Access to Money 10Q 2008 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number0-19657

TRM CORPORATION

(Exact name of registrant as specified in its charter)


Oregon		93-0809419

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12402 N.E. Marx Street
Portland, Oregon 97230

(Address of principal executive offices) (Zip Code)

(503) 257-8766

(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 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 þ NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,485,619 shares of common stock outstanding at November 11, 2008.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 6. EXHIBITS
SIGNATURE
Exhibit 10.1
Exhibit 10.2
Exhibit 10.3
Exhibit 10.4
Exhibit 10.5
Exhibit 10.6
Exhibit 10.7
Exhibit 10.8
Exhibit 10.9
Exhibit 10.10
Exhibit 10.11
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TRM Corporation
Consolidated Balance Sheets
(Unaudited)
(In thousands)


	December 31,			September 30,
	2007			2008
Assets
Current assets:
Cash and cash equivalents	$	3,859		$	5,146

Restricted cash		3,073			2,892
Accounts receivable, net		2,611			3,482
Leases receivable, net		—			170
Inventories		50			427
Prepaid expenses and other		369			598
Deferred financing costs		172			2,235

Restricted cash — TRM Inventory Funding Trust		61,805			59,584

Total current assets		71,939			74,534
Property and equipment, net		4,222			3,110
Non-current leases receivable, net		—			719
Intangible assets, net		585			2,517
Goodwill		16,748			31,036
Deferred financing costs, long term		—			3,464
Other assets		795			661

Total assets	$	94,289		$	116,041


Liabilities, Minority Interest and Shareholders’ Equity
Current liabilities:
Accounts payable	$	6,099		$	7,292
Accrued and other expenses		7,673			6,773
Term loans		2,051			4,027
TRM Inventory Funding Trust note payable		58,505			57,518

Total current liabilities		74,328			75,610

Long term liabilities:
Term loans and other debt		5,301			20,315
Deferred tax liability, net		—			917

Total liabilities		79,629			96,842

Minority interest		1,500			1,500


Shareholders’ equity:
Common stock, no par value — 100,000 authorized at September 30, 2008 (50,000 at December 31, 2007); 21,486 shares issued and outstanding (17,213 at December 31, 2007)		136,181			145,922
Additional paid-in capital		63			63
Accumulated deficit		(123,084	)		(128,286	)

Total shareholders’ equity		13,160			17,699

Total liabilities, minority interest and shareholders’ equity	$	94,289		$	116,041

See accompanying notes to consolidated financial statements.

TRM Corporation
Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)


	Three months ended						Nine months ended
	September 30,						September 30,
	2007			2008			2007			2008
Sales	$	23,327		$	25,221		$	69,772		$	67,158
Less commissions		14,990			16,518			44,007			42,041

Net sales		8,337			8,703			25,765			25,117
Cost of sales:
Cost of vault cash		1,394			988			4,184			2,886
Other		4,233			4,261			13,360			12,221

Gross profit		2,710			3,454			8,221			10,010
Selling, general and administrative expense (including non-cash stock compensation of $350 and $1,629 for the nine-month periods ended September 30, 2007 and 2008, respectively)		4,712			3,219			14,337			11,092
Restructuring charges (Note 14)		—			—			963			—
Equipment write-offs		1,198			182			1,216			193

Operating income (loss)		(3,200	)		53			(8,295	)		(1,275	)
Interest expense and amortization of debt issuance costs		116			1,358			276			2,773
Loss on early extinguishment of debt		—			—			4,059			1,456
Other expense (income), net		(110	)		(244	)		240			(302	)

Loss from continuing operations before benefit from income taxes		(3,206	)		(1,061	)		(12,870	)		(5,202	)
Provision for income taxes		59			—			59			—

Loss from continuing operations		(3,265	)		(1,061	)		(12,929	)		(5,202	)
Discontinued operations:
Income (loss) from operations, including gains on sales		(1,624	)		—			3,596			—
Provision for income taxes		—			—			—			—

Income (loss) from discontinued operations		(1,624	)		—			3,596			—

Net loss	$	(4,889	)	$	(1,061	)	$	(9,333	)	$	(5,202	)


Weighted average common shares outstanding		17,194			21,486			17,166			19,786
Basic and diluted income (loss) per share:
Continuing operations	$	(.19	)	$	(.05	)	$	(.75	)	$	(.26	)
Discontinued operations		(.09	)		—			.21			—

Net loss	$	(.28	)	$	(.05	)	$	(.54	)	$	(.26	)

See accompanying notes to consolidated financial statements.

TRM Corporation
Consolidated Statement of Shareholders’ Equity
(Unaudited)
(In thousands)


					Additional
	Common stock				paid-in		Accumulated
	Shares		Amounts		capital		deficit			Total
Balances, December 31, 2007		17,213	$	136,181	$	63	$	(123,084	)	$	13,160
Net loss		—		—		—		(5,202	)		(5,202	)
Issuance of common stock		3,550		995		—		—			995
Stock option expense		—		46		—		—			46
Restricted stock expense		723		1,583		—		—			1,583
Issuance of warrants in connection with new debt		—		7,117		—		—			7,117

Balances, September 30, 2008		21,486	$	145,922	$	63	$	(128,286	)	$	17,699

See accompanying notes to consolidated financial statements.

TRM Corporation
Consolidated Statements of Cash Flows
Nine months ended September 30, 2007 and 2008
(Unaudited)
(In thousands)


	2007			2008
Operating activities:
Net loss	$	(9,333	)	$	(5,202	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment charges and asset write-downs		3,591			—
Depreciation and amortization		2,542			2,494
Non-cash stock compensation		350			1,629
Loss on disposal of equipment		171			193
Provision for doubtful accounts		72			175
Loss on early extinguishment of debt		4,059			1,374
Gain on sale of discontinued operations		(5,336	)		—
Cumulative foreign currency translation adjustments recognized in income		(2,622	)		—
Changes in items affecting operations, net of effects of business dispositions:
Restricted cash		(4,064	)		181
Accounts receivable		612			(1,952	)
Leases receivable		—			976
Inventories		978			(16	)
Income tax receivable		101			—
Prepaid expenses and other		412			(228	)
Accounts payable		884			2,099
Accrued expenses and settlement agreement		(182	)		(5,507	)

Cash used in operating activities		(7,765	)		(3,770	)

Investing activities:
Proceeds from sale of equipment		52			574
Capital expenditures		(41	)		(301	)
Proceeds from sale of discontinued operations		103,671			—

Acquisition of intangible and other assets		(428	)		(171	)
Acquisition of business, net of cash acquired		—			(4,308	)

Cash provided by (used in) investing activities		103,254			(4,206	)
Financing activities:
Borrowings on notes payable		1,289			13,619
Repayment of notes payable		(98,641	)		(4,760	)
Debt financing costs		—			(831	)
Principal payments on capital lease obligations		(26	)		—
Decrease in restricted cash — TRM Inventory Funding Trust		7,892			2,220
Proceeds of TRM Inventory Funding Trust note, net		(9,153	)		(985	)
Proceeds from exercise of stock options		25			—
Other capital additions		53			—

Cash provided by (used in) financing activities		(98,561	)		9,263

Effect of exchange rate changes		(1,491	)		—

Net increase (decrease) in cash and cash equivalents		(4,563	)		1,287
Beginning cash and cash equivalents		8,086			3,859

Ending cash and cash equivalents	$	3,523		$	5,146


Supplemental cash flow information:
Non-cash transaction -
Issuance of warrants in connection with new debt	$	—		$	7,117
Payments:
Cash paid for interest	$	534		$	183
Cash paid for income taxes	$	17		$	12

Supplemental non-cash financing and investing activities disclosure:
Note payable issued in the acquisition of Access To Money	$	—		$	9,754
Value of shares issued in the acquisition of Access To Money	$	—		$	996

See accompanying notes to consolidated financial statements.

TRM Corporation

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Interim Financial Data

The consolidated financial statements of TRM Corporation and its subsidiaries included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments, consisting only of normal recurring adjustments, which, in the opinion of management, are necessary for a fair statement of the results of the interim periods. These consolidated financial statements should be read in conjunction with our annual report on Form 10-K/A for the year ended December 31, 2007. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The results of operations for the periods presented are not necessarily indicative of the results to be expected for any subsequent interim period or for the year ending December 31, 2008.

2. Financial Statement Reclassifications

Certain financial statement reclassifications have been made to prior period amounts to conform to the current period presentation. These changes had no impact on shareholders’ equity or previously reported net income.

3. Net Loss Per Share

Basic and diluted net loss per share are based on the weighted average number of shares outstanding during each period, with diluted net loss per share including the effect of potentially dilutive securities. For diluted net loss per share, the calculation includes the effect of potentially dilutive securities, unless such effect is antidilutive. For the three and nine months ended September 30, 2007 and 2008 our stock options, warrants and shares of unvested restricted stock were excluded from the calculation of diluted earnings per share because their inclusion would have been antidilutive.

4. Leases Receivables

We have direct finance leases with a customer in place for ATMs and bank branch build out construction and equipment expiring 2013. The total remaining minimum lease payments to be received over the term of the leases equals $889,000. The estimated residual value of the leased property at the end of term is $75,000 and unearned income over the term is expected to be $402,000.

5. Inventories


	December 31,		September 30,
	2007		2008
	(in thousands)
Parts	$	9	$	218
ATMs held for resale		41		209

	$	50	$	427

6. Equipment


	December 31,			September 30,
	2007			2008
	(in thousands)

ATMs	$	7,764		$	6,372
Computer equipment		5,200			5,459
Furniture and fixtures		1,150			1,175
Vehicles		—			48

		14,114			13,054
Accumulated depreciation		(9,892	)		(9,944	)

	$	4,222		$	3,110

7. Acquisition of LJR Consulting Corp.

On April 18, 2008, we acquired all of the capital stock of LJR Consulting Corp., doing business as Access To Money (“Access To Money”), an independent ATM deployer. The purchase price consisted of $4,250,000 in cash, 3,550,000 shares of our common stock valued at $995,535, and a note payable to the former owner of Access To Money in the amount of $9,754,465 bearing interest at 13% per annum with interest payable quarterly and the principal balance due April 18, 2015. Payments under this promissory note are subordinated to the payment in full of the amount under the Securities Purchase Agreement and the Amended Settlement Agreement with Notemachine. The purchase price was allocated based on the estimated fair value of the assets acquired and liabilities assumed. The allocated fair value of the assets acquired was as follows:


	(in thousands)
Cash	$	1,048
Accounts receivable		937
Inventory		135
Equipment		132
Lease receivable, net		1,077
Other assets		587
Intangible assets:
Customer contracts		1,200
Distributor agreements		225
Non-contractual customer base		250
Non compete agreements		175
Trademarks		500
Goodwill		14,288

Total assets acquired		20,554

Accounts payable		137
Notes payable		989
Accrued liabilities		2,035
Other liabilities		1,016
Deferred tax liability		917

Subtotal liabilities		5,094

Total	$	15,460

The allocation above is subject to change as management refines the allocation of the acquired intangibles. We intend to amortize on a straight-line basis the intangible assets, with the exception of trademarks, over periods ranging from three to five years. The acquisition is expected to enhance our presence in the marketplace by significantly increasing our market share, enhancing the geographical distribution of our operations and enabling us to increase our productivity. These factors contributed to establishing the purchase price which resulted in the recognition of the goodwill. Goodwill is not subject to amortization for financial reporting purposes. All of the intangible assets acquired will be reviewed for impairment at least annually.

8. Notes Payable and Other Debt:


	December 31,		September 30,
	2007		2008
	(in thousands)

Term Loan B	$	2,051	$	—
Lampe Loan Facility		—		11,000
Note payable to former Access To Money owner		—		9,755
Notemachine		5,301		2,026
Other Debt		—		1,562
TRM Inventory Funding Trust note payable		58,505		57,518

	$	65,857	$	81,861

New Lampe Loan Facility

In June 2006, we borrowed approximately $111 million from GSO Origination Funding Partners LP and other lenders. Under the Amended and Restated Second Lien Loan Agreement, dated as of November 20, 2006, by and among us, TRM ATM Corporation and TRM Copy Centers (USA) Corporation, as borrowers, the subsidiaries of the borrowers identified therein, as the guarantors, Wells Fargo Foothill, Inc., as administrative agent, GSO Origination Funding Partners, LP, a Delaware limited partnership, and the other lenders from time to time party thereto (the “Term Loan B”), we owed $2.1 million as of December 31, 2007. Interest on Term Loan B was at LIBOR plus 12% (14.70% as of March 31, 2008). The borrowings pursuant to Term Loan B were collateralized by substantially all of our assets and the assets of our subsidiaries. Because we were uncertain whether we could comply with all of the terms of Term Loan B, as of December 31, 2007, we classified the entire balance of the loan as a current liability on our balance sheet.

On April 18, 2008, we borrowed $11.0 million pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) with LC Capital Master Fund, Ltd. as lender (the “Lender”) and Lampe, Conway & Co., LLC as administrative and collateral agent (the “Lampe Loan Facility”). We used proceeds from this loan primarily to pay (1) the remaining balance of Term Loan B that we owed to GSO Origination Funding Partners and the other lenders, (2) $1.0 million we borrowed from LC Capital Master Fund, Ltd. in February 2008, (3) $1.0 million we owed under a settlement agreement with the purchaser of our United Kingdom and German ATM businesses, (4) the $2.5 million settlement we owed to eFunds Corporation and (5) the cash portion of the purchase price for the acquisition of Access To Money. The $11.0 million note from the Lender bears interest at 13%, payable semiannually, and is due in April 2011. The Lampe Loan Facility includes covenants that require us to maintain a certain balance of cash and investments and to meet quarterly minimum Consolidated EBITDA targets (as defined in the Securities Purchase Agreement) and maintain at least 10,250 ATMs. The borrowings pursuant to the Lampe Loan Facility are collateralized by substantially all of our assets and the assets of our subsidiaries.

In connection with the Lampe Loan Facility, we granted warrants to the Lender to purchase up to 12,500,000 shares of our common stock at an exercise price initially equal to $.28 per share, subject to adjustment for any recapitalizations, stock combinations, stock dividends and stock splits or if we issue common stock, or securities convertible into common stock, at a lower price. The warrants are exercisable at any time and expire on April 18, 2015. We have agreed to register the shares subject to the warrants. Using the Black-Scholes valuation model, we estimated the total fair value of the warrants issued to the Lender to be approximately $5.9 million. The components of the valuation included an expected term of seven years, a risk free rate of 3.8%, and volatility percentage of 133.4. The fair value of the warrants, together with legal and other fees relating to the Lampe Loan Facility was recorded as deferred financing costs and amortized over the term of the loan.

On May 30, 2008, the Lender transferred 1,250,000 of its warrants to Cadence Special Holdings II, LLC (“Cadence”), at an exercise price initially equal to $.28 per share. The

warrants are exercisable at any time and expire on April 18, 2015. We have agreed to register the shares subject to the warrants.

Original Lampe Loan

In connection with the Securities Purchase Agreement entered into on February 8, 2008 with Lender and Lampe, Conway & Co., LLC, we granted warrants to the Lender to purchase up to 2,500,000 shares of our common stock at an exercise price initially equal to $.40 per share, subject to adjustment for any recapitalizations, stock combinations, stock dividends and stock splits, or if we issue common stock, or securities convertible into common stock, at a lower price. Upon issuance of warrants granted under the Lampe Loan Facility which had a lower exercise price, the exercise price of these warrants was automatically reduced to $.28 per share. The warrants are exercisable at any time and expire on February 8, 2015. We have agreed to register the shares subject to the warrants. Using the Black-Scholes valuation model, we estimated the fair value of the warrant issued to the Lender to be approximately $928,000. We recorded the fair value of the warrant, together with $63,000 of legal fees incurred as deferred financing costs to be amortized over the term of the loan. Since this loan was paid in full in April 2008, the remaining balance of the deferred financing costs including an additional $253,000, which was the result of the revaluation of the warrant issued in February 2008, was charged to expense and classified as a loss on early extinguishment of debt in the second quarter of 2008.

Notemachine Settlement Agreement

In November 2007, we entered into a settlement agreement with Notemachine Limited (“Notemachine”), relating to the sale to Notemachine of our United Kingdom and German ATM businesses in January 2007. Pursuant to the settlement agreement, we agreed to repay £3,250,000 (approximately $6.4 million) in full and final settlement of claims by Notemachine relating to the sale. As of September 30, 2008, we owed £1.1 million (approximately $2.0 million) pursuant to the settlement agreement. Upon closing the Lampe Loan Facility in April 2008, we paid Notemachine £506,000 plus outstanding interest, reducing the balance outstanding to £1,410,000. We also executed an amended settlement agreement with Notemachine on April 18, 2008 (the “Amended Settlement Agreement”) under which the outstanding balance is due in monthly payments of £71,212 including interest at 15% per annum through March 2010. Earlier payment is required if we obtain sufficient financing or accumulate a certain level of surplus cash (both as defined in the amended settlement agreement). Under the amended settlement agreement, our liability to Notemachine is collateralized by a security interest in substantially all of our assets and the assets of our subsidiaries, which security interest is subordinate to the security interest granted to Lender, under the Lampe Loan Facility.

Other Debt

The $1.6 million of other debt represents notes payable balances due to banks for cash in ATMs and a line of credit used by Access To Money to fund the purchase of ATMs for lease to customers.

Vault Cash Facility

In March 2008, we notified our current vault cash provider that we intended to terminate our vault cash arrangement with them and that we had made arrangements with another provider of vault cash to provide similar services. On November 5, 2008, we terminated our previous vault cash arrangement under our Loan and Servicing Agreement, dated March 17, 2000, as amended, by and among TRM Inventory Funding Trust, TRM ATM Corporation (“TRM ATM”), Autobahn Funding Company LLC, DZ Bank AG, Deutsche Zentral-Genossenschaftsbank Frankfurt AM Main (“DZ Bank”) and U.S. Bank National Association (“Original Vault Cash Agreement”). TRM Inventory Funding Trust paid $50,927,555 in consideration for the termination of the Original Vault Cash Agreement, which included a prepayment fee of $750,000, and the parties to the Original Vault Cash Agreement agreed to release their security interests upon termination.

Pursuant to a Cash Provisioning Agreement, as amended, dated August 28, 2007, between Genpass Technologies, LLC, doing business as Elan Financial Services, TRM ATM, and Pendum Inc., and an ATM Vault Cash Purchase Agreement effective as of June 26, 2008, between Genpass Technologies, LLC, doing business as Elan Financial Services, TRM Inventory Funding Trust, TRM ATM, and DZ Bank, we have transferred the provisioning of cash for 92 ATMs to Elan. Our relationship under the cash provisioning agreements with Elan is structured such that Elan supplies cash to be placed into our ATMs. We are responsible for the payment of fees and interest related to the use of the cash under the cash provisioning agreements.

TRM ATM entered into a series of Cash Provisioning Agreements with U.S. Bank National Association, doing business as Elan Financial Services (“Elan”), and various armored car carriers, dated October 31, 2008 (the “Cash Provisioning Agreements”). The Cash Provisioning Agreements provide that Elan will provide cash, through the use of armored car carriers, for our ATMs. The term of the Cash Provisioning Agreements is for a period of five years and automatically renews for additional one year periods unless either party gives the other parties notice of its intent to terminate. We are responsible for the payment of fees related to the use of the cash. We provided Elan with a subordinated lien and security interest in the ATMs, subject to the security interest of Lampe Conway & Co., LLC, Notemachine Limited and Douglas Falcone and any third party providing the direct financing of any ATM equipment and any refinancings of any of the foregoing. The Cash Provisioning Agreements also require us to maintain a positive demand account balance with Elan or, at our option, a letter of credit in favor of Elan in an amount not less than $800,000. Elan may draw on the account balance or letter of credit (i) in the event we materially default in the performance of any duties or obligations, which is not cured within 30 days notice; (ii) if we (A) terminate or suspend our business, (B) become subject to any bankruptcy or insolvency proceeding under federal or state statute, (C) become insolvent or become subject to direct control by a trustee, receiver or similar authority, (D) wind up or liquidate or (E) are required to terminate our involvement in the activities covered by the Cash Provisioning Agreements by order of a court of competent jurisdiction or a regulatory agency which governs the activities of a party; and (iii) in order to obtain payment of any fees, charges or other obligations that have not been paid pursuant to the Cash Provisioning Agreements. The demand account balance or letter of credit must remain

open and funded by us for a period of 90 days after the termination of the Cash Provisioning Agreements.

TRM ATM entered into an ATM Vault Cash Purchase Agreement, effective on November 3, 2008, with Elan, TRM Inventory Funding Trust and DZ Bank (the “ATM Vault Cash Purchase Agreement”). The ATM Vault Cash Purchase Agreement provided that on November 5, 2008, TRM Inventory Funding Trust will sell the cash in the ATMs to Elan, which Elan will provide to us.

In connection with the Cash Provisioning Agreements and ATM Vault Cash Agreement, we obtained an irrevocable letter of credit in favor of Elan, from Wells Fargo Bank, N.A., dated October 31, 2008, in the amount of $2,000,000. The letter of credit expires on October 31, 2009 but automatically renews for additional one year periods unless Wells Fargo Bank, N.A. sends notice that it elects not to extend the expiration date of the letter of credit. Elan may draw on the letter of credit for a period of 60 days for the purpose of securing any shortage resulting under the ATM Vault Cash Purchase Agreement or in the event of bankruptcy, reorganization, debt arrangement, notification of termination of the ATM Vault Cash Purchase Agreement or our failure to pay any of our obligations. After the expiration of the 60 day period, we may reduce the letter of credit down to $800,000 which may be drawn upon by Elan.

9. Shareholders’ Equity

Stock-based Compensation

Stock-based compensation expense, which is included in selling, general and administrative expense during the nine months ended September 30, 2007 and 2008 was as follows (in thousands):


	2007			2008
Option grants	$	(11	)	$	46
Restricted shares		361			1,583

Total stock-based compensation expense	$	350		$	1,629

A summary of stock option activity during the nine months ended September 30, 2008 follows:


	Number of			Weighted average
	shares			exercise price
Outstanding January 1, 2008		276,625		$	4.62
Options granted		—			—
Options exercised		—			—
Options forfeited		(53,125	)		6.24

Outstanding September 30, 2008		223,500			4.23

As of September 30, 2008, options to purchase 223,500 shares of common stock at a weighted average exercise price of $4.23 per share were vested and exercisable.

As of December 31, 2007, 686,393 unvested shares of restricted stock were outstanding. During the second quarter of 2008, 486,000 shares of restricted stock were granted and 722,393 shares of restricted stock vested. During the third quarter of 2008, no shares of restricted stock were granted, and no shares of restricted stock vested, leaving the total shares of restricted stock outstanding at September 30, 2008, to be 450,000. These shares of restricted stock are unvested. The fair value of the restricted stock granted during 2008 was $0.28 per share. The fair value of the outstanding restricted stock at September 30, 2008 is $0.28 per share.

A summary of restricted stock activity as of September 30, 2008, follows:


				Weighted average
	Shares			grant-date fair value
Unvested shares January 1, 2008		686,393		$	2.80
Restricted shares granted		486,000			0.28
Restricted shares vested		(722,393	)		2.68
Restricted shares forfeited		0			—

Unvested shares September 30, 2008		450,000			0.28

Common Stock Warrants

Warrants issued in connection with the Lampe Loan Facility triggered a “change in control” provision in our 2005 Omnibus Stock Incentive Plan, resulting in immediate vesting, as of April 18, 2008, of all of our outstanding stock options and restricted stock grants. As a result of the vesting in April 2008, we estimated the fair value of the options and restricted stock grants, and charged the expense and any excess of the fair value of those options and restricted stock grants over their remaining unamortized value together with the remaining unamortized value of the options and restricted stock grants based on their original issuance terms.

In November 2006, we granted to the holders of our Term Loan B warrants to purchase 3,072,074 shares of our common stock at $1.36 per share. Pursuant to the terms of these warrants, the price per share was reduced to $.40 in February 2008 and further to $.28 in April 2008 upon issuance of the warrants to the Lender. See Note 8.

As described further in Note 8, we also have outstanding warrants granting the Lender rights to acquire 2,500,000 and 11,250,000 shares of common stock at $.28 per share, and warrants granting Cadence rights to acquire 1,250,000 shares of common stock at $.28 per share.

We have agreed to register the shares subject to all of our outstanding warrants.

10. Provision for Income Taxes

We have recorded no benefit from our losses for the first nine months of 2007 or 2008 because we are uncertain that we will be able to realize the benefit of our net operating loss carryforwards and future deductible amounts. As of September 30, 2008, we have net operating losses of approximately $53.2 million available to offset future taxable income for United States federal income tax purposes which expire in the years 2020 through 2027, and our Canadian subsidiary has net operating loss carryforwards of approximately $15 million available to offset future taxable income in Canada which expire in the years 2009 through 2017. However, we have sold the assets of our Canadian subsidiary, and it no longer has any operations.

11. Geographic Information

Substantially all of our revenues from continuing operations for the nine months ended September 30, 2007 and 2008 were derived from sales to customers in the United States. As of September 30, 2008, substantially all of our assets were located in the United States.

12. Discontinued Operations and Sales of Businesses

During 2007, we sold our photocopy operations and all of our ATM operations outside the United States. As a result, the operations of our Canadian, United Kingdom and German ATM businesses and our United States and Canadian photocopy businesses are shown as discontinued operations in the accompanying statement of operations for the three and nine months ended September 30, 2007 and 2008.

Net revenues of discontinued operations through the dates of sales in 2007 and through the nine months ended September 30, 2008 were as follows (in thousands):


	Three months ended				Nine months ended
	September 30,				September 30,
	2007		2008		2007		2008
Canada photocopy	$	—	$	—	$	1,102	$	—
United Kingdom photocopy		—		—		—		—
United States photocopy		—		—		1,368		—
Canada ATM		—		—		—		—
United Kingdom ATM		—		—		1,653		—
Germany ATM		—		—		130		—

	$	—	$	—	$	4,253	$	—

Pretax income/(loss) from discontinued operations for the three and nine month periods ended September 30, 2007 and 2008 through the dates of sale (in thousands):


	Three months ended September 30,
	2007								2008
			Gain on								Gain on
	Operations		Sale			Total			Operations		sale		Total
Canada photocopy	$	—	$	—		$	—		$	—	$	—	$	—
United Kingdom photocopy		—		—			—			—		—		—
United States photocopy		—		(268	)		(268	)		—		—		—
Canada ATM		—		(48	)		(48	)		—		—		—
United Kingdom ATM		—		(1,308	)		(1,308	)		—		—		—
Germany ATM		—		—			—			—		—		—

	$	—	$	(1,624	)	$	(1,624	)	$	—	$	—	$	—


	Nine months ended September 30,
	2007								2008
				Gain on							Gain on
	Operations			sale		Total			Operations		sale		Total
Canada photocopy	$	(2,975	)	$	29	$	(2,946	)	$	—	$	—	$	—
United Kingdom photocopy		—			—		—			—		—		—
United States photocopy		398			565		963			—		—		—
Canada ATM		(113	)		2,313		2,200			—		—		—
United Kingdom ATM		(1,617	)		5,051		3,434			—		—		—
Germany ATM		(55	)		—		(55	)		—		—		—

	$	(4,362	)	$	7,958	$	3,596		$	—	$	—	$	—

Substantially all of the assets and liabilities of our United States photocopy business and our ATM businesses in Canada, the United Kingdom and Germany were sold in January 2007.

A charge of $2.7 million is included in discontinued operations for the first nine months of 2007 to write down the carrying amount of the assets of the Canadian photocopy business to their estimated fair value less costs to sell.

13. Commitments and Contingent Liabilities

We are a defendant in various actions that have arisen in the normal course of business. We believe that the ultimate disposition of these matters will not have a material adverse effect on our business, financial condition or results of operations.

A consolidated securities class action lawsuit was filed in the United States District Court for the District of Oregon in May 2008 against us and certain of our officers and directors. The complaints sought unspecified damages on alleged violations of federal securities laws between March 16, 2006 and May 22, 2007. This lawsuit was dismissed on July 23, 2008.

We guaranteed certain equipment lease payments for TRM Copy Centres (UK) Ltd. when that company was our subsidiary. In June 2006 we sold all of the outstanding shares of that subsidiary to an unrelated third party. In October 2007 (the most recent date for which we have information from the lessor) the remaining balance payable under the leases we guarantee was £331,000 (approximately $656,000).

14. Corporate Restructuring

In connection with the corporate restructuring plan we announced in November 2006 and the subsequent sales of a substantial portion of our operations, we have made significant staff reductions, including termination of substantially all of our United States field service employees. We have also vacated leased warehouse and office space occupied by the terminated employees. During the first six months of 2007, we paid severance of $167,000 to terminated employees. During the first quarter of 2007, we vacated warehouse and office space in eleven United States locations. The vacated space was leased under leases with remaining terms up to seven years. We recorded a liability of $796,000 as of March 31, 2007, which was the estimated fair value of the costs that we expect to incur without any economic benefit, and we charged that amount to expense in the first quarter of 2007. We estimated the fair value of the liability based on the discounted value of the remaining lease payments, reduced by estimated sublease payments that we reasonably expect could be obtained for use of the properties.

15. Subsequent Event

On November 5, 2008, we terminated our previous vault cash arrangement under the Original Vault Cash Agreement. TRM Inventory Funding Trust paid $50,927,555 in consideration for the termination of the Original Vault Cash Agreement, which included a prepayment fee of $750,000, and the parties to the Original Vault Cash Agreement agreed to release their security interests upon termination.

TRM ATM entered into Cash Provisioning Agreements dated October 31, 2008. The Cash Provisioning Agreements provide that Elan will provide cash, through the use of armored car carriers, for our ATMs. The term of the Cash Provisioning Agreements is for a period of five years and automatically renews for additional one year periods unless either party gives the other parties notice of its intent to terminate. We are responsible for the payment of fees related to the use of the cash. We provided Elan with a subordinated lien and security interest in the ATMs, subject to the security interest of Lampe Conway & Co., LLC, Notemachine Limited and Douglas Falcone and any third party providing the direct financing of any ATM equipment and any refinancings of any of the foregoing. The Cash Provisioning Agreements also require us to maintain a positive demand account balance with Elan or, at our option, a letter of credit in favor of Elan in an amount not less than $800,000. Elan may draw on the account balance or letter of credit (i) in the event we materially default in the performance of any duties or obligations, which is not cured within 30 days notice; (ii) if we (A) terminate or suspend our business, (B)

become subject to any bankruptcy or insolvency proceeding under federal or state statute, (C) become insolvent or become subject to direct control by a trustee, receiver or similar authority, (D) wind up or liquidate or (E) are required to terminate our involvement in the activities covered by the Cash Provisioning Agreements by order of a court of competent jurisdiction or a regulatory agency which governs the activities of a party; and (iii) in order to obtain payment of any fees, charges or other obligations that have not been paid pursuant to the Cash Provisioning Agreements. The demand account balance or letter of credit must remain open and funded by us for a period of 90 days after the termination of the Cash Provisioning Agreements.

On November 3, 2008, TRM ATM entered into the ATM Vault Cash Purchase Agreement which provided that on November 5, 2008, TRM Inventory Funding Trust will sell the cash in the ATMs to Elan, which Elan will provide to us.

16. New Accounting Standards

In May 2008, the Financial Accounting Standards Board, or FASB, issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS 162). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. We are currently reviewing the effect, if any; the proposed guidance will have on our financial statements disclosures.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FASB Statement No. 133 (SFAS 133)”, (SFAS 161). This statement is intended to improve financial reporting of derivative instruments and hedging activities by requiring enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under SFAS 133 and its related interpretations and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. The provisions of SFAS 161 are effective for fiscal years beginning after November 15, 2008. SFAS

161 will be effective for us on January 1, 2009. We are currently evaluating the impact that adoption of SFAS 161 may have on our financial statement disclosures.

In December 2007, the FASB, issued Statement of Financial Accounting Standards No. 141(R), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS 141, “Business Combinations”; however it retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. SFAS 141(R) requires an acquirer to recognize the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, be measured at their fair values as of that date, with specified limited exceptions. Changes subsequent to that date are to be recognized in earnings, not goodwill. Restructuring costs, if any, are to be recognized separately from the acquisition. The acquirer in a business combination achieved in stages must also recognize the identifiable assets and liabilities, as well as the noncontrolling interests in the acquiree, at the full amounts of their fair values. SFAS 141(R) is effective for business combinations occurring in fiscal years beginning on or after December 15, 2008. We will apply the requirements of SFAS 141(R) upon its adoption on January 1, 2009 and are currently evaluating whether SFAS 141(R) will have an impact on our financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51.” This statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. This statement is effective for us beginning in 2009. We are currently evaluating the impact, if any, this statement will have on our financial statements.

In February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115,” which allows companies the option to measure certain financial instruments and other items at fair value. The provisions of SFAS No. 159 became effective for us beginning in 2008. Our adoption of SFAS No. 159 did not have a material impact on our results of operations, financial position or cash flows.

In September 2006, the FASB, issued SFAS, No. 157 “Fair Value Measurements.” SFAS 157 establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurements. This statement does not require any new fair value measurements. SFAS No. 157 became effective for us beginning in 2008, except for nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis for which delayed application is permitted until fiscal years beginning after November 15, 2008. We anticipate no material impact on our results of operations, financial position or cash flows as a result of adopting this statement.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

Information in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance and business, including, without limitation, growth of our business (including acquisitions) constitutes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We have based these forward-looking statements on management’s current expectations about future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts, and by words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or other similar words or expressions.

Any or all of the forward-looking statements in this report and in any other public statements we make may turn out to be wrong. This can occur as a result of inaccurate assumptions or as a consequence of known or unknown risks and uncertainties. We discuss many of the risks and uncertainties that may impact our business in Item 1A — “Risk Factors” in our Annual Report on Form 10-K/A for the year ended December 31, 2007. Because of these risks and uncertainties, our actual results may differ materially from those that might be anticipated from our forward-looking statements. Other factors beyond those referred to above could also adversely affect us. Therefore, you are cautioned not to place undue reliance on our forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise except as required under the federal securities laws and the rules and regulations of the SEC.

Overview

During 2006 we operated ATM networks in the United States, United Kingdom, Canada and Germany, and we operated photocopier networks in the United States, United Kingdom and Canada. Between June 2006 and June 2007, we sold our photocopier businesses and our foreign ATM businesses and used substantially all of the net proceeds from those sales to pay our debt. As of December 31, 2006 and 2007, we owed $99.3 million and $2.1 million, respectively, under a credit facility. In April 2008, we borrowed $11.0 million which we used to pay the remaining balance due under our 2006 financing arrangement, together with other debts. We also used a portion of the proceeds from our April 2008 borrowing to pay the cash portion of the purchase price of LJR Consulting Corp., doing business as Access To Money (“Access To Money”), an ATM operator that we acquired in April 2008. Effective April 18, 2008, our consolidated results of operations include the operations of Access To Money. During the third quarter of 2008, our United States ATM networks had an average of 11,813 transacting ATMs compared to an average of 10,176 transacting ATMs during the third quarter of 2007. At the time we acquired Access To Money, it had 4,248 transacting ATMs.

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

ATM Results of Operations — Continuing Operations


	2007					2008
	Amount		%			Amount		%
	(in thousands, except operating and percentage data)

Transaction-based sales	$	21,826		100.0	%	$	22,940		100.0	%
Less commissions		14,990		68.7			16,518		72.0

Net transaction-based sales		6,836		31.3	%		6,422		28.0	%

Service and other sales		978					1,184
Sales of ATM equipment		523					1,074
Branch build out		—					23

Net sales		8,337					8,703
Cost of sales:
Cost of vault cash		1,394					988
Other		4,233					4,261

Gross profit	$	2,710				$	3,454


Operating data:
Average number of transacting ATMs		10,176					11,813
Withdrawal transactions		9,152,248					9,745,705
Average withdrawals per ATM per month		300					275
Average transaction-based sales per withdrawal transaction	$	2.39				$	2.35
Average discount per withdrawal transaction	$	1.64				$	1.69
Net transaction-based sales per withdrawal transaction	$	.75				$	.66

Sales

For the third quarter of 2008, sales from continuing operations increased by $1.9 million or 8.1%, to $25.2 million from $23.3 million for the third quarter of 2007.

The average number of transacting ATMs in our network increased by 1,637 primarily as the result of machines acquired in the Access To Money acquisition combined with the attrition of units acquired from eFunds Corporation in November 2004 and the disabling of approximately 1,300 ATMs on January 1, 2008, that failed to meet Triple Data Encryption standards. The increase in the number of transacting machines contributed a 6.4% or $593,457 increase in the number of withdrawal transactions between the three months ended September 2007 versus the same period ending 2008. We have completed the Triple Data Encryption upgrades on all company-owned machines and those under contract and operating with merchants as of September 30, 2008.

Commissions

Commissions increased from $15.0 million in the third quarter of 2007 to $16.5 million in the third quarter of 2008. As a percentage of transaction-based sales, commissions increased to 72% in the third quarter of 2008 from 68.7% in the third quarter of 2007. This was the result

of adding Access To Money’s machine base consisting primarily of merchant-owned, merchant-cashed ATMs, causing a decrease in the overall percentage of machines for which we provide cash. Since the commissions for machines which are cashed by the merchants are generally higher than the commissions for machines for which we provide cash, our commissions as a percent of transaction-based sales have increased.

Cost of Sales

Cost of sales from continuing operations decreased by $378,000 from the third quarter of 2007 to the third quarter of 2008, resulting in a $744,000, or 27.5%, increase in gross profit between the third quarter of 2008 and the third quarter of 2007.

Our cost of vault cash decreased by $406,000, or 29.1%, to $988,000 for the third quarter of 2008 from $1.4 million in the third quarter of 2007. The number of ATMs for which we provide cash increased by 4.8% from 2,255 in September 2007 to 2,365 in September 2008, and the total amount of vault cash in our system has decreased by 7.1%, to $61.1 million at September 30, 2008 from $65.8 million at September 30, 2007. In addition, the interest rate on our vault cash facility has decreased to 6.4% as of September 30, 2008 from 6.7% at September 30, 2007 due to decreased commercial paper interest rates.

Our ATM processing costs and telecommunication costs decreased by $88,000, or approximately 7.4%, due to decreased pricing as the result of a renegotiated contract with eFunds Corporation (“eFunds”), improved management over telecommunication vendors and the repositioning of ATMs to take advantage of minimums under other processing contracts.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased by $1.5 million, or 31.7%, to $3.2 million in the third quarter of 2008 from $4.7 million in the third quarter of 2007. The selling, general and administrative expense as a percent of sales decreased to 12.8% in the third quarter of 2008 from 20.2% in the third quarter of the prior year.

Labor costs increased by $78,000, or 4.9%, to $1.7 million in the third quarter of 2008 from $1.6 million in the third quarter of 2007. This increase is attributable to the addition of employees associated with the acquisition of Access To Money, temporary labor, and recruiting costs. As of September 30, 2008, we had 64 employees.

Our cost for outsourced services decreased by $1.3 million period over period, primarily due to a settlement with eFunds that was the result of the termination of services they were performing for us under a Master Services Agreement entered into in 2004. We also did not renew software maintenance agreements that were no longer needed to support operations.

Legal, accounting, directors fees, and consulting expenses decreased by $317,000 in the third quarter of 2008 from $823,000 in the third quarter 2007.

Interest Expense, Amortization of Debt Issuance Costs, Loss on Early Extinguishment of Debt

Interest expense and amortization of debt issuance costs increased to $1.4 million for the third quarter of 2008 from $116,000 in the third quarter of 2007. On April 18, 2008, we borrowed $11,000,000 pursuant to a Securities Purchase Agreement (the “Securities Purchase Agreement”) with the LC Capital Master Fund, Ltd. (the “Lender”) and Lampe, Conway & Co., LLC, as administrative and collateral agent (the “Lampe Loan Facility”) and issued a $9,754,465 note to the former owner of Access To Money. Both the notes in connection with the acquisition of Access To Money and in connection with the Lampe Loan Facility bear interest at 13% per annum. In addition, debt issuance costs relating to the Lampe Loan Facility included $5.9 million for the estimated value of the warrants issued to the Lender. The warrants will be amortized over the 3-year term of the $11,000,000 note issued under the Securities and Purchase Agreement. See Note 8 to our condensed consolidated financial statements for a discussion of the Lampe Loan Facility.

Provision for Income Taxes

We have recorded no benefit from our losses for the third quarter of 2007 and 2008 because we are uncertain that we will be able to realize the benefit of our net operating loss carryforwards and future deductible amounts.

Discontinued Operations

During 2006 and 2007, we sold all of our photocopy operations and all of our ATM operations outside the United States. As a result, the operations of our Canadian, United Kingdom and German ATM businesses and our United States and Canadian photocopy businesses are shown as discontinued operations in the accompanying statement of operations for the three and nine months ended September 30, 2008. See Note 12 to our consolidated financial statements for additional information regarding our discontinued operations.

Net Loss

Our net loss from continuing operations for the third quarter of 2008 was $1.1 million compared to a net loss from continuing operations of $3.3 million for the third quarter of 2007.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

ATM Results of Operations — Continuing Operations


	2007					2008
	Amount		%			Amount		%
	(in thousands, except operating and percentage data)
Transaction-based sales	$	64,721		100.0	%	$	60,977		100.0	%
Less commissions		44,007		68.0			42,041		69.0

Net transaction-based sales		20,714		32.0	%		18,936		31.0	%

Service and other sales		3,349					3,713
Sales of ATM equipment		1,702					2,279
Branch build out sales		—					189

Net sales		25,765					25,117
Cost of sales:
Cost of vault cash		4,184					2,886
Other		13,360					12,221

Gross profit	$	8,221				$	10,010


Operating data:
Average number of transacting ATMs		10,486					10,584
Withdrawal transactions		27,361,645					25,760,401
Average withdrawals per ATM per month		290					271
Average transaction-based sales per withdrawal transaction	$	2.37				$	2.37
Average discount per withdrawal transaction	$	1.61				$	1.63
Net transaction-based sales per withdrawal transaction	$	.76				$	.75

Sales

For the first nine months of 2008, sales from continuing operations decreased by $2.6 million, or 3.7%, to $67.2 million from $69.8 million for the first nine months of 2007.

The $2.6 million decrease in sales was primarily the result of a $3.7 million decrease in transaction-based sales offset by a $440,000 increase in network fee revenue, a $587,000 increase in ATM equipment sales, and $189,000 increase in branch build out sales.

The $3.7 million decrease in transaction-based sales was the result of attrition of contracts acquired from eFunds in November 2004 prior to the addition of ATMs from the acquisition of Access To Money. We have also experienced a 6.5% decrease in average withdrawal transactions per ATM per month from 290 for the first nine months of 2007 to 271 for the first nine months of 2008.

Sales Commissions

During the first nine months of 2008 sales commissions decreased by $2.0 million from $44.0 million in the first nine months of 2007 to $42.0 million for the first nine months of 2008. Sales commissions as a percentage of transaction-based sales increased slightly to 69.0% in the first nine months of 2008 from 68.0% in the first nine months of 2007. Due to the addition of merchant based machines as a result of the acquisition of Access To Money, we now have a

larger percentage of this type of ATM in our total machine count. Merchant cashed machines typically have higher commission rates than company cashed machines. This has impacted commissions and contributed to the higher percentage compared to the first nine months of 2007.

Cost of Sales

Although net sales from continuing operations decreased by $648,000 in the first nine months of 2008 compared to the first nine months of 2007, cost of sales decreased by $2.4 million. As a result, gross margin increased by $1.8 million from $8.2 million in the first nine months of 2007 to $10.0 million in the first nine months of 2008.

As a result of the sale of our United States photocopy business in January 2007, we determined that it would be more economical to hire third parties to perform maintenance on our equipment and on merchant’s equipment where that is our responsibility. At the end of 2006 we had 129 field service employees and reduced this number to nine by the end of the first quarter of 2007 and to zero by the second quarter of 2007. During the first nine months of 2008, our expense for third party ATM service increased by $634,000 compared to the same period in 2007. This increase was offset by a decrease of $727,000 in our cost of labor and parts.

We also saw a decrease in our cost of vault cash of $1.3 million, or 31%, as compared to the first nine months of 2007. The decrease in the cost of vault cash is due to a reduction of the amount of vault cash in our system, which decreased from $65.8 million at September 30, 2007 to $61.1 million at September 30, 2008, and a reduction in the borrowing interest rate between the periods. We have also benefited from decreases in armored car costs of $226,000, decreases in telecommunication costs of $123,000, decreases in auto related costs of $177,000, and decreases in freight and shipping of $152,000. These reductions are the continued benefit of the restructuring started in 2007.

Selling, General and Administrative Expense

Selling, general and administrative expense decreased by $3.2 million to $11.1 million in the first nine months of 2008 from $14.3 million in the first nine months of the prior year. Selling, general and administrative expense as a percent of sales decreased to 16.5% in the first nine months of 2008 from 20.5% in the first nine months of 2007. Specific decreases included:

	•		Labor costs (excluding non-cash stock compensation expense) decreased by $292,000 or 6.0%. In connection with the sales of businesses in 2007, we substantially reduced our selling, general and administrative staff and as of September 30, 2008, we have 64 employees.

	•		Our cost for outsourced services decreased by $3.1 million, primarily due to a settlement with eFunds that was the result of the termination of services they were performing for us under a Master Services Agreement entered into in 2004. We also

			did not renew software maintenance agreements that were no longer needed to support operations.

	•		Legal, accounting, directors fees, and consulting expenses decreased by $1.1 million in the third quarter of 2008 as compared to third quarter 2007.

Non-cash stock compensation expense increased by $1.3 million in the first nine months of 2008 compared to the first nine months of 2007. This was the result of the acceleration of the vesting of options and restricted stock associated with the acquisition of Access To Money.

Interest Expense, Amortization of Debt Issuance Costs, Loss on Early Extinguishment of Debt

Interest expense and amortization of debt issuance costs increased by $2.5 million for the first nine months of 2008 from $276,000 in the first nine months of 2007. On April 18, 2008, we borrowed $11,000,000 pursuant to the Securities Purchase Agreement and issued a $9,754,465 note to the former owner of Access To Money. Both the notes in connection with the acquisition of Access To Money and in connection with the Lampe Loan Facility bear interest at 13% per annum. In addition, debt issuance costs relating to the Lampe Loan Facility include a $5.9 million estimate for the value of the warrants issued to the Lender. The warrants will be amortized over the 3-year term of the $11,000,000 note issued under the Securities and Purchase Agreement. See Note 8 to our condensed consolidated financial statements for a discussion of the Lampe Loan Facility.

Provision for Income Taxes

We have recorded no benefit from our losses for the nine months ended 2007 and 2008 because we are uncertain that we will be able to realize the benefit of our net operating loss carryforwards and future deductible amounts.

Discontinued Operations

Net Loss

Our net loss from continuing operations for the first nine months of 2008 was $5.2 million compared to a net loss of $12.9 million for the first nine months of 2007. Our net loss from continuing operations for the first nine months of 2008 excluding losses on debt redemption of $4.1 million and $1.5 million, respectively, in 2007 and 2008 was $3.7 million compared to a net loss of $8.8 million for the first nine months of 2007. The reduction in our loss from

continuing operations was due primarily to the $2.4 million reduction in cost of sales and the $3.2 million reduction in selling, general and administrative expense.

Liquidity and Capital Resources

Lampe Loan Facility

Between June 2006 and June 2007, we sold our photocopier businesses and our foreign ATM businesses and used substantially all of the net proceeds from those sales to pay debt. Our remaining debt under a credit facility pursuant to which we owed GSO Origination Funding Partners LP (“GSO”) and the other lenders was $99.3 million and $2.1 million as of December 31, 2006 and 2007, respectively. On April 18, 2008, we borrowed $11.0 million pursuant to the Securities Purchase Agreement. The $11.0 million loan bears interest at 13%, payable semiannually, and is due in April 2011. The Lampe Loan Facility includes covenants that require us to maintain a certain balance of cash and investments and to meet quarterly minimum Consolidated EBITDA targets (as defined in the Securities Purchase Agreement) and maintain at least 10,250 ATMs. The borrowings pursuant to the Lampe Loan Facility are collateralized by substantially all of our assets and the assets of our subsidiaries.

In connection with the Lampe Loan Facility, we granted warrants to the Lender to purchase up to 12,500,000 shares of our common stock at an exercise price initially equal to $.28 per share subject to adjustment for any recapitalizations, stock combinations, stock dividends and stock splits or if we issue common stock, or securities convertible into common stock, at a lower price. The warrants are exercisable at any time and expire on April 18, 2015. In connection with the Securities Purchase Agreement entered into on February 8, 2008 with the Lender and Lampe, Conway & Co., as administrative agent we granted the Lender warrants to purchase up to 2,500,000 shares of our common stock at an exercise price initially equal to $.40 per share, subject to adjustment for any recapitalizations, stock combinations, stock dividends and stock splits or if we issue common stock, or securities convertible into common stock, at a lower price. Upon the issuance of the warrants to the Lender in April 2008 with a lower exercise price, the exercise price of the warrants issued in February was automatically reduced to $.28 per share. These warrants are exercisable at any time and expire on February 8, 2015.

The Securities Purchase Agreement provides that as long as the Lender holds an aggregate of 1,250,000 warrant shares or warrants exercisable for 1,250,000 warrant shares, the Lender is entitled to appoint to our board of directors one designee selected by the Lender. If the Lender holds an aggregate of 2,500,000 warrant shares or warrants exercisable for 2,500,000 warrant shares, the Lender is entitled to appoint to our board of directors three designees selected by the Lender. The Lender currently has appointed three directors to our board of directors pursuant to this right.

We used proceeds from this loan primarily to pay (1) the remaining balance due under our 2006 financing arrangement with GSO and the other lenders, (2) the previous $1.0 million note issued from the Lender (the “Lampe Note”), (3) $1.0 million we owed under a settlement agreement with Notemachine Limited (“Notemachine”), (4) the $2.5 million settlement we owed

to eFunds Corporation and (5) the cash portion of the purchase price for our acquisition of Access To Money as discussed in Note 7 to our condensed consolidated financial statements.

Following this borrowing, as of September 30, 2008, other than accounts payable and accrued liabilities in the normal course of business, we had the following debt (in thousands):


Lampe Loan Facility	$	11,000
Note payable to former Access To Money owner		9,755
Notemachine settlement agreement		2,026
Other debt		1,562
TRM Inventory Funding Trust note payable		57,518

	$	81,861

Our principal ongoing funding requirements are for working capital to finance our operations, fund capital expenditures and make payments on our debt.

During the nine months ended September 30, 2008, we used $3.7 million of cash in our operating activities compared to $7.8 million used in operating activities (including discontinued operations) during the third quarter of 2007.

We had cash and cash equivalents of $5.1 million at September 30, 2008, compared to $3.9 million at December 31, 2007, and a net working capital deficit of $1.1 at September 30, 2008 compared to a net working capital deficit of $2.4 million at December 31, 2007.

After borrowing $11.0 million under the Lampe Loan Facility in April 2008 and the repayment of the remaining balance with GSO, the Company eliminated its position of default that could have triggered additional cross defaults raising questions about its ability to continue as a going concern. We believe that our liquidity and capital resources are adequate for our currently anticipated needs and feel that we are positioned to enter into collaborative relationships, raise additional capital, and continue to improve the financial condition and results of operations.

Note Payable to Former Access To Money Owner

As part of the purchase price for all of the capital stock of Access To Money, in April 2008 we issued a note payable to the former owner in the amount of $9,754,465. The note bears interest at 13% per annum with interest payable quarterly and the principal balance due April 18, 2015. Payments under the promissory note are subordinated to the payment in full of the Lampe Loan Facility and the amended and restated settlement agreement with Notemachine.

Notemachine Settlement Agreement

In November 2007, we entered into a settlement agreement with Notemachine relating to the sale of our United Kingdom and German ATM businesses to Notemachine in January 2007. Pursuant to the settlement agreement, we agreed to repay £3,250,000 ($6.4 million using exchange rates as of December 31, 2007) in full and final settlement of claims by Notemachine

relating to the sales. Upon closing the Lampe Loan Facility in April 2008, we paid Notemachine £506,000 plus outstanding interest, reducing the balance outstanding to £1,410,000. We also executed an amended settlement agreement with Notemachine on April 18, 2008 under which the outstanding balance is due in monthly payments of £71,212 including interest at 15% through March 2010. Earlier payment is required if we obtain sufficient financing or accumulate a certain level of surplus cash (both as defined in the amended settlement agreement).

TRM Vault Cash Facility

General.In March 2000, we established a facility for funding the cash which is placed in our ATM equipment (which we refer to as “vault cash”) for our United States ATMs. As of September 30, 2008, we had access to $100 million of vault cash under the facility of which $61.1 million was being used. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — United States Vault Cash Facility” in our Annual Report on Form 10-K/A, filed on April 29, 2008, for a discussion of this vault cash facility.

Cost of the facility.The primary costs paid in connection with the facility are:

	•		Interest on the loaned funds. The loans bear interest at an interest rate equal to 1.35% (1.75% prior to May 2007) plus the interest rate borne by the commercial paper that was issued to raise the funds for the loans. Interest for the quarter ended September 30, 2008 was $793,000.

	•		Return for equity investors. Autobahn and GSS Holdings, Inc., as equity investors in the Trust, receive a return on the value of their investments, which were $1,485,000 and $15,000, respectively, as of September 30, 2008. Autobahn’s annual return is equal to 1.35% plus the interest rate borne by the commercial paper that is outstanding. GSS Holdings’ annual return is equal to 25.0%.

	•		Fees. Autobahn receives a commitment fee and TRM ATM, as servicer, and the collateral agent each receive administrative fees in connection with the facility. Autobahn’s fees for the quarter ended September 30, 2008 were $26,842.

We maintained a letter of credit for $2.9 million as of September 30, 2008, to guarantee the performance of the servicer of the facility. The Trust’s subcontractors maintain insurance on behalf of the Trust so as to ensure the cash is safe while stored at correspondent banks, and during delivery to ATM equipment and to vault or bank storage facilities.

Termination.In March 2008, we notified the Trust and the other parties to the vault cash facility that we intended to terminate the vault cash arrangement with them and that we had made arrangements with another provider of vault cash to provide similar services. On November 5, 2008, we terminated the vault cash arrangement. TRM Inventory Funding Trust paid $50,927,555 in consideration for the termination of the vault cash arrangements. This included a prepayment fee of $750,000. We terminated the letter of credit guaranteeing our performance as

servicer of the previous vault cash facility, and restricted cash of $2.8 million held by our bank as collateral for the letter of credit became available for use in operations.

New Facility

Pursuant to a Cash Provisioning Agreement effective as of August 28, 2007, as amended, between Genpass Technologies, L.L.C., doing business as Elan Financial Services, TRM ATM Corporation (“TRM ATM”), and Pendum, Inc., and an ATM Vault Cash Purchase Agreement effective as of June 26, 2008, between Elan, TRM Inventory Funding Trust, TRM ATM, and DZ Bank AG, Deutsche Zentral-Genossenschaftsbank Frankfurt AM Main (“DZ Bank”), we have transferred the provisioning of cash for 92 ATMs to Elan.

TRM ATM Corporation entered into an ATM Vault Cash Purchase Agreement, effective on November 3, 2008, with Elan, TRM Inventory Funding Trust and DZ Bank (the “ATM Vault Cash Purchase Agreement”). The ATM Vault Cash Purchase Agreement provided that on November 5, 2008, TRM Inventory Funding Trust will sell the cash in the ATMs to Elan, which Elan will provide to us.

but automatically renews for additional one year periods unless Wells Fargo Bank, N.A. sends notice that it elects not to extend the expiration date of the letter of credit. Elan may draw on the letter of credit for a period of 60 days for the purpose of securing any shortage resulting under the ATM Vault Cash Purchase Agreement or in the event of bankruptcy, reorganization, debt arrangement, notification of termination of the ATM Vault Cash Purchase Agreement or our failure to pay any of our obligations. After the expiration of the 60 day period, we may reduce the letter of credit down to $800,000 which may be drawn upon by Elan.

Off-balance Sheet Arrangements

We have no off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates as of September 30, 2008 are consistent with those discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2007.

New Accounting Standards

See Note 16 of Notes to Condensed Consolidated Financial Statements in Part I, Item 1 for a discussion of new accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates, which could impact our results of operations and financial condition. We have a liability denominated in British pounds that exposes us to foreign currency exchange rate risk. We do not hold or issue derivative commodity instruments or other financial instruments for trading purposes.

Interest Rate Risk

We invest our cash in money market accounts. The income earned from these money market accounts is subject to changes in interest rates. Interest income from continuing operations was $248,000 for the nine months ended September 30, 2008, and $246,000 for the same period in 2007. If the interest rate we earned on the $8.0 million in cash we had available for investment at September 30, 2008 increased or decreased by 1%, our interest income would increase or decrease by $80,000 per year.

Interest on our Term Loan B and our Lampe Note issued under the Original Securities Purchase Agreement were at variable rates. As of April 18, 2008, both of these loans were paid in full with proceeds from a new note issued in connection with the Securities Purchase

Agreement that bears interest at a fixed rate. Effective April 18, 2008, our only borrowing at a variable interest rate is the TRM Inventory Funding Trust note.

Under our vault cash facility in effect during the third quarter of 2008, the Trust borrows money pursuant to a note funded by the sale of commercial paper. The Trust owed $59.0 million at September 30, 2008 and $64.0 million at September 30, 2007 under this arrangement. The weighted average interest rate on these borrowings at September 30, 2008 was 6.39%. Interest and fees relating to the Trust’s borrowings, which are included in cost of sales in our consolidated financial statements, totaled $2.9 million and $4.2 million, respectively, for the nine months ended September 30, 2008 and 2007. If the interest rate for the Trust’s borrowings at September 30, 2008 increased by 1%, to a weighted average of 7.39%, our cost of sales would increase by $540,000 per year.

Foreign Currency Risk

As of September 30, 2008, we owed £1.1 million (approximately $2.0 million) to the purchaser of our United Kingdom and German ATM businesses. If the value of the British pound were to fluctuate significantly from the September 30, 2008 exchange rate, our financial position would be affected. A 10% increase in the value of the British pound versus the United States dollar would increase our liability by $200,000. A 10% decrease in the value of the British pound versus the United States dollar would decrease our liability by $200,000. Since we pay interest at a rate of 15% per annum on this liability, our interest expense would also be affected by a fluctuation in the exchange rate.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Act of 1934 reports is recorded, processed, summarized and reported within the periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision of our Chief Executive Officer and Chief Financial Officer and with the participation of our management, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective at a reasonable assurance level.

There have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting during our most recent fiscal quarter.

PART II — OTHER INFORMATION

ITEM 6. EXHIBITS

(a) Exhibits


3.1	(a)	Articles of Amendment to the Restated Articles of Incorporation of TRM Corporation.

	(b)	Amendments to the Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3.1(a) of Form 10-K for the fiscal year ended June 30, 1998).

	(c)	Restated Articles of Incorporation (incorporated herein by reference to Exhibit 3.1(b) of Form 10-K for the fiscal year ended June 30, 1998).

3.2	Restated Bylaws (incorporated herein by reference to Exhibit 3.2 of Form 10-K for the fiscal year ended June 30, 1998).

4.1	Specimen Stock Certificate (incorporated herein by reference to Exhibit 4.1 of Form S-3/A filed on August 25, 2004 [No. 333-116748]).

4.2	Articles V, VI and VII of the Restated Articles of Incorporation, as amended (See Exhibit 3.1).

4.3	Articles I, II, V, VII and X of the Restated Bylaws (See Exhibit 3.2).

4.4	Amended and Restated Warrant to GSO Credit Opportunities Fund (Helios), L.P., dated April 18, 2008 (incorporated by reference to Exhibit 4.5 of Form 10-Q for the quarter ended March 31, 2008).

4.5	Amended and Restated Warrant to GSO Special Situations Overseas Benefit Plan Fund Ltd., dated April 18, 2008 (incorporated by reference to Exhibit 4.6 of Form 10-Q for the quarter ended March 31, 2008).

4.6	Amended and Restated Warrant to GSO Special Situations Fund Ltd., dated April 18, 2008 (incorporated by reference to Exhibit 4.7 of Form 10-Q for the quarter ended March 31, 2008).

4.7	Amended and Restated Warrant to GSO Domestic Capital Funding Partners LP., dated April 18, 2008 (incorporated by reference to Exhibit 4.8 of Form 10-Q for the quarter ended March 31, 2008).



			4.8			Warrant to LC Capital Master Fund, Ltd., dated February 8, 2008 (incorporated herein by reference to Exhibit 4.8 of Form 10-K for the fiscal year ended December 31, 2007).

			4.9			Warrant to LC Master Fund, Ltd., dated April 18, 2008 (incorporated herein by reference to Exhibit 4.9 of Form 10-Q for the quarter ended March 31, 2008).

			4.10			Warrant to LC Capital Master Fund, Ltd. dated April 18, 2008 (incorporated herein by reference to Exhibit 4.10 of Form 10-Q for the quarter ended June 30, 2008).

			4.11			Warrant to Cadence Special Holdings II, LLC., dated April 18, 2008 (incorporated herein by reference to Exhibit 4.11 of Form 10-Q for the quarter ended June 30, 2008).

			10.1			ATM Vault Cash Purchase Agreement, effective November 3, 2008, by and among U.S. Bank National Association, doing business as Elan Financial Services, TRM ATM Corporation, TRM Inventory Funding Trust and DZ Bank, AG, Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main.

			10.2			Amendment No. 2 to Cash Provisioning Agreement, dated October 31, 2008, by and among Genpass Technologies LLC, doing business as Elan Financial Services, TRM ATM Corporation and Pendum, Inc.

			10.3			Cash Provisioning Agreement, dated October 31, 2008, by and among U.S. Bank National Association, doing business as Elan Financial Services, TRM ATM Corporation and Brink’s U.S., A Division of Brink’s, Incorporated.

			10.4			Cash Provisioning Agreement, dated October 31, 2008, by and among U.S. Bank National Association, doing business as Elan Financial Services, TRM ATM Corporation and Garda Global.

			10.5			Cash Provisioning Agreement, dated October 31, 2008, by and among U.S. Bank National Association, doing business as Elan Financial Services, TRM ATM Corporation and Rochester Armored.

			10.6			Cash Provisioning Agreement, dated October 31, 2008, by and among U.S. Bank National Association, doing business as Elan Financial Services, TRM ATM Corporation and ATM Solutions, Inc.

			10.7			Cash Provisioning Agreement, dated October 31, 2008, by and among U.S. Bank National Association, doing business as Elan Financial Services, TRM ATM Corporation and Mount Vernon Money Center.



			10.8			Termination Agreement, dated November 5, 2008, by and among TRM Inventory Funding Trust, TRM ATM Corporation, Autobahn Funding Company LLC, DZ Bank, AG, Deutsche Zentral-Genossenschaftsbank Frankfurt Am Main, GSS Holdings Inc., U.S. Bank National Association and Wilmington Trust Company.

			10.9			Services Agreement dated November 3, 2008, by and among U.S. Bank National Association doing business as Elan Financial Services, TRM ATM Corporation, and eFunds Corporation.

			10.10			Irrevocable Letter of Credit dated October 31, 2008 from Wells Fargo Bank, N.A. in favor of U.S. Bank National Association.

			10.11			Amendment No. 5 to Securities Purchase Agreement dated November 5, 2008 by and among TRM Corporation, Lampe Conway & Co., LLC and LC Capital Master Fund, Ltd.

			31.1			Certification of Chief Executive Officer of TRM Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

			31.2			Certification of Chief Financial Officer of TRM Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

			32.1			Certification of Chief Executive Officer of TRM Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

			32.2			Certification of Chief Financial Officer of TRM Corporation pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

SIGNATURE

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.


	TRM CORPORATION
Date: November 14, 2008	By:	/s/ Michael J. Dolan
		Michael J. Dolan
		Chief Financial Officer

Positive
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Uncertain
Constraining
Legalese
Litigous
Readability	H.S. junior Good

Access to Money Inactive 10-Q2008 Q3 Quarterly report

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