SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended July 4,October 3, 1999
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Transition Period from ______ to ______
Commission File Number 0-23808
METROTRANS CORPORATION
(Exact name of Registrant as specified in its charter)
Georgia 58-1393777
(State of Incorporation) (I.R.S. Employer
Identification No.)
777 Greenbelt Parkway, Griffin, Georgia 30223
(Address of principal executive offices, including zip code)
(770) 229-5995
(Registrant's telephone number, including area code)
_______________
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 twelve 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
_____------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
Class Outstanding at August 18,November 22, 1999
- ---------------------------- --------------------------------
Common Stock, $.01 Par Value 4,129,737 shares
METROTRANS CORPORATION
Quarterly Report on Form 10-Q
For the Quarter Ended July 4,October 3, 1999
Table of Contents
-----------------
Item Page
Number Number
______ ______- ------ ------
PART I. FINANCIAL INFORMATION
1. Financial Statements:
Consolidated Balance Sheets as of July 4,October 3, 1999 and
December 31, 1998 31998................................................. 2
Consolidated Statements of Income for the three and sixnine months
ended July 4,October 3, 1999 and July 5, 1998October 4, 1998......................... 3
Consolidated Statements of Cash Flows for the sixnine months ended
July 4,October 3, 1999 and July 5, 1998 5October 4, 1998............................... 4
Notes to Consolidated Financial Statements 6Statements........................ 5
2. Management's Discussion and Analysis of Financial Condition
and Results of OperationsOperations........................................ 9
PART II. OTHER INFORMATION
1. Legal ProceedingsProceedings................................................ 16
3. Default Under Senior Securities 18
4. Submission of Matters to a Vote of Security Holders 19Securities.................................. 17
5. Other Information 19Information................................................ 18
6. Exhibits and Reports on Form 8-K8-K................................. 19
Signatures....................................................... 20
Signature 21
Index of Exhibits 22
1
PART I. FINANCIAL INFORMATION
ITEM- ------------------------------
Item 1. Financial Statements
METROTRANS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands,Thousands, Except Share Data)
July 4,October 3, December 31,
1999 1998
(Unaudited)
ASSETS----------------- ----------------
(Unaudited)
ASSETS
CURRENT ASSETS:
CashCash........................................................................ $ 0 $ 0
Accounts Receivable,receivable, net of allowance for doubtful accounts of $490$219 and $134
in 1999 and 1998, respectively 4,610respectively............................................. 3,250 6,047
Current portion of net investment in sales-type leasesleases...................... 71 256
Inventories 27,855Inventories................................................................. 24,081 39,628
Refundable income taxestaxes..................................................... 214 2,229
Prepaid expenses and other 1,932other.................................................. 1,941 1,192
________ ________-------- -------
Total current assets 34,682assets....................................................... 29,557 49,352
PROPERTY, PLANT AND EQUIPMENT, net 8,252net........................................... 8,443 8,902
NET INVESTMENT IN SALES-TYPE LEASESLEASES.......................................... 115 130
INTANGIBLES 485INTANGIBLES.................................................................. 476 502
DEPOSITS AND OTHER 438OTHER........................................................... 428 415
________ ________-------- -------
$ 43,972 $ 59,30139,019 $59,301
======== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expensesexpenses....................................... $ 15,224 $ 24,58714,110 $24,587
Current portion of long-term debt 21,831debt........................................... 23,565 2,236
Customer deposits 1,374deposits........................................................... 853 1,211
________ ________-------- -------
Total current liabilities 38,429liabilities.................................................. 38,528 28,034
________ ________-------- -------
LONG-TERM DEBT, net of current portion 1,534portion....................................... 1,514 16,076
________ ________-------- -------
OTHER NONCURRENT LIABILITIESLIABILITIES................................................. 150 300
________ ________
STOCHOLDERS'-------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 10,000,000 shares authorizedauthorized................. 0 0
Common stock, $.01 par value; 20,000,000 shares authorized, 4,129,737 and
4,098,244 shares issued and outstandingout-standing in 1999 and 1998, respectivelyrespectively.... 41 41
Additional paid-in capitalcapital.................................................. 10,824 10,673
Deferred compensationcompensation....................................................... (53) (105)
Retained earnings (deficit) (6,953)................................................. (11,985) 4,282
________ ________
3,859-------- -------
(1,173) 14,891
________ ________-------- -------
$ 43,97239,019 $59,301
======== =======
The accompanying notes are an integral part of these balance sheets.
2
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Ended Nine Months Ended
----------------------- -------------------------
October 3, October 4, October 3, October 4,
1999 1998 1999 1998
---------- ---------- ---------- ----------
NET REVENUE $15,185 $20,282 $ 59,30152,407 $59,199
COST OF SALES 15,543 18,835 53,359 51,159
------- ------ -------- -------
Gross Profit (Loss) (358) 1,447 (952) 8,040
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES 4,195 4,063 13,924 9,828
------- ------ -------- -------
Operating Income (Loss) (4,553) 2,616 (14,876) (1,788)
INTEREST EXPENSE, net 479 365 1,391 919
------- ------ -------- -------
INCOME (LOSS) BEFORE
INCOME TAXES (5,032) (2,981) (16,267) (2,707)
INCOME TAX PROVISION
(BENEFIT) 0 (1,170) 0 (1,063)
------- ------ -------- -------
NET INCOME (LOSS) $(5,032) $(1,811) $(16,267) $(1,644)
======= ======= ======== =======
NET INCOME (LOSS) PER COMMON SHARE
BASIC $ (1.22) $ (0.44) $(3.94) $ (0.40)
DILUTED $ (1.22) $ (0.44) $(3.94) $ (0.40)
======= ======= ======= =======
WEIGHTED AVERAGE COMMON SHARES
BASIC 4,130 4,085 4,130 4,085
DILUTED 4,130 4,085 4,130 4,085
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
3
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
-------------------------------
October 3, October 4,
1999 1998
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $(16,267) $ (1,644)
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 737 492
Compensation under restricted stock award 52 79
Changes in assets and liabilities:
Accounts receivable 2,797 (5,307)
Inventories 15,547 (10,524)
Other assets 1,279 (181)
Accounts payable and accrued expenses (10,477) 9,169
Customer deposits (358) 1,129
-------- --------
Total adjustments 9,577 (5,143)
-------- --------
Net cash (used in) provided by
operating activities (6,690) (6,787)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (278) (1,852)
Net decrease (increase) in property held for lease 0 25
Net decrease in investment in sales-type leases 200 830
-------- --------
Net cash (used in) investing activities (78) (997)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) under line of credit 0 0
Net increase (decrease) in collateralized borrowings 0 (711)
Net increase (decrease) in paid in capital 151 0
Net proceeds from issuance of common stock 0 9
Net borrowings (repayments) of long-term debt 6,617 8,436
Net cash provided by (used in) 6,768 7,734
financing activities -------- --------
INCREASE IN CASH 0 (50)
CASH AT BEGINNING OF PERIOD 0 50
--------
CASH AT END OF PERIOD $ 0 $ 0
======== ========
CASH PAID FOR INTEREST $ 1,391 $ 845
======== ========
CASH PAID FOR TAXES $ 0 $ 0
======== ========
The accompanying notes are an integral part of these balance sheets.
3
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
Three Months Ended Six Months Ended
__________________ ________________
July 4, July 5, July 4, July 5,
1999 1998 1999 1998
_______ _______ ______ ______
NET REVENUE $ 19,755 $ 22,899 $ 37,222 $ 38,917
COST OF SALES 19,131 18,528 38,188 32,324
_________ _________ _________ _________
Gross Profit (Loss) 624 4,371 (966) 6,593
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 5,006 2,857 9,356 5,765
_________ _________ _________ _________
Operating Income (Loss) (4,382) 1,514 (10,322) 828
INTEREST EXPENSE, net 472 275 913 554
_________ _________ _________ _________
INCOME (LOSS) BEFORE
INCOME TAXES (4,854) 1,239 (11,235) 274
INCOME TAX
PROVISION (BENEFIT) 0 486 0 107
_________ _________ _________ _________
NET INCOME (LOSS) $ (4,854) $ 753 $ (11,235) $ 167
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE:
Basic $ (1.18) $ 0.18 $ (2.73) $ 0.04
========= ========= ========= =========
Diluted $ (1.18) $ 0.18 $ (2.73) $ 0.04
========= ========= ========= =========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic 4,130 4,084 4,117 4,084
========= ========= ========= =========
Diluted 4,130 4,121 4,117 4,121
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
4
METROTRANS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
__________________
July 4, July 5,
1999 1998
_______ _______
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (11,235) $ 167
_________ _________
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 883 351
Compensation under restricted stock award 52 52
Changes in assets and liabilities:
Accounts receivable 1,437 (4,140)
Inventories 11,773 (5,778)
Other assets 1,269 (91)
Accounts payable and accrued expenses (9,212) 4,494
Customer deposits 163 884
_________ _________
Total adjustments 6,365 (4,228)
_________ _________
Net cash (used in) provided by
operating activities (4,870) (4,061)
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (233) (930)
Net decrease (increase) in property held for lease 0 214
Net decrease in investment in sales-type leases 200 349
_________ _________
Net cash (used in) investing activities (33) (367)
_________ _________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) under line of credit (185) 0
Net increase (decrease) in collateralized borrowings 0 355
Net borrowings (repayments) of long-term debt 5,088 4,073
_________ _________
Net cash provided by (used in)
financing activities 4,903 4,428
_________ _________
INCREASE IN CASH 0 0
CASH AT BEGINNING OF PERIOD 0 50
_________ _________
CASH AT END OF PERIOD $ 0 $ 50
========= =========
CASH PAID FOR INTEREST $ 912 $ 260
========= =========
CASH PAID FOR TAXES $ 0 $ 0
========= =========
The accompanying notes are an integral part of these statements.
5
METROTRANS CORPORATION
Notes to Consolidated Financial Statements
July 4,October 3, 1999
1. Basis of Presentation
---------------------
The financial statements include the accounts of Metrotrans Corporation and
its Subsidiary (the "Company"). The financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and, therefore, omit certain information and footnotes required by
generally accepted accounting principles for complete financial statements.
Accordingly, these statements should be read in conjunction with the Company's
audited financial statements included in its Annual Report on Form 10-K for the
year ended December 31, 1998, filed with the Securities and Exchange Commission.
In the opinion of management, the financial statements contain all
adjustments necessary for a fair presentation of the financial position, results
of operations and cash flows for the periods presented. The adjustments were of
a normal recurring nature. Results presented for the sixnine months ended July 4,October
3, 1999 are not necessarily indicative of results that may be expected for the
full fiscal year.
2. Inventories
-----------
Inventories consist of (in thousands):
July 4, 1999 December 31, 1998
Chassis awaiting conversion $ 2,455 $ 3,958
Raw materials 5,476 6,061
Work in process 1,220 2,937
Finished goods 3,254 19,888
Used vehicles 5,450 6,784
_______ _______
$27,855
October 3, 1999 December 31, 1998
--------------- -----------------
Chassis awaiting conversion $ 2,660 $ 3,958
Raw materials 5,512 6,061
Work in process 2,451 2,937
Finished goods 10,696 19,888
Used vehicles 2,762 6,784
------- -------
$24,081 $39,628
6
5
3. Commitments and Contingencies
-----------------------------
The Company enters into various leasing arrangements with customers and
leasing companies. Certain leases contingently obligate the Company to indemnify the leasing
company for any losses it incurs up to a specified amount on the lease in the
event the lessee defaults. In addition, the Company enters into certain
agreements with financial institutions whereby the Company guarantees varying
amounts of customers' purchase debt obligations. The Company's obligation under
these guarantees becomes effective in the case of default in payments or certain
other defined conditions. The Company's aggregate potential liability under
these arrangements as of July 4,October 3, 1999 and December 31, 1998 was $17 million
and $15 million, respectively. During the sixnine months ended July 4,October 3, 1999, the
Company purchased buses totalingfor an aggregate amount of approximately $90,000 related
to lease defaults and litigation settlements on sales from prior periods.
Purchases to date have been or are expected to be sold to third parties at or
above amounts approximating the purchase price.
The Company is involved in certain legal matters primarily arising in the
normal course of business. In the opinion of management, the Company's
liability in any of these matters will not have a material adverse effect on its
financial condition or results of operations. The Company is also involved in
other litigation that is discussed in Item 1 of Part II of this Quarterly
Report on Form 10-Q.
4. New Accounting Pronouncements
-----------------------------
The Company has no Other Comprehensive Income Items as defined by SFAS No.
130.
In July 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Instruments and for Hedging Activities". The
Company does not presently have any hedging operations.
7
6
5. Long-Term Debt
---------------
Effective April 12, 1999, the Company entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended Facility,
the Company obtained a waiver of all defaults which existed under the unsecured
credit facility. The Amended Facility provides a commitment of up to $23
million, an increase of $3 million. Interest under the Amended Facility is at
prime. In connection with the Amended Facility, the Company has pledged a
security interest in substantially all of its assets. The $23 million
commitment is subject to certain automatic reductions, including reductions
related to decreases in the Company's level of inventory and an automatic
reduction on December 31, 1999 to $20 million. Under the Amended Facility, the
Company is subject to certain financial covenants, including a restriction on
total capital expenditures of $500,000 in any calendar year, a prohibition on
the payment of any cash dividends, as well as restrictions on maximum inventory
levels and other covenants related to net income and tangible net worth.
As a result of the second quarter loss, as of July 4, 1999, the Company was
not in compliance with certain financial covenants contained in the Amended
Facility, including financial covenants related to the maintenance of specified
levels of tangible net worth and net income. As of August 18,
1999, the CompanyThe company has entered into
acertain forbearance agreementagreements dated August 23, 1999, September 30, 1999 and
October 21, 1999, with the lender (the "Forbearance Agreement"Agreements"), under which
the lender has agreed to forbear until September 30,December 31, 1999 from exercising its
rights and remedies under the Amended Facilityamended facility with respect to the non-compliance.non-
compliance. Upon the expiration of the Forbearance Agreement,Agreements, unless the
Company obtains a waiver of the noncompliance, or is able to negotiate amended
terms to the Amended Facility, the lender will be entitled to exercise its
rights and remedies under the Amended Facility which include ceasing additional
advances under the Amended Facility and/or demanding payment in full of the
outstanding borrowings under the Amended Facility. If the lender were to take
any of these actions, the Company's operations and financial condition willwould be
materially and adversely affected unless it iswere able to secure either new third
party financing under terms and conditions reasonably satisfactory to the
Company. The Company is
currently in discussions with the lender regarding an amendment to the terms
of the Amended Facility.or new equity.
Additionally, pursuant to the terms of the Amended Facility, in August
1999, the total commitment under the Amended Facility was automatically reduced
by approximately $670,000. The Company has entered into a Fifth Amendment to
the Company's credit facility (the "Fifth Amendment") which contains a technical
correction to the method used to determine the amount of the August 1999
commitment reduction. Also, subsequent to that and in concurrence with the
October 21, 1999 forbearance agreement which contains certain payment
requirements towards the reduction of the loan commitment, loan reductions were
made in the amounts of $1,080,000 and $500,000 respectively on November 3, 1999
and November 18, 1999. This principal pay down was accomplished with net sale
proceeds from the sale of certain non-essential assets as required by the
October 21, 1999 forbearance agreement. As of November 19, 1999, these
reductions have reduced the existing credit facility to approximately
$20,750,000.
7
The foregoing is not a complete description of the terms of the Forbearance
AgreementAgreements or the Fifth Amendment or the transactions contemplated thereby and
is subject to and qualified in its entirety by reference to the Forbearance
AgreementAgreements and the Fifth Amendment, which arewere previously filed as Exhibits 10.2with
the Company's Second Quarter 1999 Form 10-Q and 10.3 hereto respectively.Current Reports on Form 8-K.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
In addition to historical information, this Quarterly Report on Form 10-
Q10-Q
contains "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 (the "Securities Act"), as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used
in this report, the words "may," "could," "should," "would," "believe,"
"anticipate," "estimate," "expect," "intend," "plan" and similar expressions or
statements regarding future periods are intended to identify forward-looking
statements. All forward-looking statements are inherently uncertain as they are
based on various expectations and assumptions concerning future events, which by
their nature involve substantial risks and uncertainties beyond Metrotrans
Corporation's control. Among other things, these risks and uncertainties
include: the availability of third party lending on terms favorable to the
Company; changes in price and demand for the Company's products; the ability of
the Company to attract and retain qualified management, manufacturing and sales
personnel; the ability to control manufacturing costs, overhead and Selling,
General and Administrative expenses; the effects of competition; changes in
accounting policies and practices; the ability of the Company, its vendors,
suppliers and customers to be Year 2000 compliant; the ability to complete the
implementation of a manufacturing cost accounting system; the ability to obtain
chassis and other materials on a timely basis on terms acceptable to the
Company; and the ability to satisfactorily resolve litigation and vendor claims.
Forward-looking statements may also be made in Metrotrans Corporation's other
reports filed under the Exchange Act, press releases, and other documents; as
well as by management in oral statements. Metrotrans Corporation undertakes no
obligation to update or revise any forward-looking statements for events or
circumstances after the date on which such statement is made. New factors emerge
from time to time, and it is not possible for Metrotrans Corporation to predict
all of such factors. Further, Metrotrans Corporation cannot assess the impact
of each such factor on its business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
Overview
The Company was incorporated in 1982 for the purpose of designing,
manufacturing and marketing shuttle and mid-size buses. After the introduction
of the Classic(Classic(R) in 1986, the Company experienced significant growth in unit
sales and revenues but total unit sales have decreased over the past three
years, primarily due to a decrease in sales of Classic models for transit use
offset somewhat by the introduction of new products. The Company's product
development strategy is to design and introduce new products after clearly
identifying a market need based, in large part, on suggestions made by existing
and potential customers. This approach resulted in the introduction of the
Eurotrans(Eurotrans(R) in 1990, the Eurotrans XLT(XLT(R) and the Classic II(II(R) in 1992, the
Classic Commuter(Commuter(R) in 1993, the Legacy LJ by Metrotrans(Metrotrans(TM) in 1996, the
Anthem(Anthem(TM) in 1997, and the Classic XLT (XLT(TM) in 1998. The Anthem (tm)Anthem(TM) product line
is still under development and no sales have been made. Metrotrans began
exclusive marketing of the Irizar Century for North America in 1997 with the
first deliveries occurring in the secondthird quarter of 1998.
9
Results of Operations
The Company's results for the first quarter and first sixnine months of
operations were adversely affected by a number of factors, including a change in
management personnel involving The Mayflower Corporation plc ("Mayflower")
representatives who occupied key management positions in the Company from
November 1998 to February 1999 and the medical leave of D. Michael Walden,
Chairman and CEO. Mayflower also was obligated under its loan agreement with
the Company to lend it up to $15 million. As of December 31, 1998, the Company
had borrowed $1.9 million under this agreement and in January 1999 requested
additional advances under the agreement. Mayflower refused to make advances as
required under the loan agreement and their personnel, who occupied key
management positions, left the Company. These two occurrences caused
significant problems for the Company, including liquidity problems. The
liquidity problems caused concern to customers, vendors and the financing
institutions, which provide financing for the Company's new bus sales. In some
cases, vendors slowed or stopped deliveries of parts and customers deferred or
cancelled orders. Accordingly, production schedules could not be met, buses
could not be delivered as planned, and production levels had to be curtailed.
As a result, the Company's margins and net income have decreased significantly.
The Company entered into an amended secured revolving credit arrangement with
its primary lender on April 12, 1999. In addition, due to the illness of the
Chairman of the Board and Chief Executive Officer, as well as the departure of
the Mayflower management team, it was necessary for the Company to employ an
interim Chief Executive Officer in March 1999. The Company named a new permanent
Chief Executive Officer in July 1999.
During the second quarterand third quarters of 1999, plans for significant
reductions in ongoing costs (manufacturing overhead, selling, general and
administrative costs) were implemented. In addition, further reductions in
direct labor personnel were accomplished and reorganization of the manufacturing
process was
initiated and is expected to bein second quarter was completed in the third quarter. The
total number of employees at October 3, 1999 was 256 as compared to 332 at July
4, 1999 was 332 as compared toand 374 at December 31, 1998. A review of cash, inventory and accounts
payable management has taken place during the secondthird quarter and inventories and
accounts payable have been reduced significantly since 1998 year end ($11.815.5
million and $9.4$10 million respectively). The changes referred to above were
necessary and were facilitated by additional borrowings of $3.0 million in
April, 1999 and required the use of outside consultants as well as legal
advisors during the nine months of 1999 to deal with the numerous legal
(including Mayflower) and other operational matters which required immediate and
significant attention. See "Part II, Item I - Legal Proceedings" for further
information regarding litigation.
A review of the sales and internal organization was completed in late July
1999 and a corporate-wide internal reorganization of Senior Management was
implemented at that time, as wastime. During the hiringthird quarter, additional organizational
changes were made to improve and streamline operations in the administrative and
financial departments, including further training of a new Chief Financial
Officer, Mr. David Breweremployees in August, 1999.the use of
existing financial software.
10
Irizar sales in the first sixnine months were less than originally planned,
and sales for the third and fourth quarter are also expected to be below the prior year
primarily because of the Company's cash constraints. Management
is currently discussing with Irizar future productionconstraints and sales issues. In
addition, the Company has met with Irizar representatives and our chassis
supplier (Spartan) and it's suppliers to determine the need for and typecontinuation of corrective
actionactions on various mechanical problems which have occurred on certain Irizar
buses previously sold. Customers have been notified of these
stepsManagement anticipates additional discussions during the
fourth quarter with Irizar regarding future production and corrective actionwhether or not the
existing sales and distribution agreement between Irizar and the Company will be
taken on the buses beginning in the third
quarter.continued.
Ford Motor Company (the Company's primary supplier for chassis) notified
the Company on May 21, 1999 that they were reviewing their payment terms with
the Company. The Company has satisfactorily concluded those discussions and
continues to receive all chassis ordered (but with(with some delays as a result ofresulting from Ford's
production schedules), paying Ford dealers as agreed upon for current as well as
prior chassis deliveries. In addition,Negotiations between the Company is now
negotiatingand Ford Motor
Credit Corp. regarding a new credit facility with Ford Motor Credit Corp which is expected to result in more
favorable repayment terms than were previously granted to the Company.
In orderCompany, were
halted by Ford Motor Credit Corp. pending the outcome of discussions between the
Company and its primary lender regarding the issues reflected in the current
forbearance agreement.
During September, 1999, the Company, in response to continuerequests from its
primary lender for a more definitive strategic plan related to outstanding loan
balance repayment, instituted a three part action plan as follows:
a.) Identification of "non-strategic" assets which could be sold without
an adverse effect on the Company's market position or continuing
operations.
b.) Operation of the "continuing enterprise" using existing accounts
receivable collections as the primary source of working capital,
protecting the lender's collateral position.
c.) Engagement of an investment banking firm to identify potential
replacement lenders or equity investors to replace the lender's loan
position.
As part of the Company's "non-essential" assets sales, efforts were
continued to reduce the existing inventory of used buses (406(341 units at October
3, 1999 compared with 406 units at December 31, 1998 compared with 341 units at July 4, 1999),1998). In recognition of the
need to more quickly reduce used bus inventory, and in recognition of the increased
used bus market competition, the Company has initiatedimplemented a new marketing plan for
used buses. MoreSelect used bus inventory will bewas moved out of the Bus Pro location in
McDonough, Georgia during third quarter to various sales office locations
throughout the United States for direct selling from these regional offices.
Inventory carrying values were reduced to facilitate faster inventory turnover
of the used and demonstrator buses.buses, particularly in response to the Company's
major lender's requests for liquidation of these non-essential assets.
11
The following table sets forth, as a percentage of net revenue, the
relationship of selected items included in the Company's income statement for
the periods indicated.
Three Months Ended Six Months Ended
July 4, July 5, July 4, July 5,
1999 1998 1999 1998
Net revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 96.8 80.9 102.6 83.1
Gross profit (loss) 3.2 19.1 (2.6) 16.9
Selling, general and
administrative expenses 25.3 12.5 25.1 14.8
Operating Income (Loss) (22.1) 6.6 (27.7) 2.1
Interest expense 2.4 1.2 2.5 1.4
Income (Loss)
before income taxes (24.5) 5.4 (30.2) 0.7
Income tax provision 0 2.1 0 0.3
Net Income (24.5)% 3.3 % (30.2)% 0.4%
Three Months Ended Nine Months Ended
----------------------- ----------------------
October 3, October 4, October 3, October 4,
1999 1998 1999 1998
--------- ---------- ---------- ----------
Net revenue........... 100.0% 100.0% 100.0% 100.0%
Cost of sales......... 102.4 92.9 101.8 86.4
------ ------ ------ ------
Gross profit (loss)... (2.4) 7.1 (1.8) 13.6
Selling, general and
administrative expenses 27.6 20.0 26.6 16.6
------ ------ ------ ------
Operating Income (Loss) (30.0) (12.9) (28.4) (3.0)
Interest expense...... 3.2 1.8 2.7 1.6
------ ------ ------ ------
Income (Loss)
before income taxes. (33.1) (14.7) (31.0) (4.6)
Income tax provision.. 0 (5.8) 0 (1.8)
------ ------ ------ ------
Net Income (33.1)% (8.9)% (31.0)% (2.8)%
====== ====== ====== ======
Net Revenue. Net revenue decreased 13.7%25.1% to $19.8$15.2 million for the quarter
ended July 4,October 3, 1999 from $22.9$20.3 million for the comparable prior year period
and decreased 4.4%11.5% to $37.2$52.4 million during the first sixnine months of 1999 from
$38.9$59.2 million over the same six-monthnine-month period in 1998.
The decrease in revenue in the secondthird quarter of 1999 is primarily due to
the decrease in Irizar sales in that quarter.inadequate cash flow and working capital. In the secondthird quarter of 1998 (when the
Irizar coach was first introduced), 118 units were sold for $3.6$2.8 million, while
none were sold in the secondthird quarter of 1999, only 2 Irizars were sold and
were higher than in the first quarter of 1999 when total manufactured sales
were 209 units.1999.
Unit sales in the secondthird quarter of 1999 of 263were 207 Classics, 143 Eurotrans and
125 Legacy LJ by Metrotrans were virtually the same as the second quarter
of the prior year.buses. Irizar sales for the secondthird quarter and the
first sixnine months decreased partially as a result of financing issues caused by
Mayflower's refusal to fund it's commitments which began during the last quarter
of 1998 and continued through the current quarter.quarter, and partially as a result of
the continuation of corrective actions on various mechanical problems with
certain of the Irizar buses previously sold. As a result, the sales backlog for
Irizars existing as of December 31, 1998 was dissipated and sales efforts wereduring
the first nine months of 1999 have been very limited.
Used bus sales decreased in the secondthird quarter from $2.9$1.7 million in 1998 to
$2.2$1.5 million in 1999 or a decrease of 24.2%11.8% and for the first sixnine months
decreased from $5.9$7.5 million to $3.4$4.9 million or 42.4%34.7%. The sales results of 1999
were lower in boththe three quarters of 1999 because of more competitive used bus
markets in 1999.1999 versus the same time periods in 1998.
12
Production backlog at the end of the secondthird quarter of 1999 was
approximately $29$22.9 million for buses to be manufactured in the U.S. This
compares with a backlog of approximately $30$26 million at the end of the secondthird
quarter of 1998, exclusive of Irizar backlog at July 5,October 4, 1998 of $13$12 million.
There is no current firm backlog for Irizar salesbuses but the Company is meeting
with certain key customers regarding future orders.orders, pending their evaluation of
the corrective actions to various mechanical problems described earlier in this
summary.
Cost of Sales and Gross Profit. Gross profit declined to $624loss was $358 thousand in
the secondthird quarter of 1999 from $4.371compared to a gross profit of $1.447 million in the
secondthird quarter of 1998. For the first sixnine months of 1999, gross profit loss was
$966$952 thousand compared to a profit of $6.593$8.040 million for the same period in
1998.
The decrease in gross profit in the secondthird quarter was due to a number of
factors including $1.8 million write down of Bus Pro used bus inventory,
reduction in new bus sales of $5.1 million (a 25.1% decrease), a decrease$250 thousand
reserve for a project involving the sale of approximately $700,000 on margin earned on
the Irizar salesdemonstration units and a $100
thousand reserve for a joint venture project in the second quarter of 1998 versus the second quarter of
1999 and the related decrease in finance income of $400,000 in 1999 on
financing fees earned on Irizar and other lease transactionsMexico initiated in
1998. In
addition, approximately $3.6 millionWhile sales were significantly lower in period comparison, other cost of
manufactured busesgoods sold in the second
quarter of 1999 were units manufactured in the fourth quarter of 1998 or in
some cases the first quarter of 1999 with virtually no gross profit. If
these 1999 second quarter sales had a margin similar to the margin realized
in the second quarter of 1998 (19%), the gross margin in the second quarter
of 1999 would have been increased by approximately $775,000. The reasons
these units carried no margin in the second quarter of 1999 werecategories such as direct labor cost and overheads remained
relatively constant as a resultpercent of the losses incurred in the prior two quarters.
During the secondsales.
Third quarter efforts were made to reduce manufacturing costs, including direct labor
and overhead and improving production throughput. As a result,throughput were offset by the gross profit for the second quarter (3.2%)
offset somenet effect
of the loss reported in the first quarterextraordinary items resulting in a 2.6%gross profit loss of 2.4% for the quarter
and a 1.8% loss on the gross margin line for the sixnine months ended July 4,October 3, 1999 as
compared to thea profit for the sixnine months ended July 5,October 4, 1998 of 16.9%13.6%. The
decrease between years was caused by the factors mentioned above forand a 23.1%
decrease in sales from the secondprevious quarter and also because of theas well as manufacturing issues
previously discussed previously under "Results of Operations."
The total amount of new bus sales for the six
month period with little or no margin (as described above) was approximately
$10 million (approximately $1.9 million in lost margin).
In addition, because of the Company's need for liquidity and conversion
of receivables and inventory into cash, the Company has reduced its carrying
value of its used bus and demonstrator inventory by approximately $1.1
million in 1999 to facilitate more timely sales.
13
Selling, General and Administrative Expenses and Operating Income.
Selling, general and administrative expenses for the secondthird quarter of 1999 were
approximately $5.0$4.2 million or an increase of $2.1versus $4.1 million overfor the corresponding quarter in
1998. Substantially allIncluded in the third quarter 1999 were $986,000 of the increases are due
to: (1) significantexpenses for
professional fees for legal counsel and lender-requested "management
turnaround" consultants incurred because of significant litigation and operating and
financial issues ($0.9 million), (2) write-off of old receivables and other
assets, providing for lease guarantees from prior years sales where lessees
have or are expected to default on obligations the Company has guaranteed or
adjusting carrying values of assets ($1.3 million) and (3) severance pay and
contractual payments to employees no longer active with the Company ($0.2
million). These increaseswhich have been partially offset byincurred during second and third
quarters, 1999. When compared to the same quarter for the prior year, the third
quarter net of these extraordinary expenses reflects a 21.0% decrease in
selling, general and administrative expense from the prior year. Additionally,
excluding the same comparable extraordinary expenses of $1.2 million from second
quarter 1999 and the $986,000 from third quarter 1999, reflects a $628,000
decrease in all other selling, expense reductions.general and administrative expenses from second
quarter to third quarter of 1999.
Selling, general and administrative expenses for the first sixnine months of
1999 were approximately $9.4$13.9 million or an increase of $3.6$4.1 million over the
prior year for the reasons described above. For the sixnine months ended July 4,October
3, 1999, the total adjustments to carrying values of assets and provisions for
losses were $2.6$5.3 million, and professional fees totaled $1.5$2.6 million.
Interest Expense. Interest expense of $475,000$479,000 in the secondthird quarter of
1999 increased 70.0%31.2% from $275,000$365,000 for the prior year's comparable quarter and
increased from $554,000$919,000 to $911,000$1,391,000 through the sixnine months ending July 4,October 3,
1999 as compared to the same time period in 1998. The increase for the quarter
primarily was the net result of a reduction in the amount of interest
paid to Ford Motor Credit Corporation ("FMCC") for chassis held under its
consignment pool agreement in excess of an initial 90-day non-interest
bearing period, an increase in the overall rate of interest paid
on borrowings under terms of the revised revolving credit facility and an
increase in the average balance outstanding under the facility during the
quarter.quarter, partially offset by a reduction in the amount of interest paid to Ford
Motor Credit Corporation for chassis held under its consignment pool agreement
in excess of an initial 90-day non-interest bearing period.
Liquidity and Capital Resources
Net cash used in operating activities during the sixnine months ended July
4,October
3, 1999 totaled $4.9$6.7 million compared with cash used in operating activities of
$4.1$6.8 million in the comparable 1998 period. Decreases in accounts receivable and
inventory of $11.8$2.8 million and $1.4$15.5 million, respectively, and a reduction by
a $9.2$10.5 million in accounts payable, were primarily responsible for the cash used
in operating activities during the period. The decrease in inventory resulted
primarily from the sales of finished goods inventory, a reduction of raw
materials and work in process inventory and net reductions in the used bus and
demonstrator inventory.
Under the Amended Facility, the Company is limited in Capital Expenditures
and will be required to use substantially all cash flow to fund future
operations and reduce outstanding debt. Please see Item 3 of Part II hereof for
a description of the Amended Facility.
The Company does not anticipate receiving any additional funding under the
Mayflower Agreement nor does the Company intend to repay the existing $1.9
million advance made under the Mayflower Loan Agreement pending resolution of
the pending litigation between the parties.
14
Effective April 12, 1999, the Company entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended
Facility, the Company obtained a waiver of all defaults which existed under
the unsecured credit facility. The Amended Facility provides a commitment of
up to $23 million, an increase of $3 million. Interest under the Amended
Facility is at prime. In connection with the Amended Facility, the Company
has pledged a security interest in substantially all of its assets. The $23
million commitment is subject to certain automatic reductions, including
reductions related to decreases in the Company's level of inventory and an
automatic reduction on December 31, 1999 to $20 million. Under the Amended
Facility, the Company is subject to certain financial covenants, including a
restriction on total capital expenditures of $500,000 in any calendar year, a
prohibition on the payment of any cash dividends, as well as restrictions on
maximum inventory levels and other covenants related to net income and
tangible net worth.
As a result of the second quarter loss, as of July 4, 1999, the Company
was not in compliance with certain financial covenants contained in the
Amended Facility, including financial covenants related to the maintenance of
specified levels of tangible net worth and net income. As of August 18,
1999, the Company has entered into a forbearance agreement with the lender
(the "Forbearance Agreement"), under which the lender has agreed to forbear
until September 30, 1999 from exercising its rights and remedies under the
Amended Facility with respect to the non-compliance. Upon the expiration of
the Forbearance Agreement, unless the Company obtains a waiver of the
noncompliance, or is able to negotiate amended terms to the Amended Facility,
the lender will be entitled to exercise its rights and remedies under the
Amended Facility which include ceasing additional advances under the Amended
Facility and/or demanding payment in full of the outstanding borrowings under
the Amended Facility. If the lender were to take any of these actions, the
Company's operations and financial condition will be materially and adversely
affected unless it is able to secure new third party financing under terms
and conditions reasonably satisfactory to the Company. The Company is
currently in discussions with the lender regarding an amendment to the terms
of the Amended Facility.
Additionally, pursuant to the terms of the Amended Facility, in August
1999, the total commitment under the Amended Facility was automatically
reduced by approximately $670,000. The Company has entered into a Fifth
Amendment to the Company's credit facility (the "Fifth Amendment") which
contains a technical correction to the method used to determine the amount of
the August 1999 commitment reduction.
15
Year 2000 Issues. Like many other companies, the year 2000 computer issue
creates risks for the Company. If internal systems do not correctly recognize
and process date information beyond the year 1999, there could be an adverse
impact on the Company's operations. There are two other related issues, which
could also lead to incorrect calculations or failures; (i) some systems'
programming assigns special meaning to certain dates, such as 9/9/99, and (ii)
the fact that the year 2000 is a leap year. The Company's manufacturing and
distribution operations are not critically dependent on any mainframe, mini-computermini-
computer or personal computer-based systems or software applications. The
Company is implementing a plan to modify its information technology for the year
2000. During the past two years, the Company has implemented a program designed
to update its information systems. Although the implementation of the program
primarily is intended to provide better operating systems and accounting,
inventory and production controls, the Company has been aware of the year 2000
issues in its selection of hardware and software. The third party vendors that
have supplied new hardware and software have informed the Company that the new
systems and software are year 2000 compliant. The Company has experienced some
delays in the implementation and integration of the new systems; although the
Company has completed and tested substantially all of the major systems which
have been made Y2K compliant and anticipates that the balance of existing
systems will made Y2K compliant and be operational prior to December 31, 1999.
The cost to complete this process is expected to be less than $25,000. As of
July 4,October 3, 1999, the Company has incurred approximately $27,000 in year 2000
expenses. The amount may increase as additional information is obtained to
complete the replacement and conversion process.
The Company is also assessing the impact of the year 2000 issue on its major
vendors and suppliers to determine the extent to which the Company is vulnerable
to those third parties' failure to remediate their own year 2000 issues. Based
on information presently available, the Company does not anticipate any material
impact on its financial condition or results of operations from the effect of
the year 2000 issue or the Company's internal systems or those of its major
suppliers and customers. However, there can be no guarantee that the systems of
other companies on which the Company's system rely will be brought to
compliance, or that a failure to convert by another company would not have a
material adverse impact on the Company.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Jerry J. Schweiner- ----------------------------
Michael Stucchio, on behalf of himself and all others similarly situated,
-------------------------------------------------------------------------
and derivatively on behalf of the Nominal Defendant v. D. Michael Walden, M.
- ------------------------------------------------------------------------------
Earl Meck, Randolph B. Stanley, Terri B. Hobbs, Patrick L. Flinn, William C.
- ------------------------------------------------------------------------------
Pitt, III, George B. Mathews, Jr., and Metrotrans Corporation, Superior Court for
Spalding, State of Georgia, Civil Action File No. 98-CV-1994. In November,
1998, the Company gave notice of termination of Jerry J. Schweiner's
employment with the Company. Mr. Schweiner had served as President and Chief
Operating Officer of the Company since April 1998. On December 29, 1998, Mr.
Schweiner filed a Complaint against the Company alleging that the Company
wrongfully terminated him in violation of his employment contract with the
Company. In July 1999, Mr. Schweiner and the Company, without either party
admitting liability, reached an agreement settling the lawsuit. In
connection with the settlement, the Company has agreed to pay Mr. Schweiner
$87,500.00 in six installments.
16
Metrotrans Corporation v. The Mayflower Corporation, plc, and Mayflower
(U.S. Holdings), Inc., United States
- ------------------------------------------------------------------------------
District Court for the Northern District of Georgia, Atlanta Division, Case No.
1:99-CV-0681-WBH.99-CV-2157-WBH. On March 15,August 23, 1999, Plaintiff filed his Complaint in the
Company filedabove-referenced action. Plaintiff's Complaint asserted the following claims
against the individual defendants derivatively, individually, as a Complaint against Defendants Mayflower, and its
subsidiary, Mayflower (U.S. Holdings), Inc. In its Complaint, the Company
seeks compensatory damages in excess of $4,682,000, punitive damages, and
specific performance of the Mayflower Agreement and the Loan Agreement
between the Company and the Defendants based on theories of breach of
contract, quantum meruit, promissory estoppel,class
representative: intentional breach of fiduciary duty, and
fraudulent misrepresentation and concealment. The Company's Complaint is
based in part on the fact that Mayflower has refused to fund additional loans
to the Company under the Loan Agreement or to pay a fee for the Company's
provision of material assistance, at Mayflower's request, in connection with
Mayflower's acquisition of Dennis Group, plc. On April 14, 1999, the
Mayflower Defendants filed their Answer and Counterclaim, as well as a Motion
to Join Indispensable Parties seeking to add seven of the Company's current
or former officers or directors. The Company has opposed the Mayflower
Defendants' Motion to Join Indispensable Parties, but, before the Company was
able to respond to the Mayflower Defendants' Counterclaim, the Mayflower
Defendants filed an Amended Counterclaim. In the Amended Counterclaim, filed
May 3, 1999, the Mayflower Defendants seek either rescission of the Mayflower
Agreement and the Loan Agreement, or compensatory and punitive damages, based
on seven causes of action: securities fraud under Federal and Georgia law,
common law fraud, negligent misrepresentation, breach of contract and a
derivative claim for breach of
fiduciary duties. On May 27, 1999, the
Company filed its Motion to Dismiss the Mayflower Defendants' Amended
Counterclaim. The Company's Motion is fully briefed, and the parties are
awaiting the Court's decision. In light of the Company's pending Motion to
Dismiss, the Court has entered into an order staying all discovery in the
case.
Demand Under O.C.G.A. 14-2-742. On July 29, 1999, Michael Stucchio,
one of the Company's shareholders, demanded through his counsel that the
Company file a lawsuit against certain individual officers and directors for
their alleged breaches of fiduciary duty, unjust enrichment and usurpation of corporate opportunities.
On August 10, 1999, the Board considered Mr. Stuccio'sPlaintiff filed his Complaint less than thirty (30) days after making a demand
and determined that it was in the best interests ofon the Company under O.C.G.A. (S)14-2-742 that the Company file suit against the
individual defendants on the same claims set forth in Plaintiff's Complaint. In
response to constitutePlaintiff's demand, the Company constituted a special litigation
committee to investigate and evaluate the demand.analyze Plaintiff's claims. The special litigation committee will shortly begin its investigation.
17
Company is required
to answer or otherwise respond to Plaintiff's Complaint on or before November
29, 1999.
The Company from time to time is a party to other legal proceedings arising
out of and incidental to the operations of the Company. However, management
does not anticipate that any of such other proceedings will have a material
adverse effect on its financial condition or results of operations. The Company
may be subject to product liability claims arising from the use of its products.
The Company maintains product liability insurance which it currently considers
adequate.
16
Item. 3. Default Upon Senior Securities
Effective April 12, 1999, the Company entered into an amended secured
revolving credit facility (the "Amended Facility"). Under the Amended Facility,
the Company obtained a waiver of all defaults which existed under the unsecured
credit facility. The Amended Facility provides a commitment of up to $23
million, an increase of $3 million. Interest under the Amended Facility is at
prime. In connection with the Amended Facility, the Company has pledged a
security interest in substantially all of its assets. The $23 million
commitment is subject to certain automatic reductions, including reductions
related to decreases in the Company's level of inventory and an automatic
reduction on December 31, 1999 to $20 million. Under the Amended Facility, the
Company is subject to certain financial covenants, including a restriction on
total capital expenditures of $500,000 in any calendar year, a prohibition on
the payment of any cash dividends, as well as restrictions on maximum inventory
levels and other covenants related to net income and tangible net worth.
As a result of the second quarter loss, as of July 4, 1999, the Company was
not in compliance with certain financial covenants contained in the Amended
Facility, including financial covenants related to the maintenance of specified
levels of tangible net worth and net income. As of August 18,
1999, the CompanyThe company has entered into
acertain forbearance agreementagreements dated August 23, 1999, September 30, 1999 and
October 21, 1999, with the lender (the "Forbearance Agreement"Agreements"), under which
the lender has agreed to forbear until September 30,December 31, 1999 from exercising its
rights and remedies under the Amended Facilityamended facility with respect to the non-compliance.non-
compliance. Upon the expiration of the Forbearance Agreement,Agreements, unless the
Company obtains a waiver of the noncompliance, or is able to negotiate amended
terms to the Amended Facility, the lender will be entitled to exercise its
rights and remedies under the Amended Facility which include ceasing additional
advances under the Amended Facility and/or demanding payment in full of the
outstanding borrowings under the Amended Facility. If the lender were to take
any of these actions, the Company's operations and financial condition willwould be
materially and adversely affected unless it iswere able to secure either new third
party financing under terms and conditions reasonably satisfactory to the
Company. The Company is
currently in discussions with the lender regarding an amendment to the terms
of the Amended Facility.or new equity.
Additionally, pursuant to the terms of the Amended Facility, in August
1999, the total commitment under the Amended Facility was automatically reduced
by approximately $670,000. The Company has entered into a Fifth Amendment to
the Company's credit facility (the "Fifth Amendment") which contains a technical
correction to the method used to determine the amount of the August 1999
commitment reduction. 18
Item 4. Submission of MattersAlso, subsequent to a Vote of Security Holders
Thethat and in concurrence with the
October 21, 1999 Annual Meeting of Stockholdersforbearance agreement which contains certain payment
requirements towards the reduction of the Company was held on June
8, 1999. Proxiesloan commitment, loan reductions were
solicited under Regulation 14A of the Securities
Exchange Act of 1934, as amended, with regard to the election of directors
named below to serve until the 2000 Annual Meeting of Stockholders. There
was no solicitation in opposition to any of the nominees listedmade in the proxy
statement,amounts of $1,080,000 and all$500,000 respectively on November 3, 1999
and November 18, 1999. This principal pay down was accomplished with net sale
proceeds from the sale of certain non-essential assets as required by the
nominees were elected. Set forth below areOctober 21, 1999 forbearance agreement. As of November 19, 1999, these
reductions have reduced the results of the voting.
NOMINEES VOTES
For Withheld
Patrick L. Flinn 2,277,110 80,275
William C. Pitt III 2,277,110 80,275
D. Michael Walden 2,316,567 40,818existing credit facility to approximately
$20,750,000.
17
Item 5. Other Information
Recent Events
EffectsDelisting of Continued Listingthe Company's Stock on NASDAQ. On May 14, 1999, the Company
was notified by the administrative staff of NASDAQ AMEX that the Company's
Common Stock hashad failed to maintain the minimum market value of public float in
accordance with NASDAQ Marketplace Rule 4450(a)(2). The Company was afforded 90
calendar days (up to August 16, 1999) in which to regain compliance with
Marketplace Rule 4450(a)(2). IfSubsequently, the Company was unable to demonstratealso notified that
it was no longer in compliance by that date,with the Company's securities may be delisted from
trading on thenet tangible assets/market
capitalization/total assets & total revenue requirement, as set forth in NASDAQ
National Market.Marketplace Rules 4450 (a)(3) and 4450(b)(1) respectively. The Company has
requested a hearing with NASDAQ representatives to review the Company's
continued listing and a
hearing is currentlywhich was scheduled for September 16, 1999. In1999, although not
participated in by Company representatives as there was no additional
information regarding the event thatnoted deficiencies which could be presented at this
hearing. Consequently, the Company's stock iswas delisted from the NASDAQ National
Market effective with the Company
would apply to listclose of business on October 11, 1999 and price quotes
for the Common StockCompany's common stock are now available on the NASDAQ SmallCap Market, the
American Stock Exchange, the OTC Bulletin Board or other quotation system or
exchangeBoard.
Bus Pro, Inc. In an effort to redirect all available working capital to
the production of new vehicles under current customer orders, operations at this
subsidiary were curtailed at the beginning of October except for several sales
and administrative personnel whose efforts are necessary for the continued
disposition of used bus inventory.
South East Pennsylvania Transit Authority ("SEPTA") Contract. The Company
has been unable to provide sufficient resources for the production of vehicles
related to this contract. The Company's lender has restricted the use of
additional working capital for this program. Discussions regarding this matter
are on-going with the contract administrators of SEPTA as well as with
representatives of the company bonding the work required by this contract.
Management is seeking additional working capital in order to purchase from
vendors the chassis and materials necessary to continue production on which the Common Stock would qualify, until such time thatthis
contract. If the Company is ableunable to again qualify for listingmeet its obligations under this contract
with SEPTA, a default notice may be issued against the Company by SEPTA which
could have a material effect on the NASDAQ National Market.
It is possible, however, that investors might react negatively to a delisting
from the NASDAQ National Market, which could adversely affect trading in the
Common Stock.
EmploymentCompany's financial condition and results of
D. Michael Walden. The Company's founder, Chairman and
Chief Executive Officer, D. Michael Walden, has been on a medical leave since
March 3, 1999. As a result of the leave continuing for an indefinite period,
the Amended Employment Agreement between the Company and Mr. Walden and the
employment of Mr. Walden has terminated. Mr. Walden continues to serve as a
director of the Company, although he is no longer Chairman of the Board. As
previously announced, Henry J. Murphy served as interim Chief Executive
Officer through the end of the second quarter of 1999 when John G. Wallace
was hired as President and Chief Executive Officer.
19
operations.
18
Employment of John G. Wallace. On July 8, 1999, the Company hired John
G. Wallace as President and Chief Executive Officer under an employment
contract dated July 9, 1999.
Employment of David E. Brewer. On August 5, 1999, David E. Brewer was
hired as Vice President of Finance and Administration and Chief Financial
Officer.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed with this report:
10.1 Employment Agreement,Exhibits
Exhibit No.
- -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated July 9,October 4, 1999 effective July 9, 1999,
betweenrelating to the Registrant and John G. Wallace. Mr. Wallace replaces Henry J.
Murphy who served as Interim Chief Executive Officer.
10.2
Forbearance Agreement dated August 23,September 30, 1999 between the Registrant and
Bank of America, N.A., successor
Current Report on Form 8-K dated October 11, 1999 relating to NationsBank, N.A.
10.3 Fifth Amendmentthe delisting
of the Registrant's common stock from the Nasdaq National Market.
Current Report on Form 8-K dated October 22, 1999 relating to Loanthe
Forbearance Agreement dated August 18,October 21, 1999 between the Registrant and
NationsBank,Bank of America, N.A.
27 Financial Data Schedule
(b) No Current Reports on Form 8-K were filed by the Company during the
Quarter ended April 4, 1999:
20
19
SIGNATURESIGNATURES
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.
METROTRANS CORPORATION
(Registrant)
Date: August 23,November 22, 1999 By: /s/ Henry J. Murphy
Henry J. Murphy
Principal Executive Officer
and Principal Financial
and Accounting Officer during the
reporting period)
By: /s/ John G. Wallace
---------------------------------
John G. Wallace
President and Chief Executive Officer
(Principal Executive Officer)
By: /s/ David E. Brewer
---------------------------------
David E. Brewer
Vice-President/Finance & Administration and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
21
INDEX OF EXHIBITS
Exhibit No.
10.1 Employment Agreement, dated July 9, 1999, effective July 9, 1999,
between the Registrant and John G. Wallace. Mr. Wallace replaces Henry J.
Murphy who served as Interim Chief Executive Officer.
10.2 Forbearance Agreement dated August 23, 1999, between the Registrant and
Bank of America, N.A., successor to NationsBank, N.A.
10.3 Fifth Amendment to Loan Agreement dated August 18, 1999 between the
Registrant and NationsBank, N.A.
27 Financial Data Schedule
22
10
20