront allows print center customers to submit print jobs directly to a print center, review proofs of their job and receive an order confirmation over the Internet or an intranet. Once a job is submitted, Digital StoreFront creates a job ticket and can automatically route the job to a wide range of printing devices or systems or hold the job for scheduling. Digital StoreFront’s users are similar to those of the MicroPress. Digital StoreFront can be sold with the MicroPress or as a stand-alone application.

     Most of our sales to end users are the result of distribution through our original equipment manufacturer, or OEM, reseller network consisting principally of Canon USA, Inc., Minolta Co., Ltd. and Ricoh Corporation, as well as through their subsidiaries and affiliated companies, and our reseller relationship with IKON Office Solutions, Inc. as well as through its subsidiaries and affiliated companies.

     T/R Systems was incorporated in Georgia in September 1991. Our principal executive offices are located at 1300 Oakbrook Drive, Norcross, Georgia 30093, and our telephone number at that address is (770) 448-9008.

Industry Background

     Historically, document output needs were met by costly stand-alone, monochrome print devices based on analog technology that were dedicated to a single print, copy or scan function and that produced output which had to be distributed manually. Since the advent of digital document technologies and with the proliferation of personal computers, desktop publishing software, digital photography and network computing, documents are increasingly being managed in digital formats. Faster processing speeds, expanded system memory and increased storage capacity have combined with advanced software packages to enable complex image processing and manipulation, distribution and production of digital documents. These new digital technologies have improved control over the document creation process, enabled documents to be produced more quickly and efficiently, and led to increased demand for additional capabilities. Additionally, advances in digital document technologies have resulted in an increase in the use of digital print devices and growth in the typical number of devices utilized within an organization. Finally, the proliferation of Internet-based business processes has furthered the need to transfer and manage documents over the Internet.

     These advances in digital document and computer technologies, as well as Internet-based business processes, have resulted in a shift from the market for simple document output produced by stand-alone devices to a more advanced market for output management. Increasingly, users in organizations of all sizes are looking for faster and more cost-effective methods of managing, storing, distributing and producing digital documents and managing the devices used to print those documents. These needs have created the output management market, which involves the management of processes and printers/copiers used in the production and distribution of documents.

     The users of output management solutions include:

	•		corporate entities — organizations as a whole, as well as their in-house print shops and functional departments;
	•		educational institutions — primary, secondary and higher education institutions, including colleges and universities;
	•		facilities management companies — service providers that manage print operations for other entities;

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	•		print-for-pay organizations — quick printers, printing service bureaus, commercial printers and offset printers that provide printing and/or copying services for outside entities;
	•		government entities — local, city, state and federal agencies, as well as public utilities; and
	•		book publishers — organizations that provide publishing services, including on-demand book publishing.

     Within the output management market, requirements can vary depending on the needs of the user and the requirements of specific jobs. Often, corporate in-house print shops, facilities management companies, print-for-pay organizations and book publishers require production output management capabilities, which allow them to store, manage and print documents quickly and in desired quantities. The requirements of these users can vary greatly depending on production volumes and the number of print devices they utilize. Certain customers are focused on distributed output management, which is the ability to manage document distribution and workflow, as well as the print devices used to produce hard copies of digital documents. The proliferation of Internet-based business processes now requires many organizations to implement Internet-based document management solutions, which allow them to manage, control and track the transfer of documents over the Internet or a network, including submitting jobs to production facilities. Finally, many users may have multiple requirements, which could potentially include the need for production output management, distributed output management and Internet-based document management, or any combination of these capabilities, all within the same environment.

T/R Systems’ Solutions

     T/R Systems’ applications are uniquely positioned to address the needs of customers throughout the output management market. Our applications enable organizations to effectively manage the storage, distribution and production of documents from creation – which could include the conversion of hard copy documents to digital documents – to delivery, whether in hard copy or digital format.

     Production output management needs are met primarily by the MicroPress, our digital document production output management system. The MicroPress uses industry-standard open architecture to provide a cost-effective, high-speed digital document production system capable of producing complex, variable length color and monochrome images. The MicroPress X Series, which consists of the MicroPress SX™, the MicroPress DX™ and the MicroPress MX™, provides users a broader range of options from a simple print management application to a complete production output system. Our Digital StoreFront application simplifies the process of submitting, tracking and routing documents and files over the Internet or a network.

     T/R Systems’ solutions offer the following primary benefits:

     Highly Functional. Our applications offer a high degree of functionality in the areas of clustering, workflow management, job management and document processing. Our clustering capabilities provide the ability to distribute a document among multiple print devices and print at speeds several times faster than a single device could produce independently, regardless of page complexity or variability. The workflow management capabilities of our applications enable a user to manage a document from creation in a native application until final output, providing for smooth and efficient document processing. The job management functionality of our products enables users to, among other things, submit and track jobs over the Internet or a network and provides the ability to route a job to a specific location or locations, including archiving jobs. The document processing capabilities of our applications allow for modifications to be made to a document after it is submitted from its native application, including the insertion of tabs, variable data, document merging, color calibration, electronic collation and imposition.

     Scalable, Configurable and Customizable. Our applications are scalable, configurable and customizable. Users of the MicroPress can add color, monochrome or wide-format print devices, as well as additional distribution locations. The MicroPress SX can route output to up to four print devices, the MicroPress DX can cluster two to four print devices and the MicroPress MX can support up to twelve print devices, including multiple clusters with up to eight print devices in a single cluster. Additionally, users can easily and cost-effectively upgrade from an SX to a DX and from a DX to an MX. Our products can also be customized to meet a user’s specific requirements. Each Digital StoreFront is customized during its implementation to meet the workflow and business needs of each specific customer. In addition, users of any of our applications can add other T/R Systems’ applications and increase functionality seamlessly, without having to replace existing equipment and losing the value of their original investment.

     Flexible and Reliable. Our applications allow users to manage, distribute and produce documents of varying sizes and complexities across multiple locations or to a single location regardless of whether that location is a print device, network folder, e-mail address or file transfer protocol, or FTP, site. Additionally, the MicroPress supports mission-critical print production applications by recognizing available resources and automatically rerouting print jobs if utilized print devices become inoperable, as well as by providing full error recovery, thus ensuring that every page is printed.

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     Easy to Use. Our applications are designed to make managing documents and workflow easier, require minimal training for the operator and end user, and seamlessly integrate with other T/R Systems’ applications. Also, Digital StoreFront is designed so that, once implemented, users submitting jobs to print providers can easily navigate the application without training, and much of the processing of the job can be automated to increase a print provider’s efficiency. Finally, we provide user-friendly documentation, manuals and online help.

Our Strategy

     T/R Systems’ objective is to be the leading provider of digital document applications. To achieve this objective, our strategy includes the following key elements:

     Maintain and Expand the Leadership Position of Our Software Functionality. We believe that we have established a leading position based on the functionality of our clustering, web storefront and post-RIP document processing technologies. Post-RIP document processing technologies permit the processing of a document after it has been translated from the language of the document’s native application to the language of the printer using our RIP, or raster image processor, software. Post-RIP processing provides for faster, more efficient document processing. We will continue to leverage our product development efforts by developing new, and improving existing, technologies to provide users with the most advanced and robust digital document management, distribution and production products available.

     Leverage Our Distribution Relationships to Expand Our Business. As of January 31, 2003, our products were distributed internationally principally through our OEM reseller relationships with Canon, Minolta, Ricoh and Lanier Worldwide, Inc. (a subsidiary of Ricoh), as well as through our reseller relationship with IKON. Our intent is to continue to expand these principal reseller relationships and leverage their existing distribution infrastructures with products like the MicroPress X Series, which allows us to reach the low-, mid- and high-volume production output management customers of our resellers, while simplifying their selling process. Additionally, we intend to further leverage our resellers’ established international distribution infrastructures to expand the sales of our products outside North America, specifically in Europe and Asia. Finally, as we develop new products, it is our intention to introduce them through our principal reseller channels to expand the exposure of these new products.

     Increase Our Sales Through Focus on the Most Successful Dealerships. Our experience has shown that certain dealerships within our principal distribution network have a greater technology focus and that those dealerships typically have a better chance of success in selling our products when our sales force assists them. We intend to focus our sales efforts on those dealerships. During the second half of fiscal 2003, our principal resellers have all publicly embraced the strategy of selling their print devices as part of an overall solution containing third party software, including ours. We believe that this software-oriented strategy should result in a broadening of the technological aptitude within the distribution network of our principal resellers, providing additional and improved opportunities for the sale of our products.

     Develop New Applications and Features. As the market for digital document technologies continues to evolve and expand, our intent is to continue to add additional applications and functionality to existing applications, as well as develop additional applications that will work in concert with our existing applications, in order to maintain and expand our market position. We intend to continue to focus on the needs of users of our solutions, as well as the evolution of the markets for digital document management and distribution. For example, Digital StoreFront was developed largely in response to feedback from customers, which led us to modify our existing e-Ticket™ product to include an implementation of a customized web storefront and other features to meet the specific needs of each customer. Our ability to continue to introduce new applications and features that complement our existing products will be critical to our future success.

     Increase Sales Opportunities Through Product Integration. Our products are designed to seamlessly integrate with each other to meet the complex output management needs of our customers. The MicroPress and Digital StoreFront can work in concert with one another to improve and simplify an organization’s ability to manage, store, distribute and produce digital documents. The compatibility of our products with one another allows us to market them as integrated solutions, which provides the opportunity to increase sales to existing customers, as well as increase the appeal of our products to potential customers.

     Expand Internet Functionality. Our Digital StoreFront application currently offers electronic job submission over the Internet or a network and automatic processing of that job. We intend to continue to develop this and other products for customers that require Internet-based document management solutions.

     Focus on Core Technologies and Build on Industry-Standard Open-Architecture Technologies. Our expectation is to continue to use industry-standard technologies, such as Microsoft® Windows® software, the latest Intel® Pentium® processors and Global Graphics’ ScriptWorks® RIP, on an ongoing basis. Our belief is that utilizing standards-based open systems enables us to bring new product features to market more quickly and to permit functionality with a wide variety of computer networks, devices and complementary software. In

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addition, this approach allows us to quickly upgrade to next-generation computer hardware and software systems, which then allows us to focus on developing the core technologies that differentiate our products.

Our Products

     T/R Systems offers two main digital document management, production and distribution applications: the MicroPress and Digital StoreFront. Each of these stand-alone applications can be seamlessly integrated with our other applications. The MicroPress, which is the foundation of our product offerings, has historically accounted for the majority of our revenue. During fiscal 2003 we began to distribute the MicroPress X Series, which consists of three different models, designed to make the MicroPress accessible to a broader range of customers. Digital StoreFront, which was introduced during fiscal 2002, accounted for less than ten percent of our revenue in fiscal 2003.

The MicroPress

     The MicroPress is a universal server providing digital document production and job management. The MicroPress is a software and hardware solution that is capable of managing multiple print devices as an integrated document production system. Additionally, the MicroPress provides a seamless interface between document creation and submission tools and the connected output devices.

     In the latter half of the fourth quarter of fiscal 2002, we introduced the MicroPress X Series in order to make the MicroPress a cost-effective alternative for a broader range of customers and to simplify the selling process. The MicroPress X Series consists of three models: the MicroPress SX, the MicroPress DX and the MicroPress MX. The MicroPress SX drives up to four black-and-white or color print devices while offering full make-ready capabilities. The SX is tailored to meet the needs of organizations that have low- to mid-volume production output requirements but that still require the flexibility and functionality of a robust document production management system. The MicroPress DX is designed for organizations with mid- to high-volume production needs. With the DX, an organization can cluster two to four black-and-white or color print devices, enabling it to parse large jobs across multiple print devices to maximize productivity. The DX offers full make-ready functionality and can be easily and cost-effectively upgraded as an organization expands its production requirements. The MicroPress MX is designed for mid- to high-volume organizations with complex, mission-critical document output needs. The MicroPress MX supports up to twelve black-and-white or color print devices and provides advanced software functionality in a fully scalable production output system.

     The MicroPress comes equipped with software functionality that shifts the burden of printing and image management tasks from an individual workstation to a centralized server by RIPing the document and providing for additional processing and management of the document in a post-RIP environment. The software functionality offered by the MicroPress includes:

	•		Make-ready capabilities. All three models of the MicroPress X Series come equipped with extensive make-ready capabilities that enable users to make job- and page-level changes to a file after it has been RIPped. The job-level make-ready capabilities provide the ability to manipulate how a document appears when printed, including the ability to merge pages from separate files; insert, delete or replace pages; number pages; impose the position of the print on the page and apply variable information for job personalization. The ability to manipulate individual pages within a document includes the capability to cut, copy and paste page content, add lines, arrows or objects to a page, clean and straighten pages and reformat page content to accommodate punching, stapling or other finishing options. Additionally, the MicroPress X Series includes color management tools to ensure consistent and accurate color on all pages and across multiple color print devices.
	•		Mission-critical capabilities. The mission-critical capabilities of the MicroPress include universal and cluster printing, as well as error recovery capabilities. Universal printing is the ability to route single or multiple jobs to any number of disparate, connected print devices without reprocessing the job for a specific print device. Cluster printing is the ability to route one or more jobs to multiple similar devices connected to the MicroPress and run those devices as one high-speed device. Cluster printing capabilities come standard on the MicroPress DX and the MicroPress MX and are available as an option on the MicroPress SX. The error recovery capabilities of the MicroPress X Series include the ability to re-route a job to one or more connected print devices if any connected print device becomes inoperable, as well as the ability to recover non-printed pages. Additionally, the MicroPress is capable of notifying the user of certain events, including job initiation, completion and failure.
	•		Additional functionality. In addition to the make-ready and mission-critical capabilities described above, the MicroPress MX comes equipped with additional software functionality, including the ability to script jobs, manipulate scanned input and control jobs remotely over the Internet or a network. Job scripting, which is done by our TRueScript™ software application, is the ability to write a customized set of instructions to process a job in the MicroPress and to save this set of instructions for use on future jobs. TRueScript is also available as an option for the MicroPress SX and the MicroPress DX. The ability to manipulate scanned input is provided by our MicroImager™ application. MicroImager provides the ability to process,

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archive and distribute scanned input from a compliant scanner. MicroImager is also available as an option for the MicroPress SX and the MicroPress DX. Finally, the MicroPress MX offers e-PSM, a software application used to remotely access and control the MicroPress over the Internet or a network.

     The MicroPress connects to monochrome and color digital print devices either by a direct connection or by a network connection. For a direct connection, cabling and a T/R Systems’ Connectivity Kit, consisting of our PrintLink™ and enabling software, are used to allow the MicroPress to interface with supported third-party print devices. For a network connection, enabling software is used to allow the MicroPress to interface with supported third-party print devices over a network. The MicroPress currently connects to print devices from Canon, Hitachi, Kyocera Mita, Minolta, M.G.I., Océ, Ricoh, Toshiba and Hewlett-Packard.

Digital StoreFront

     Digital StoreFront is a fully automated web storefront application that simplifies the process of submitting print jobs over the Internet. Digital StoreFront allows for on-line proofing and automatic routing of a job to a print device or production schedule to help maximize device utilization by the print provider. Each Digital StoreFront is sold with a custom implementation, which customizes the application to meet workflow, job-management and customer needs of each print provider. Digital StoreFront is licensed, hosted and controlled by the print providers, which allows them to further customize their storefront as needed and enables them to maintain the confidentiality of their customers’ documents. Digital StoreFront’s fully automated processes allow the customers of print providers to submit files in their native format over the Internet. A proof of the document is automatically prepared for the customer to review once the job is submitted. Once the customer’s specifications for the job are received, a job ticket is then prepared with all the details of the job, and it can be automatically queued into the print provider’s workflow. Digital StoreFront can automatically route files to any PDF or postscript-compliant printing system, including the MicroPress. Optional features can be added to Digital StoreFront to, among other things, allow for unique pricing for print jobs, provide an on-line catalog, allow credit card billing, design business cards and integrate Digital StoreFront with accounting and billing systems.

Other Products

     In addition to these two core products, we offer a digital imaging software application, MicroImager, which scans hard-copy documents into a digital format and provides the ability to process, archive and distribute the newly created digital documents to the appropriate destination. MicroImager, when combined with a compliant scanner, can create digital documents from scanned input that can be modified to ensure the quality of the presentation of the new scanned document. Once the scanned document has been edited, it can be distributed to destinations, such as print devices, document repositories, FTP sites, e-mail or the MicroPress. MicroImager is sold as an add-on to the MicroPress or as a stand-alone application.

     Additionally, we offer M@estro™, which provides distributed output management and device administration and enables digital document distribution over the Internet or a network. M@estro is configurable and scalable, providing for the management of up to 255 print devices, as well as distribution of output to destinations consisting of networked print devices, the MicroPress, e-mail, networked folders and FTP sites. M@estro employs our patented cluster printing technology for the distribution of documents across managed print devices. With M@estro, users can manage print devices on their networks, monitor consumables levels on those devices, establish custom workflows across the network, cluster multiple network-connected print devices and manage document distribution routes. M@estro is available as a stand-alone application or it can be integrated with our other applications to meet the diverse output management needs of organizations of all sizes.

Manufacturing

     Many of the hardware components of our products are outsourced. These components include PrintLinks™ and the circuit boards incorporated in our products. Additionally, we install our software on customized servers for the MicroPress. T/R Systems then integrates hardware components with internally developed software to create the various configurations of the MicroPress. We also resell scanners purchased from third-party manufacturers under our brand name as part of the MicroPress. Before shipping products to customers, we test both the hardware and software to assure successful integration.

Sales and Marketing

     In fiscal 2003, T/R Systems distributed the MicroPress, Digital StoreFront and related products in North America and internationally through distribution relationships principally with Canon, Minolta, Ricoh, Lanier and IKON. We began distributing through the Canon network in April of 2002 and presently only distribute to Canon’s North American operations. We also presently are only distributing to Lanier in North America. Products are distributed in Europe through Minolta, IKON, Ricoh and M.G.I. France and in Asia though Ricoh

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and Hitachi Koki, Ltd., as well as through a network of independent dealers. Our sales force consists of regional managers whose principal duties are to facilitate and help close sales through the dealer channels of our resellers. Assisting our regional managers are field analysts, who provide technical support to our regional managers, our resellers and end users. As of January 31, 2003, we had thirteen regional managers throughout the United States, one in Canada and one in each of France, Germany and the United Kingdom. We also had four field analysts in the United States and one in Canada.

     Dealers sell our products to end users and service our products in local geographical areas. In the United States, these dealers typically are:

	•		office products, computer and peripheral resellers;
	•		copier or graphic arts dealers; or
	•		independent service organizations that provide customized software and hardware solutions and specialize in providing services that cannot be obtained through product manufacturers.

     During fiscal 2003, Canon accounted for 25.1%, Ricoh and its affiliated subsidiaries accounted for 19.8% and Minolta accounted for 13.4% of our total revenue.

     Sales shipped internationally were 15.9% of total revenue in fiscal 2003, 30% of total revenue in fiscal 2002 and 19.1% of total revenue in fiscal 2001. Sales shipped internationally to customers in any one country did not exceed 10% of total revenue in any of the last three fiscal years, except that sales shipped to customers in Japan represented 18.9% of our total revenue in fiscal 2002. For additional information on our geographic segments, see note 11 of the notes to our consolidated financial statements included elsewhere in this report.

     As of January 31, 2003, we had a backlog of firm orders totaling $49,000. These orders were shipped in the first quarter of fiscal 2004. At January 31, 2002 we had a backlog of firm orders totaling $45,000, all of which were filled in the first quarter of fiscal 2003.

     As of January 31, 2003, T/R Systems maintained a marketing organization that is responsible for product management, market research, branding, advertising, public relations, events, lead management and channel marketing. We rely upon industry-specific research and customer interaction to assist in marketing planning. Market awareness is enhanced through public relations and trade shows. Our belief is that our reseller relationships further enhance market awareness. In addition, we intend to continue expanding market awareness of our products through consistent promotion of our T/R Systems, MicroPress and Digital StoreFront brands in marketing events, advertising, channel promotions and public relations activities.

Customer Service

     T/R Systems provides an array of services to support and enhance our products, including customer support, dealer and end-user training, installation services, customized product implementations and product-related consulting. We believe that providing quality customer support to our OEM resellers, dealers and end users is critical to customer satisfaction. Resellers are considered the primary support contact for end users, with T/R Systems performing secondary support. We offer service plans, generally for one to three years, which entitle end users to call our customer support organization for assistance. We provide training for MicroPress users at our training facilities and at users’ locations. Each Digital StoreFront sale includes implementation, which customizes the application to meet workflow, job-management and customer needs of each print provider. Our product-related consulting services focus on providing customized software applications that meet the needs of end users, including additional customization of Digital StoreFront after implementation.

Research and Development

     T/R Systems has devoted a significant amount of resources to research and development. Research and development expenses were $5.8 million for fiscal 2003, $7.0 million for fiscal 2002 and $5.1 million for fiscal 2001.

     The markets for our products are characterized by rapid change, and we believe that there are three factors that are critical to the success of our research and development efforts. We must:

•

accelerate the rate of product line expansion in terms of device connectivity and system features;

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	•		continue to develop software applications and feature enhancements that leverage performance gains realized through the release of new generations of software and hardware; and
	•		attract and retain qualified technical professionals.

Intellectual Property

     To be successful, we depend, in part, on the proprietary technology in our products. T/R Systems relies on a combination of patent, copyright, trade secret and trademark laws, and nondisclosure and other contractual restrictions, to protect our proprietary rights. Trade secret and copyright laws provide only limited protection of our software, documentation and other written materials. We hold 14 United States patents and, as of January 31, 2003, had filed for an additional 17 patents in the United States and abroad which have not yet been issued. In addition, to protect our intellectual property and proprietary rights, we:

	•		enter into confidentiality and nondisclosure agreements with our employees, consultants and resellers;
	•		limit access to, and distribution of, our software and other proprietary information; and
	•		employ hardware security devices and unique key codes to limit unauthorized use of our software.

     Despite the efforts taken to protect our intellectual property, we cannot assure you that we will be able to do so. Any failure to protect our intellectual property could harm our business.

Competition

     Our output management applications compete with a variety of other digital document management and production solutions on various levels. Competition for output management solutions is based primarily on product performance, functionality, price and customer service. Some of our competitors are substantially larger than we are, with greater financial, technical, marketing and other resources, more established sales channels, greater name recognition and broader product lines. Our present or future competitors could introduce products with capabilities identical to or greater than ours. Further, these competitors may have much greater financial resources than we do, which could enable them to sell competing products at prices less than we charge.

     Competition for the MicroPress can be categorized into the following four groups:

	•		manufacturers such as Xerox, which currently offer digital copiers that operate as printers through the use of RIPs and controllers, as well as host print computers;
	•		high-end electronic printing system vendors that are currently selling systems primarily to commercial and large in-house printers;
	•		RIP and controller board providers, whose products enable digital copiers to also function as printers, and which typically operate as OEMs to major, international printing equipment companies; and
	•		companies that have products with features similar to our clustering concept.

     At mid- to high-volume levels, the MicroPress MX and DX compete with high-end digital printer/copiers using RIPs and controllers, commercial printing systems and products with features similar to our clustering concept. At lower volume levels, the MicroPress SX competes with RIP and controller providers. We do not believe that any of these products offer the features and functionality of the MicroPress X Series.

     Digital StoreFront competes with similar available offerings primarily based on functionality and price. The market is highly fragmented and there is no one dominant competitor. Many of these similar offerings are sold as application service provider, or ASP, systems, in which the vendor hosts the storefront for the print provider and charges a periodic or per-transaction fee. T/R Systems believes Digital StoreFront has a competitive advantage over ASP systems in that print providers license and host Digital StoreFront, which enables them to modify their storefront as needed, better ensure the confidentiality of their customers’ information and eliminate transaction fees. Additionally, we do not believe that any of these similar products, whether or not based on an ASP system, offer the functionality and customizability at the price that Digital StoreFront offers.

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     We believe that none of our competitors is dominant in our market. Further, we do not believe that any of our competitors have competitively priced products that currently offer all of the capabilities of our applications. Additionally, we believe that none of our competitors provides a solution as complete and fully integrated as we offer. However, in the future, these or other competitors could develop similar or more advanced products than ours.

Employees

     As of January 31, 2003, we had a total of 79 employees, substantially all of whom were full-time. Of our employees, 19 were in research and development, 37 were in sales and marketing and 9 were in customer services, with the remaining 14 in operations, finance and administration. None of our employees is represented by a labor union, and we have never experienced a work stoppage. We consider our relations with our employees to be good.

Risk Factors

We have a history of losses, and we may not be able to achieve or maintain profitability.

     During fiscal 2003, T/R Systems incurred an operating loss of $14.9 million. A loss of $13.4 million was incurred in fiscal 2002. Although we had operating income of $2.5 million in fiscal 2001 and $585,000 in fiscal 2000, prior to fiscal 2000, we incurred operating losses in each fiscal year since our inception. We had an accumulated deficit of $34.5 million as of January 31, 2003, as a result of the fiscal 2003 loss and prior years’ losses. We may not be able to achieve or maintain profitability in the future. Despite cost-saving measures taken in fiscal 2002 and in fiscal 2003, including reductions in headcount, we continue to make investments in research and development, sales and marketing and our operating infrastructure. If we do not increase our revenue to a level that exceeds this spending, we will continue to have operating losses. If our revenue does not grow sufficiently, we will need time to further scale back expenses. If we are not able to react quickly enough to unanticipated decreases in revenue, we will not be able to achieve profitability. We had $6.5 million in cash and cash equivalents at January 31, 2003. During fiscal 2003, net cash used in operating activities was $6.8 million. Although we believe that the cost-saving measures mentioned above will reduce our consumption of cash in fiscal 2004, continued losses could ultimately use the remainder of our cash. In that event, we would be forced to severely curtail our operations or sell our assets.

Our operating results have fluctuated and we expect them to continue to fluctuate, so you should not rely on historical operating results as an indicator of future performance.

     Our operating results have fluctuated from quarter to quarter and year to year in the past, and we expect them to continue to fluctuate in the future. For example, we reported operating income in the first three quarters of fiscal 2001, followed by operating losses in the final quarter of fiscal 2001 and in each quarter of fiscal 2002 and fiscal 2003. As a result, you should not rely on our historical operating results as an indicator of future performance. We may experience further fluctuations in our operating results because of:

	•		competitive market conditions for our current products;
	•		the level of acceptance of new products we introduce;
	•		the general level of sales of printer/copiers which connect to our products;
	•		the cost and availability of components of our products;
	•		general economic conditions which impact the demand for information technology equipment; and
	•		variations in the proportions of hardware and software in systems we sell.

Our common stock has failed to meet the minimum bid requirement of the Nasdaq SmallCap Index, and this could eventually result in a delisting of our stock by Nasdaq.

     In November of 2002, we transferred the listing of our common stock from the Nasdaq National Market to the Nasdaq SmallCap Market due to our failure to maintain a minimum bid price of $1 for the required period under the Nasdaq listing rules. If we do not establish a minimum bid price of $1 per share for ten consecutive trading days prior to August 8, 2003, or fail to meet any of the other criteria for inclusion on that date, our common stock would be traded “over the counter,” which could cause our stock price to decline and make it difficult for shareholders to obtain accurate quotations or to dispose of our stock. Further, even if we qualify for continued listing on that date, if we fail to establish a minimum bid price of $1 per share for ten consecutive trading days prior to November 6, 2003, our common stock would be traded “over the counter”.

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     In an effort to maintain our Nasdaq listing, our board of directors may recommend that the shareholders vote to effect a reverse stock split during or prior to October 2003. There is no assurance that a reverse stock split would result in establishing a minimum bid price of $1 per share for ten consecutive trading days prior to November 6, 2003. In addition, a reverse stock split could negatively affect our trading volume due to the reduced number of shares that would be outstanding after a reverse stock split. A decline in the overall market capitalization of our stock could occur subsequent to a reverse stock split or subsequent to any announcement that the board of directors has recommended a reverse stock split.

Our stock price has been and may continue to be volatile.

     Our initial public offering was completed in January 2000. Since then, the market price of our common stock has been highly volatile and subject to wide fluctuations. Additionally, in recent years, the stock market in general, and the stock prices of technology companies in particular, have experienced extreme price fluctuations, sometimes unrelated to their operating performance. These market fluctuations may result in a material decline in the market price of our common stock. In addition to these market fluctuations, there are many factors that are likely to cause the price of our common stock to fluctuate, including:

	•		fluctuations in our quarterly operating results;
	•		failure of our quarterly operating results to meet the expectations of investors;
	•		announcements of technological innovations, new products or significant agreements by us or our competitors;
	•		changes in stock market analysts’ recommendations regarding us; and
	•		future sales of significant amounts of our common stock.

Since many of the potential end users in our market are small businesses, if their businesses fail or they cannot obtain third-party financing, our sales will decline.

     Many of the potential end-user customers in our market are small businesses and run a greater risk of business failure than large businesses, particularly in a weak economy. If their businesses fail, we will lose potential sales and our revenue may decrease. Further, if these customers are unable to obtain acceptable third party financing, they may not purchase our products. Some of our competitors are able to use their significant financial resources to offer more attractive financing terms than the financing terms otherwise available to purchase our products. These factors could limit or reduce our customer base, causing our sales to suffer.

We have historically relied on sales of one product and do not have an alternate source of significant amounts of revenue should demand for this product decline.

     To date, substantially all of our revenue has been generated from one product, the MicroPress. If potential customers choose to purchase competing products, we will lose a substantial amount of revenue. Further, our revenue has been and may continue to be adversely impacted if our customers choose to defer their purchases of the MicroPress. Additionally, this product may not be profitable for other reasons, including pricing pressures or manufacturing difficulties. If the MicroPress is not profitable, we will not be profitable.

We cannot be sure that any of our new products will be commercially successful, or that sales of one product will not negatively impact sales of another.

     In the past, we have introduced products that have not been commercially successful. For example, in fiscal 2001, we introduced e-Ticket, an Internet-based document submission and catalog application. During fiscal 2002, we made available two new products, Digital StoreFront, a fully-automated web storefront application that is designed to improve upon e-Ticket, and M@estro, a software application providing distributed output management and device management. Although these products are now commercially available, to date, our sales of these products have not been significant, and sales of M@estro have been very low. There can be no assurance that these products will receive wide-scale commercial acceptance. Failure of these products to achieve commercial acceptance may result in harm to our reputation, increased costs or lost sales.

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We derive an increasingly large percentage of our revenue from our resellers, a large percentage of which is derived from a few resellers; a loss of any of these resellers would reduce our revenue and our results of operations would suffer.

     Since fiscal 1998, our resellers have represented a significant and increasing portion of our revenue. In fiscal 2003, our largest reseller accounted for 25.1% of our total revenue, while sales to all of our resellers accounted for 73.4% of our revenue. Sales to our resellers accounted for 64.2% of our revenue in fiscal 2002 and 62.1% in fiscal 2001. If we lose one of our resellers or they decrease orders of our products, our revenue will decline and our results of operations will suffer. Additionally, a reseller could decrease its orders for our products if demand for its products declines or it chooses to purchase a competitor’s products.

Because our products depend on software licensed to us by third parties, any loss of any of these licenses would result in increased costs and production delays.

     Our products depend on software licensed to us on a non-exclusive basis by third parties. If those parties fail to continue to license their software to us or to support their software, we would incur costs and experience delays of at least several months in integrating alternate software into our products. This would result in diversion of our research and development resources, delays in production and could result in lost revenue and harm to our reputation. In some instances, there are a limited number of suppliers of specialized software and we could have difficulty in obtaining an alternate supplier.

New releases by our software suppliers or the development of superior software by their competitors could result in delays in shipment or loss of revenue.

     We may be required to expend significant time and resources to make our systems compatible with new releases by our software suppliers, which could result in product shipment and revenue recognition delays. In addition, if the competitors of our suppliers develop superior software, our products may not achieve market acceptance and we will lose revenue unless we obtain a license for the superior software. We may not be able to obtain new software licenses on commercially reasonable terms, or at all.

If third-party suppliers of equipment fail to deliver, we could incur significant costs and delays in product shipment.

     We purchase hardware, such as board components and scanners, from third-party manufacturers and resell it under our brand as part of our applications. In addition, we outsource the manufacturing of some of the hardware components of our products. If those third party manufacturers fail to deliver these products or components, we would have to find alternate suppliers, would incur significant development costs and could experience delays in product shipments. Failure to find alternative suppliers of other components could affect our product availability and sales. Additionally, since we purchase many parts and components from manufacturers in Asia, instability in this region could impact the pricing or availability of these products.

Our market is extremely competitive and many of our competitors have greater market presence and resources than we have.

     The market for our products is extremely competitive, and we expect competition to increase. Many of our existing and potential competitors have longer operating histories, significantly greater resources and greater name recognition than we have. As a result, these competitors may have an advantage over us in gaining market acceptance, may respond more effectively to changes in the market and may be able to devote greater resources to the development, promotion, sale and support of their products. Increased competition could result in a loss of revenue as a result of loss of market share and significant price reductions, which would reduce our profits.

A substantial portion of our revenue is derived from international sales, and these sales are subject to regulatory, political and currency exchange rate risk.

     Shipments to customers outside the United States represented 15.9% of our total revenue in fiscal 2003. Our international revenue could decrease if tariffs, duties or taxes increase the cost of doing business, or of our products, in foreign countries. Our foreign product sales could be limited by the imposition of government controls or political and economic instability, which would result in lower revenues. We may also experience delays in receipt of revenue or increased difficulties in collecting accounts receivable.

     Additionally, our results of operations could be harmed by changes in currency exchange rates. Currently, substantially all of our sales are denominated in U.S. dollars. If the value of the U.S. dollar increases relative to a particular foreign currency, our products could become relatively more expensive. This could result in a reduction in our sales in a particular country.

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Our market is characterized by rapid technological change, and if we fail to develop and market new technologies rapidly, our results of operations will suffer.

     Customers are continually demanding faster products with more software features and our competitors are developing new technologies to meet these demands. If we do not continually develop new technologies and improvements to our existing technologies, we will not remain competitive and our sales and results of operations will suffer.

     The product life cycle is shortening as new technologies are marketed, while development of new technologies requires an increasing amount of time and money. We may experience delays in product development due to technological constraints, which could result in lost sales. In addition, our cost to develop the technologies may be so great that we cannot make a profit selling products using these technologies. Finally, our competitors may develop technologies that make our technologies obsolete or less attractive to potential customers, which would also harm our sales.

If our products contain defects, our sales could suffer and we could have increased costs, which would hurt our results of operations.

     Complex products like ours may contain defects or errors that can only be detected when the product is in use. Despite extensive testing of our products, we may release products into the market with undetected errors, which could result in:

	•		loss or delay of revenue;
	•		loss of market share;
	•		diversion of research and development resources; or
	•		increased service and warranty costs.

     In addition, if our products are not reliable, we may lose credibility with existing and potential customers, which would result in lost sales.

We may not be able to protect our intellectual property and proprietary rights, which could harm our competitive position, resulting in decreased revenue.

     Our success is based, in part, on our proprietary technology. If we cannot protect our intellectual property and proprietary rights, we may not remain competitive. Trade secret and copyright laws provide only limited protection of our software, documentation and other written materials. We may not be able to protect our rights if the patents for which we apply or have applied are not granted or if our patents are challenged or invalidated. Further, because we sell many of our products in foreign countries where intellectual property laws are not well developed or are poorly enforced, we may not be able to protect our proprietary technology in these countries.

     A third party could reverse engineer our products, bypass hardware security devices and obtain access to our software, or independently develop similar software or proprietary information and use it to compete with us.

Infringement claims by third parties could be costly and cause product shipment delays.

     Third parties may file claims against us alleging infringement of their patents, copyrights or other intellectual property rights. Regardless of its merit, an infringement claim against us could:

	•		require significant management time and effort;
	•		result in costly litigation; or
	•		cause product shipment delays.

Further, any claims may require us to enter into royalty or licensing agreements, which may not be obtainable on terms acceptable to us.

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Our failure to retain and attract personnel could harm our business, operations and product development efforts.

     Our future success depends, in significant part, upon the continued service of key personnel and our ability to attract, retain and motivate highly qualified employees. In particular, the services of Michael E. Kohlsdorf, our president and chief executive officer; E. Neal Tompkins, our executive vice president and chief technology officer; and Michael W. Barry, our senior vice president, development and engineering, are critical to our business. If we lose any of our key personnel, or fail to attract qualified new employees, our business, operations and product development efforts would suffer. Although we have employment agreements with Messrs. Kohlsdorf and Tompkins, these agreements do not obligate them to remain in our employ. We do not have key man insurance on any of our employees.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995

     A number of the matters and subject areas discussed in this annual report on Form 10-K that are not historical or current facts deal with potential future circumstances and developments. The discussion of such matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and also may materially differ from T/R Systems’ actual future experience involving any one or more of such matters and subject areas. Such risks and uncertainties include those referred to above in the “Risk Factors” section, as well as:

	•		the impact on our revenue of a general economic slowdown;
	•		changes in purchasing patterns by our OEM resellers and end users;
	•		market acceptance of our technology and new product offerings;
	•		general economic conditions in new markets we are targeting or where our resellers are located; and
	•		other risks and uncertainties described form time to time in our reports filed with the Securities and Exchange Commission.

These risk factors should be considered by investors when reviewing any forward-looking statements contained in this annual report on Form 10-K, in any of our public filings or press releases, or in any oral statements made by T/R Systems or any of its officers or other persons acting on its behalf. The factors that could affect forward-looking statements are subject to change. We undertake no obligation to update any forward-looking statements.

ITEM 2. PROPERTIES

     T/R Systems leases its principal facility, totaling approximately 52,000 square feet, in Norcross, Georgia under a lease expiring in March 2008. Additionally, we have a training and operations facility totaling approximately 59,000 square feet of warehouse and office space in Norcross, Georgia under a lease that also expires in March 2008. Due to reductions in staff and inventory, and in an effort to lower our overall expenses, we consolidated our Norcross operations into our principal facility during the third quarter of fiscal 2003. We are actively attempting to sublet the training and operations facility or to relinquish the lease obligation. We also lease office and training facilities in Eidenhoven, The Netherlands, as well as office space in Dusseldorf, Germany and Orsay, France. We are currently attempting to sublet the space in Eidenhoven.

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ITEM 3. LEGAL PROCEEDINGS

     From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. We are not currently engaged in any legal proceedings that we expect would have a material adverse effect on our business, financial condition or results of operations.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were submitted to a vote of shareholders during the fourth quarter of fiscal 2003.

EXECUTIVE OFFICERS OF THE REGISTRANT

     Michael E. Kohlsdorf, age 47, has served as our president, chief executive officer and a director since September 1996. From 1993 to September 1996, Mr. Kohlsdorf held a variety of positions at Brock Control Systems, Inc., a sales automation software company, now known as FirstWave Technologies, Inc., most recently serving as president, chief operating officer and chief financial officer.

     Michael T. Liess, age 39, has served as our executive vice president and chief operating officer since April 2002. From January 2001 to February 2002, Mr. Liess served as vice president of direct sales at Gateway Inc., a manufacturer and distributor of personal computers. From October 1998 to December 2000, Mr. Liess served as vice president and general manager at ENCAD, Inc., a manufacturer and distributor of digital printing devices. From September 1990 to October 1998, Mr. Liess held various positions at Océ Inc., a manufacturer and distributor of printing devices, most recently serving as vice president of Western operations.

     E. Neal Tompkins, age 58, is a co-founder of T/R Systems and has served as a director and chief technology officer since our founding in September 1991. Mr. Tompkins served as our president from September 1991 until September 1996, and has served as our executive vice president since that date.

     Lyle W. Newkirk, age 50, joined us in September 1997 and has served as a senior vice president since May 2000, as well as serving as our chief financial officer, secretary and treasurer since November 1997. From 1992 to September 1997, Mr. Newkirk held various positions with Peachtree Software, Inc., a maker of accounting software, which became a subsidiary of Automatic Data Processing, Inc., a provider of technology-based outsourcing solutions, most recently serving as vice president and chief financial officer.

     Michael W. Barry, age 45, has served as our senior vice president, development and engineering since August 1998. From July 1995 to August 1998, Mr. Barry served as our vice president of systems development. Before that, he served as our director of systems development from our founding in September 1991 until July 1995.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

     Our common stock commenced public trading on January 26, 2000 on the Nasdaq National Market under the symbol “TRSI.” On November 14, 2002, we transferred our stock listing from the Nasdaq National Market to the Nasdaq SmallCap Market under the same Nasdaq trading symbol. The high and low closing sales prices for our common stock, as reported on the Nasdaq National Market, or on the Nasdaq SmallCap Market for the four quarters of the fiscal years ended January 31, 2003 and 2002 were as follows:

     As of April 10, 2003, there were approximately 127 holders of record of our common stock.

Dividends

     We have never paid cash dividends on our common stock. We currently intend to retain our earnings to fund the development and growth of our business. Further, our revolving line of credit does not allow us to declare or pay any cash dividends. Therefore, we currently do not anticipate paying any cash dividends on our common stock.

Recent Sales of Unregistered Securities

     We had no sales of unregistered securities during the fiscal year ended January 31, 2003.

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Securities Authorized for Issuance Under Equity Compensation Plans

Use of Proceeds

     In connection with our initial public offering, the Securities and Exchange Commission, or SEC, declared our registration statement on Form S-1 (file no. 333-88439) effective on January 25, 2000.

     As of January 31, 2003, we had used $18.5 million of the net proceeds from our initial public offering to fund our working capital and capital expenditure needs. None of these payments was 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 $6.9 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.

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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

     The following table summarizes selected consolidated financial data as of and for the five fiscal years ended January 31, 2003. You should read this data in conjunction with Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes.