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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 2003 Commission File Number 0-4539
TRANS-INDUSTRIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2598139
-------- -----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2637 S. Adams Road, Rochester Hills, MI 48309
---------------------------------------------
(Address) (Zip Code)
Registrant's Telephone Number, including Area Code (248) 852-1990
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 and Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
---- ----
The number of shares outstanding of registrant's Common stock, par value $.10
per share, at March 31, 2003 was 3,139,737.
TRANS-INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
FORM 10-Q - FOR THE QUARTER ENDED MARCH 31, 2003
INDEX
PART I. Financial Information
Item 1. FINANCIAL STATEMENTS
A. Consolidated Statements of Operations ---
Three months ended March 31, 2003 and 2002.
B. Consolidated Statements of Comprehensive Earnings/(Loss) ---
Three months ended March 31, 2003 and 2002.
C. Consolidated Balance Sheets ---
March 31, 2003 and December 31, 2002.
D. Consolidated Statements of Cash Flows ---
Three months ended March 31, 2003 and 2002.
E. Notes to Consolidated Financial Statements.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Item 4. CONTROLS AND PROCEDURES
2
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
A.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
QUARTER ENDED MARCH 31, 2003 AND 2002
3/31/03 3/31/02
------- -------
1. Gross sales less discounts, returns and allowances $ 8,649,800 $ 8,798,681
2. Cost of goods sold 6,058,931 5,809,546
------------- -------------
3. Gross profit 2,590,869 2,989,135
4. Selling, general and administrative exp. 2,638,388 2,290,223
------------- -------------
5. Operating income/ (loss) (47,519) 698,912
6. Other (income)/ expense
Interest expense 170,049 213,582
Restructuring costs 272,859 -
Other (income)/expense (9) 915
------------- ------------
Total other expense 442,899 214,497
------------- ------------
7. Earnings/(loss) before income taxes (490,418) 484,415
8. Income tax expense/(benefit) (17,000) 175,000
------------- ------------
9. Net earnings/(loss) $ (473,418) $ 309,415
============= ============
10. Earnings/(loss) per share (Note 6):
Basic $ (.15) $ .10
Diluted $ (.15) $ .10
============= ============
11. Dividends per share $ __ $ __
============= ============
See Notes to Financial Statements
3
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
B.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS / (LOSS) (Unaudited)
QUARTER ENDED MARCH 31, 2003 AND 2002
2003 2002
--------- ---------
Net earnings/(loss) $(473,418) $ 309,415
Other comprehensive loss:
Equity adjustment from foreign
currency translation (5,756) (57,667)
--------- ---------
Comprehensive earnings/(loss) $(479,174) $ 251,748
========= =========
See Notes to Financial Statements
4
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
C.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current Assets 3/31/03 12/31/02
(Unaudited) (Audited)
------------ ------------
Cash $ 76,060 $ 24,996
Accounts receivable 8,651,587 9,049,864
Inventories (Note 2) 10,402,553 11,069,129
Prepaid expenses 311,276 293,429
Deferred income taxes 903,000 968,000
Refundable income taxes 146,000 146,000
------------ ------------
Total current assets 20,490,476 21,551,418
Property, Plant & Equipment, at Cost
Land 220,564 220,564
Land Improvements 126,660 126,660
Buildings 5,828,737 5,825,461
Machinery & equipment 10,520,577 10,388,961
------------ ------------
16,696,538 16,561,646
Less: accumulated
depreciation (12,675,875) (12,444,923)
------------ ------------
Net plant and equipment 4,020,663 4,116,723
Other Assets
Investments in affiliates 68,484 68,484
Patents, licenses & trademarks,
net of accumulated amortization 14,969 16,168
Excess of cost of investment in
stock of subsidiary over equity in
underlying net assets of acquisition 150,369 150,369
Sundry 50,000 --
------------ ------------
Total assets $ 24,794,961 $ 25,903,162
============ ============
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities 3/31/03 12/31/02
(Unaudited) (Audited)
------------ ------------
Notes Payable (Note 5) $ 6,662,995 $ 7,072,265
Current installments
- Long term debt (Note 5) 930,845 930,845
Accounts payable - trade 3,865,631 3,441,720
Accrued liabilities 1,288,650 1,620,226
Income taxes (17,000) --
------------ ------------
Total current liabilities 12,731,121 13,065,056
Deferred income taxes - Non-current 418,000 483,000
Long term debt, less
Current portion shown above (Note 5) 2,952,155 3,185,252
Other non-current liabilities 264,729 261,729
Stockholders' Equity
Preferred stock of $1.00 par value
per share - authorized 500,000
shares; 19,000 issued 19,000 19,000
Common stock of $.10 par value per
share - authorized 10,000,000 shares;
3,139,737 shares issued 313,974 313,974
Additional paid-in capital 5,953,081 5,953,081
Retained earnings 2,058,056 2,531,469
Foreign currency translation 84,845 90,601
------------ ------------
8,428,956 8,908,125
============ ============
Total liabilities and stockholders' equity $ 24,794,961 $ 25,903,162
============ ============
See Notes to Financial Statements.
5
TRANS-INDUSTRIES, INC.
Consolidated Statements of Cash Flows
D. For the Three Months Ended March 31, 2003 and 2002
Three Months Ended March 31
-------------------------------
2003 2002
------------- -----------
(Unaudited) (Unaudited)
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings / (loss) $ (473,418) $ 309,415
Adjustments to reconcile net earnings / (loss)
to net cash provided (used) by operations:
Loss on Disposal of Vultron International Ltd. assets 272,859 -0-
Depreciation/Amortization 230,952 228,767
Deferred income tax expense (benefit) (17,000) 920,000
Decrease (increase) in accts. receiv. 430,709 (21,548)
Decrease (increase) in inventory 234,289 506,293
Decrease (increase) in prepaid exp. (50,375) 107,903
Increase (decrease) in accts. payable 499,542 (129,883)
Increase (decrease) in accr. liab. (247,683) (495,222)
Increase (decrease) in income taxes -0- (1,271,201)
Other (48,796) 1,302
----------- -----------
Net Cash Provided by Operations 831,079 155,826
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property & equipment (134,892) (74,542)
----------- -----------
Net Cash Provided (Used) by Investing (134,892) (74,542)
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of long-term
borrowings (230,097) (247,337)
Net (payment) proceeds of credit line (409,270) 231,033
----------- -----------
Net Cash Used by Financing (639,367) (16,304)
Foreign currency translation (5,756) (57,667)
----------- -----------
Net increase/ (decrease) in cash 51,064 7,313
Cash at beginning of year 24,996 161,782
----------- -----------
Cash at end of quarter $ 76,060 $ 169,095
Supplemental Disclosures:
Interest paid $ 170,481 $ 219,189
Income taxes paid $ -0- $ -0-
See Notes to Financial Statements
6
TRANS-INDUSTRIES, INC.
Consolidated Statements of Cash Flows
D. For the Three Months Ended March 31, 2003 and 2002
(Continued)
Supplemental disclosure of non-cash investing activities:
In March 2003, the Company sold certain assets of Vultron International, Ltd. In
exchange for a note receivable of $ 160,000.
See Notes to Financial Statements
7
E. TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The financial information presented as of any date other than December 31
has been prepared from the Company's books and records without audit.
Financial information as of December 31 has been derived from the audited
financial statements of the Company. In the opinion of management, all
adjustments consisting of normal recurring adjustments, necessary for a
fair presentation of the financial information for the periods indicated,
have been included. For further information regarding the Company's
accounting policies, refer to the consolidated financial statements and
related notes included in the Company's annual report on form 10-K for the
year ended December 31, 2002.
2. Inventories
The major components of inventories are:
3/31/03 12/31/02
----------- -----------
Raw Materials $ 6,127,590 $ 6,810,004
Work in Process 3,065,263 3,731,319
Finished Goods 1,209,700 527,806
----------- -----------
$10,402,553 $11,069,129
=========== ===========
3. Principles of Consolidation
There have been no significant changes in the principles of consolidation
since our most recent audited financial statements.
4. Significant Accounting Policies
There have been no significant changes in the accounting policies since our
most recent audited financial statements.
8
E. TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Long-Term Debt
Long-term debt at March 31, 2003 consisted of the following:
Term note, payable in monthly installments of $35,607 including interest at
the bank's prime rate plus 1.75% (effective rate of 6.0% at March 31, 2003)
with a balloon payment of $1,685,754 on January 1, 2005. The note is
secured by substantially all the assets of the Company. $ 2,221,095
Term note, payable in monthly installments $50,965 plus interest at the
bank's prime lending rate plus 1.75% (effective rate of 6.0% at March 31,
2003) with a balloon payment of $509,652 on January 1, 2005. The note is
secured by substantially all the assets of the Company. 1,579,921
Other 81,984
-----------
3,883,000
Less current installments (930,845)
-----------
Long-term debt $ 2,952,155
===========
The Company also has an unsecured $10,000,000 line of credit of which
$6,662,995 was utilized at March 31, 2003. Interest is charged at the
bank's prime lending rate, plus 1.75% and is payable monthly.
The line of credit agreement requires the company to earn $1.00 per month.
The agreement also restricts the payment of dividends, repurchase of common
stock, and acquisition of property and equipment. At March 31, 2003, the
Company was not in compliance with the bank loan agreement.
In November 2002, the Company was notified by its primary lender to seek
alternate financing. In March 2003; the Company signed a letter of intent
from another bank. Under the terms of the letter and subject to the bank's
final approval, the Company will replace the existing line of credit
facility and the term notes with a three year line of credit facility
allowing the Company to borrow up to $10,000,000 bearing interest at 1.25%
above the bank's prime rate, and a $5,000,000 term note, which would bear
interest at 2% over the bank's prime rate. The term note would be repaid in
equal installments over ten years.
9
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Earnings/(Loss) Per Share
For the quarters ended March 31, 2002, and 2003 all options outstanding
have been excluded from the computation of diluted earnings/(loss) per
share as the effect would be anti-dilutive.
7. Segment Information
The Company operates in one market segment, the transportation industry,
with products directed towards customers in the mass transit, highway,
airline and rental car segments. Financial information summarized by
geographic area is as follows:
3/31/03 3/31/02
-------------------------------- ----------------------------------
LONG- LONG-
LIVED LIVED
REVENUES ASSETS REVENUES ASSETS
------------ ---------- ------------ -----------
United States $ 6,728,185 $4,304,485 $ 6,826,636 $4,609,821
United Kingdom 197,658 -0- 584,105 213,494
Canada 1,722,646 -0- 1,326,324 -0-
Other 1,311 -0- 61,616 -0-
------------ ---------- ------------ -----------
Total $ 8,649,800 $4,304,485 $ 8,798,681 $ 4,823,315
============ ========== ============ ===========
8. Restructuring Costs
In March of 2003, the Company sold the assets of its foreign subsidiary, Vultron
International. As a result, the Company recorded restructuring charges in the
amount of $272,859. This primarily relates to the loss on the sale of the
inventory.
10
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Based Compensation
At March 31, the Company has a stock-based employee compensation plan, which is
described more fully in Note B & I in the Company's Annual Report. The Company
accounts for this plan under the recognition and measurement principles of APB
Opinion No. 25, Accounting for Stock Issued to Employees, and related
Interpretations. No stock-based employee compensation cost is reflected in net
income, as all options granted under those plans had an exercise price greater
than or equal to the market value of the underlying common stock on the date of
grant. The following table illustrates the effect on net earnings (loss) and
earnings (loss) per share if the company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation.
Three Months Ended March 31,
----------------------------
2003 2002
----------------------------
Net earnings (loss), as reported $(473,418) $309,415
Deduct: Total stock-based employee compensation expense determined
under fair value based method for all awards, net of tax
(10,195) (13,680)
---------- ---------
Pro forma net earnings (loss) $(483,613) $295,735
========== =========
Earnings (loss) per share:
Basic--as reported $ (.15) $ .10
Basic--pro forma $ (.15) $ .09
Diluted--as reported $ (.15) $ .10
Diluted--pro forma $ (.15) $ .09
11
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Three Months Ended March 31, 2003
Forward-Looking Statements
This discussion highlights significant factors influencing the financial
condition and results of operations of Trans-Industries, Inc. It should be read
in conjunction with the financial statements and related notes. This discussion
includes certain forward-looking statements based on management's estimate of
trends and economic factors in the markets in which the corporation is active,
as well as the corporation's business plans. In light of recent securities law
developments, including the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the corporation notes that such forward-looking
statements are subject to risks and uncertainties. Accordingly, the
corporation's actual results may differ from those set forth in such statements.
Significant changes in economic conditions, regulatory or legislative changes
affecting Trans-Industries, Inc., its competitors, or the markets in which it is
active, or changes in other factors may cause future results to vary from those
expected by the corporation.
Sales and Earnings
Sales for the quarter ended March 31, 2003 were $8,649,800 compared to
$8,798,681 for the same period a year ago. This decrease of $148,881 is
primarily attributed to Vultron International, the Company's U.K. subsidiary,
which was sold on March 7, 2003. Domestic operations showed a slight increase of
3.6 percent in revenues compared to the first quarter of last year. This is
primarily attributable to an improvement in the economy.
During the first quarter of 2003, the Company recorded a net loss of $473,418 or
($.15) per share. For the same period of the prior year, the Company reported a
net income of $309,415 or $.10 per share. The loss reported in the first quarter
of 2003 was primarily the results of the Company's foreign subsidiary which was
sold during the first quarter of 2003. Losses for this subsidiary totaled
$439,000 of which $273,000 were losses due to the sale and $166,000 were
operational losses for January and February of 2003.
Inventories
Inventory valuation is based upon the lower of cost or market. At March 31,
2003, consolidated inventories were $10,402,553 compared to $10,800,095 a year
ago. This decrease of $397,542 is a result of the Company's sale of its U.K.
subsidiary.
12
TRANS-INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For Three Months Ended March 31, 2003
Interest
Interest expense amounted to approximately $170,000 and $214,000 for the first
quarters of 2003 and 2002, respectively. This decrease of $44,000 was primarily
the result of lower debt levels and rate reductions on variable debt in 2003.
Financial Condition
Current financial resources coupled with anticipated funds from operations are
expected to meet funding requirements for the remainder of the year, based upon
present needs.
13
TRANS-INDUSTRIES, INC. AND SUBSIDIARY COMPANIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For Three Months Ended March 31, 2003
The Company is exposed to the impact of foreign currency fluctuations.
International revenue from the Company's foreign subsidiary was approximately 2%
of total revenues for three months ended March 31, 2003. The Company's primary
foreign currency exposure is the British Pound. The Company manages its exposure
to foreign currency assets and earnings primarily by funding certain foreign
currency denominated assets with liabilities in the same currency and, as such,
certain exposures are naturally offset.
The Company's financial results are affected by changes in U.S. and foreign
interest rates. The Company does not hold financial instruments that are subject
to market risk (interest rate risk and foreign exchange rate risk).
Item 4. CONTROLS AND PROCEDURES
Our Chief Executive Officer and Chief Financial Officer have concluded, based on
their evaluation within 90 days of the filing date of this report, that our
disclosure controls and procedures are effective for gathering, analyzing and
disclosing the information we are required to disclose in our reports filed
under the Securities Exchange Act of 1934. There have been no significant
changes in our internal controls or in other factors that could significant
affect these controls subsequent to the date of the previously mentioned
evaluation.
14
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.
TRANS-INDUSTRIES, INC.
Date: May 9, 2003 /s/ Kai Kosanke
----------- --------------------------------
Kai Kosanke, Treasurer
and Chief Financial Officer
Date: May 9, 2003 /s/ Keith LaCombe
----------- --------------------------------
Keith LaCombe
Assistant Treasurer
15
TRANS-INDUSTRIES, INC.
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Dale S. Coenen certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Trans-Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I (herein the
"Certifying Officer") are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a and 14 and 15d-14) for the registrant
and we have;
a) designed such internal controls to ensure that
material information relating to the registrant,
including its consolidated subsidiaries,
(collectively the "Company") is made known to the
Certifying Officers by others within the Company,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
internal controls as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report the conclusions of
the Certifying Officers about the effectiveness of
the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on
our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design
or operation of internal controls which could
adversely affect the registrant's ability to record,
process, summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's Certifying Officers have indicated in this
quarterly report whether or not there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003
/s/ Dale S. Coenen
- -------------------------------------------------------------------------------
Dale S. Coenen
Chief Executive Officer
See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.
- -------------------------------------------------------------------------------
TRANS-INDUSTRIES, INC.
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kai Kosanke certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Trans-Industries, Inc.
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I (herein the
"Certifying Officer") are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a and 14 and 15d-14) for the registrant
and we have;
a) designed such internal controls to ensure that
material information relating to the registrant,
including its consolidated subsidiaries,
(collectively the "Company") is made known to the
Certifying Officers by others within the Company,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
internal controls as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
c) presented in this quarterly report the conclusions of
the Certifying Officers about the effectiveness of
the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's Certifying Officers have disclosed, based on
our most recent evaluation, to the registrant's auditors and
the audit committee of the registrant's board of directors:
a) all significant deficiencies (if any) in the design
or operation of internal controls which could
adversely affect the registrant's ability to record,
process, summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's Certifying Officers have indicated in this
quarterly report whether or not there were significant changes
in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003
/s/ Kai Kosanke
- ------------------------------------------------------------------------------
Kai Kosanke
Chief Financial Officer
See also the certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, which is also attached to this report.
- ------------------------------------------------------------------------------
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
EX-99.1 Certification of CEO and CFO pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002